My Stock Trading Tips

Diversification of your investments is the process of spreading your investment over many different asset classes. You diversify your investments so as to reduce your risk. A number of statements are attributed to Warren Buffet concerning diversification. Some that I especially like are “Risk comes from not knowing what you are doing”. Another one that I like is “Diversification is a protection against ignorance. It makes very little sense for those who know what they are doing.” These statements are very true. If you are savvy enough to find a boatload of winning stock investments, it does not matter how correlated they are. They are all winners and all will make you money.

However, for those of us who are still learning how to determine winning investment strategies, and merely wish to beat the inflation monster, then diversification is the answer. Diversification is the process of placing your investments in those asset classes that will allow you to make the most money with the least amount of risk. If one class goes up, and another one goes down, you still stand to make money. There is also an interesting thing that happens with the measure of risk. Taking on the correct type of risk actually decreases your overall risk.

There are statements that say that you can get into riskier investments if you are younger. They discuss how time will smooth out your mistakes. This may be true, however I have recently read another interesting idea about this. This author stated that with the time value of money, you cannot afford to take on any more risk than you will be rewarded for. Even if you are in your twenties, if you miss out on opportunities for growth, the time value of money will cause you to never be able to make up the amount of money you would have gotten with a better investment strategy.

There are also two different styles of diversification. One style states that you should find the optimum investment portfolio. You should use diversification software to obtain this portfolio. Another states that you should merely go with your own technical and financial analysis. Finding a grouping of assets that have good solid fundamentals that have a good cycle pattern will also serve to provide a diversification strategy. You can finesse both styles as time goes by and you determine what is working. I am not saying either style is right or wrong. What you need to do is work with what works for you and your education level.

With any diversification strategy, you need to watch out for the grocery line scenario. Or as another author, Murphy, put it “The other line always moves faster”. Have you ever jumped out of one line, just to find that the line you jumped from begin to move? If you have determined a good mix of investments, then you should be very careful before jumping out of them. Maybe the only person you will make rich is your stock broker. Do a massive amount of homework and thinking before acting. Maybe by waiting for a period of time, you will find that it worked out best to wait.

I have recently found an interesting site that will help you with your diversification strategy. This site is found at http://www.macroaxis.com. This site has the capability of helping you to determine the best possible mix of assets to invest in. I would suggest you use a stock screener to determine assets to run through the site. It is setup to help you determine the amount of risk involved with your mix. It also has the capability to give you suggestions of stocks to invest in based on your aversion to risk. Maybe you should check it out. I am not associated with this site and will not benefit if you use it. I merely offer it as a suggestion.

One rule of thumb with your diversification strategy. Do not over diversify. Eight stocks to invest in is plenty. Warren Buffet also said “If you understand business, you don’t need to own very many of them. If you have a harem of 40 women, you never get to know any of them very well”.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

Asset allocation is the process of working to be patient and still make money with your investment strategy. Warren Buffet said “The stock market serves as a relocation center at which money is moved from the active to the patient”. In the movie “Cars”, Lightning McQeen had to learn how to be a little patient and how to make his speed work for him. Doc taught him this with the lesson of how to drive in dirt. This is similar to what needs to be done with an asset allocation approach. The investor will want to purchase stock in a number of different growing companies that will diversify his investment. This will serve to provide a controlled speedy return with minimal risk.

There have been many different articles and debate on asset allocation. There are many different mixes that can be considered with this investment style. The most common one is the equity/bond mix. However, there is also the domestic/international equity mix, the nominal/inflation-adjusted mix of bonds, or what mix of indexed funds or market capitalization weights should be used. The proper mix of efficient tax free funds is also a consideration.

There are asset allocation calculators available that will help you to determine an optimum mix of asset investments to have both high returns and a minimal amount of risk. Warren Buffet also is reported to have said, “Risk comes from not knowing what you are doing.” It may be a good idea to talk to a stock broker, or to use the asset allocation calculators to arrive at what makes sense for you with your goals and risk aversion.

One of the problems with the asset allocation calculators is that they are using previous statistical data. It may be that things have changed with the stocks dynamics. This may cause a false reading on your optimum asset allocation. There are some theories that asset allocation using old data is a waste of time. I do not feel that this is the case. I think that a person can use what feels right for them, and determine an investment mix that works for them. This investment mix can be tweaked over time. Whatever mix an investor arrives at, it should definitely be rebalanced on an annual basis to maintain the original mix. Rebalancing is the process of selling the stocks that have done well and purchasing additional quantities of stocks that have lagged. This strategy serves to allow the investor to make money by buying low and selling high.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

Albert Einstein said “The significant problems we have cannot be solved at the same level of thinking with which we created them”. This can be applied to many different problems that we encounter in our lives. However, in applying it to our investing strategy, we need to remember that if we continue to invest money the way we have always invested it, then we will continue to obtain the same result. What we need to do as investors is to find a different strategy, unless the one we are using is working for us. Then it would just be more of the same.

A couple of things that have been attributed to Warren Buffet are “it’s far better to buy a wonderful company at a fair price than to buy a fair company at a wonderful price.” He also said “Rule No. 1; Never lose money. Rule No. 2: Never forget rule number 1″. I feel that what that means is we should be on the lookout for wonderful companies that we can purchase stock in, at a reasonable price. If we do that then when the price of the stock goes up, so will our profits.

I think what we also need to do as investors is to learn to think outside of the box. To think outside of the box you have to first of all, define what the box is. After we define the box’s parameters, then we can learn to think outside of those parameters. The box is defined as the normal way of looking at things, doing things and all of the routine assumptions that everyone is making about a subject. The best way to begin to think outside of the box is to challenge all of the assumptions that are being promulgated by everyone who discusses the subject.

The hard part of challenging these assumptions is that of obtaining a listing of the assumptions. You should begin by listing every assumption that you can think about of what people have said it takes to make money in the stock market. Do not be afraid to border on the absurd. For instance, the buy low and sell high assumption. Is there some way to think outside of that assumption and still make money with your investment strategy? If you can come up with a solution to that problem, you will probably find yourself quite rich.

Some unusual methods of making money with your stock investing include buying gold or silver. These commodities are wonderful things to own when the stock market is unstable. They do not lose their value in this environment. However, they will lose their value when the market stabilizes. So you will want to keep your eye on the situation. If you do decide to invest in gold or silver, you can choose to buy either coins or bullions. One rule of thumb, is to never invest in futures. You will always lose your investment with futures, even gold futures.

Buying or selling options is another methodology to make money with your investments. You should probably never do a naked transaction, that is never act on an option with no support. Their are many different strategies including straddles, calendar spreads, strangles and others. There is information on this site about investing in options. Buying hedges are another way to make money with your investments. It is important to understand these strategies fully before trying them out. Do some research. Ponder the standard assumptions and learn to think outside of them. It will be worth the time you spend doing this exercise.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

The stock market has certainly had an up and down tendency during the year 2010. I have written some articles about this volatility in the year 2010. With both “finding dividend paying stocks” and the article “predicting stock market returns” I talked about what to do to make profits with the current situation. I also wrote about doing the opposite with “contrarian investing”.

I wanted to discuss further dividend paying stocks. It seems that this selection is even more important with the current situation in June, 2010. We have certainly had a rocky road with our investment strategy. One sector that a person should look into would be the utility stocks. They, like many other sectors, are currently beat up. Yet even with this, they are a good value due to the amount of dividends they pay.

In the June, 2010 edition of Utility Forecaster, the author Roger Conrad discussed his feelings on utility mutual funds. It is his feeling that the managers are doing nothing more than churning their stock holdings to try and make it to the top of the heap. They do not stick around long enough to collect the dividends and they also rack up enormous fees. He feels that an investor can do better if they just trek out on their own. They can do their own research and determine those companies which are the most stable and have a long-term history of paying dividends. Even with this he does have some recommendations on some Utility ETF’s. You can find his article at.. [updating]

There are many different utility and telephone companies which have consistently paid high dividends. One of these companies I found is “CEL” which is actually a wireless telecom company in Israel. Since 2007 they have paid 12 percent dividends. This is not a bad return and with the increase in stock price as a boot, how can you go wrong. The company seems to have some risk since it is based in Israel, and one never knows what is going to happen there. However, the point is that there are other utility and telecom companies which provide these high dividends.

It would be my suggestion that you use a screen filter to find oversold, dividend paying stocks which have a consistent history of paying their dividends. You do need to be careful when selecting your dividend paying stocks. There was a recent article in the Wall Street Journal which discussed dividend paying companies which decided that they would discontinue the paying of dividends due to cash flow problems. You will never actually know if a company is going to experience this problem, but if you look for at least five to ten years of dividend paying history and a good solid company with a believable financial record, then the chances are better than most that they will continue to pay dividends.

I recently ran across some advice in a newspaper. The person seeking advice was trying to decide to do something that ran counter to what she felt comfortable with. She was seeking advice on what to do. The columnist stated that we should always follow what our inner voice tells us to do. She stated “such an impulse is a warning , and our internal alarms are to be explored, not ignored.” She went on to say that is important to explore the cause of the alarm and determine if what we are wanting to do is unhealthy.

This can be related to our stock trading system. We all have opportunities to pull the trigger on both our purchases and our selling of stocks. Many times we may be hesitant to take the desired action. It may be that we are being a little greedy and think we will hold on to that stock for a little more climb. Or it may be that we have done our research and found a great stock, but we are just a little unsure.

I have had both situations in my trading activities. Recently I wanted to sell some stocks and take the gain. I was talked out of it by my stock broker and the stock price went down. It is a good stock and the price will come back but I could have created some profits if I had followed my instincts.

Trading stocks is not an easy business to be in since we do not have a crystal ball on what is going to happen in the future. If we did then we would be in great shape and very rich. Since we do not have this crystal ball then we are forced to do the correct amount of both financial and technical analysis and then follow our inner voice as to whether or not we should pull the trigger.

The other thing we should do with our stock trading system is to try and take our emotions out of the picture. Have pre-determined exit points with all stock investing activity. When the stock price has reached the exit point then be willing to sell the stock, take the gain and do not look back. It is never healthy to continue to track a stock we have previously owned and sold. At least not for at least six months. You do not own the stock, so of what point is there to continue to watch it, unless it is to jump back in. I have beat myself up over a stock that I exited and it continued to climb to great heights. Do not do this to yourself. Life is too short to put this amount of stress upon you. You took a good gain, invest in another winner and move on.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

It is fascinating to look back on previously written economic articles and review the theories of what the economy will do. The fascination comes from looking at the predictions in relation to what has actually happened. I guess that is the problem with making predictions. Your words are there for all to look at and evaluate. This is especially true with the advent of the internet.

There was an article written by David Chapman in June, 2002 explaining what Kondratieff Waves were. It was a very informative article. What made it better was that Mr. Chapman is an economist so he has a better understanding of economics than most people and was able to explain Kondratieff’s theory in a way that was easily understood.

Nickolai Kondratieff was a Russian economist who lived from 1892 – 1938. His Kondratieff Long Wave (K-Wave) theory stated that economics move in 50 to 60 year durations. He identified four distinct phases of economics which are, inflationary growth, stagflation, deflationary growth, and then depression.

Inflationary growth is the process of the economy expanding with slow rising prices, low and stable interest rates and rising stock prices. Stagflation (recession) has rising prices, rising interest rates, price inflation and rising debt. Deflationary growth (plateau) has sharply rising stock prices, some profit growth, and sharply rising debt. The final stage of depression has falling prices, rising commodity prices, falling profits, falling stock prices and stable interest rates. During the depression stage a major war breaks out and numerous scandals occur.

According to Mr. Chapman, the latest cycle begin with the first stage occurring in 1949 – 1966, the second stage from 1966-1982, the third stage from 1982 – 2000 and we are now in the depression stage which begin in the year 2000.

He states that following the steep secondary recession of the early 80′s, the stock market entered the Autumn K-wave cycle. There were stock market and real estate bubbles and collapses in commodity prices and interest rates with low inflation. He states that each succeeding recession required higher debt levels to purchase an additional dollar of GDP. Now we are encountering massive amounts of debt as the government strives to deal with the economic crisis that come with the depression stage. The latest crisis being the bursting of the real estate and financial bubbles.

In 2002, Mr. Chapman stated we could see the Dow Jones fall to around 5,000. He stated that the highs of the year 2000 would become a only a dream for many years to come. What is fascinating is that the Dow Jones hit a low point at the beginning of 2009 of 7,000. Not quite the 5,000 predicted but pretty close. Mr. Chapman stated that the depression cycle will usually last for a generation or around 9 – 20 years. If we did in fact enter this stage in 2000, then we are probably in for a number of additional years of depression. His advice in the article was to make sure you invest in stable commodities including gold.

Once again, I find it fascinating that what he stated has pretty much come true. My wife and I have talked recently about the generational status of economics. My grandparents lived through the depression of 1929. They taught their children about saving and living thriftily. My mom taught me the same principles but they were of course filtered. Now my children which are four generations removed from the great depression are living a “have it now” lifestyle. I feel that this is pretty much what the Kondratieff economic theory states. We get so far removed from a true depression that we forget what it was like to live through it. Then we have to repeat the experience to pull us back to reality. Nature does ultimately return to its starting point.

I guess what I am trying to indicate is that we may not be completely out of this mess yet. We may yet have a few years of pain until we re-enter the initial economic phase after having learned some very valuable lessons.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

One investing strategy with options is to purchase a straddle. A straddle is when an investor buys both a call and a put for the same strike price and the same expiration date. The idea is that the investor does not have a comfort zone on which direction the market will go, either bull or bear. By purchasing a straddle he plays both ends. Whether or not the stock price goes up or down, he will still win. The problem becomes the cost to purchase the straddle. The investor does not want to make an incorrect decision and have the stock price remain stable. Then he would not win with either direction.

One solution to this problem is to do stock trading using the directional movement index (DMI) and options. The DMI is actually an index that tracks the movement of the stock price. It has a positive and a negative trend to the index. If the positive line is dominant then the stock price is going up. If the negative line is dominant then the stock price is going down. When they cross then the stock price trend is due for a shift. The average of the two is known as the average directional motion index (ADX).

The ADX will fluctuate between 0 and 100 but it usually does not go above 60. If the readings are below 20 then it is an indication of a weak trend. If it goes above 40 then it indicates a strong directional trend. What that means is if you find a stock with a reading above 40 then the trend is strong. This can be either an upward or downward trend. You cannot tell by the ADX which trend is dominant but you can tell by looking at both the positive and negative trend lines and the stock price.

What you are looking for with the purchase of a straddle is a weak, non-existent trend that is poised to move into a directional breakout. What you want to look for is the ADX being below 20 and watch for it to begin to move above 20. You may also watch the ADX for when the trend is beginning to end and then you will want to get out of your straddle. This would be of course when it is above 40 and starting to trend downward.

With the current volatile market conditions, the straddle option is a great way to make money with your investment strategy. Combining both option trading and the DMI is an awesome method to reduce your risk in making trades.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

Investing in Penny stocks may be a very lucrative adventure for the wise investor. However, for the unwise sucker, it may be the worst nightmare. There are many different sources to obtain penny stock advice from. Many are not worth the money that you spend on their advice even if it is free. Knowing what advice to accept and which to run from takes a well trained eye. If you have not had at least one year of investing experience, I would suggest that you not attempt to invest in penny stocks. There are many other opportunities for you to make money while investing.

You should rarely accept advice from penny stock newsletter, websites and never from unsolicited e-mails. I remember the advice given to me when I was young. Don’t believe everything you read and only half of what you see. That is certainly good advice for obtaining penny stock advice. So how do you determine which is good advice?

Some pieces of advice in relation to reviewing penny stock advice is as follows:

If you happen to come across penny stock advice on the internet, then you should consider the source of where it is coming from. Take the time to do your own research to determine what is legitimate. Always trade from the legitimate stock exchanges such as NASDAQ or NYSE. You should stay away from over the counter or pink slips. These are the most risky form of investment. You have better things to do with your money.

Take the time to research the opportunities that are presented to you. There is stock picking advice on this website that you can review or you can review stock picking advice from other sources. Your stock broker is a good source. Verify any claims that are put forth. Many sites will put up their winners as evidence of their legitimacy. I have reviewed some I came across and their was no merit to their claims.

Always be skeptical. If it appears too good to be true, then it probably is. Always watch out for high pressure sales pitches. Whenever someone you do not know gives you a “hot tip” then you should ask yourself “why me?” What makes me so special that I was given this hot tip. Don’t fall for the “must act now” line. If you need to act now to take advantage of an opportunity, then it would be better to sit back and watch. There have been many times that I wish I had done that.

I am not saying that you may not make money with penny stocks, I am just saying that you should be careful. It has been said that a penny stock can go from $.05 to $.10 easier than a stock can go from $25.00 to $50.00. However, this is not true. A non-penny stock has so much more going for it. It has a legitimate product, Institutions, insiders and volume. It also probably has years of good financial results to back up its claims.

In todays volatile market with its large ups and down swings, an investor may wonder if there is some way that they can take advantage of these swings and still make money. There is a way to deal with the current market conditions and still make money. The method that an investor can use is to trade in options to make money with their investments. Options are set up for an investor to be able to leverage their investment, insure their portfolio or to generate income. The trick is to know how to use trading options to your advantage.

Basic option trading is merely the purchasing of option calls or puts. With this strategy the investor does not risk losing any more money than their initial investment. If the underlying investment moves in the correct direction then the investor stands to make money. There are other investing strategies that the investor can use in their option trading to make money.

It is important when reviewing option trading that an investor understand what is the implied value which is built into the pricing of the option. The premium price which an investor would need to pay for the option is in simple terms based on the volatility of the stock price and the time remaining until the expiration of the option. The risk free interest rate also will play a part in the calculation.

If a stock strike price is $30.00 and its stock price is $35.00 then a value known as the intrinsic value is $5.00. What this means is that you can purchase the stock option for 30.00 and sell the underlying stock for 35.00. The intrinsic value is the difference between the stock price and the option strike price. If the premium to purchase the 30.00 option was 7.00 then the option is priced at 2.00 more than the intrinsic value. The amount of time that remains before the expiration date is also priced into the premium cost. If there is only 20 days until the expiration date the premium price will be different than if there was two months left.

Implied value is based on the amount of volatility that the stock price is expected to experience. The market will build in an expectation of what the stock price is going to do over the period of time until the expiration date. This creates a situation of supply and demand for that option. When expectations rise, then the demand rises. On the other side, as expectations decrease the demand will decrease. Since investments are driven by supply and demand, this effect will drive the option premium either up or down. This is important since an investor needs to be able to determine strategies of when to buy and sell options. Knowing how the premium price is calculated is part of that strategy.

One set of strategies in buying options is to use the expected volatility of the stock price. The use of Bollinger Bands can help in this strategy. Bollinger bands will be close together when the volatility is small and wide apart when it is high. One strategy is to buy options with low volatility with the expectation that the volatility will increase and the stock option value will go up. You would also sell options with high volatility and the expectation that the volatility will even out and then you can then buy back those options at a cheaper price.

This is only one strategy with investing in options with a volatile market. There are other strategies which will be discussed in the video presentations and articles on this site.

Many stock traders are choosing to make stock picks from the information obtained from option trading. They feel that this information can provide them an additional amount of information when compared to fundamental and technical analysis. For instance the amount of open call positions for any stock will indicate how bullish investors are for that stock. In an article published in the National Bureau of Economic Research, the analysts Pan and Poteshman wrote about their studies of options. They reviewed ten years of CBOE data and determined that if an investor did nothing more than buy stocks with low put/call ratios and sold stocks with high put/call ratios, that investor would net a return of one percent a week.

Implied volatility can also be determined from the option pricing for the underlying asset up to the expiration date. In reviewing the pricing for a stock, the analyst can determine what the market is thinking will happen to that stock. The option market will price in expected movements in the stock. This can be determined by what the market is willing to pay for that option. Watching the option pricing over time will indicate to the savvy investor what the market is thinking will happen to that stock.

Watching the volume of calls or puts can also send a message to the investors. By comparing the average daily traded volume with the numbers of options being placed, you can see where the option traders are setting their stalls. Lots of calls would be bullish while lots of puts would be bearish. You will need to filter out unusual activity which may be occasioned from news, earnings and government announcements. When you see no apparent reason for the increase in volume then you should begin to wonder. It is possible that someone knows something.

When reviewing the stock options, you should be careful before jumping to a conclusion. You should look over the entire cross section of a stocks strike prices and expires. A large increase in calls may be due to a spread trade, a rollover or other multi-legged strategies. Review your ideas over time before taking action. Determine that an action may be warranted and then watch to see if you were right. Track your decisions and the results on a spreadsheet. Learn from your correct and incorrect guesses. You have the time to create an worthwhile investment strategy. After you have tweaked your style, then you are ready to act on your stock picking tips.