money facts and funs

Trading The Market: Keep It Simple Stupid!

2006-10-16T00:33:00.000-07:00

It seems like each day there is another complicated trading system in development. I am quite surprised to see the trading population dig into more complex methods combining various indicators to profit from the financial markets. New traders favor technical indicators as it eliminates the need to think on their own. They will plot a dozen indicators on their charts waiting for the perfect signal. How many confirmations does one need? By the time all your indicators confirm a buy or sell signal, your entry point is towards the end of the price swing. Afterall, indicators indicate and produce lagging signals.

K.I.S.S. Keep it simple stupid! Simple methodologies have been proven to work in the financial markets. There are numerous traders who use a simple breakout strategy, pivot point strategy, or RSI and price divergence. Is there really a need to make trading so complicated when simple systems are proven to work?

I have noticed that academics, engineers, and programmers turned traders are often the ones involved in designing complicated systems. Perhaps they are underestimating the simplicity of trading? Trying to incorporate vast information and multiple indicator confirmation signals can lead to analysis paralysis. This can cause a trader to freeze in the moment of action and to hesitate in pulling the trigger. What happens if 4 of your indicators signal a buy and 4 other indicators signal a sell? As a discretionary trader, I try to keep things as simple as possible. What a trader really needs is to understand the language of the markets.

The market is like a speechless baby. It is impossible to understand exactly what he is saying but through observation, one can start to get a feel of expression. Apply the concept of auction to the financial markets and learn to read market internals. Look for market imbalance vs balance and price rejection vs price acceptance. Still, trading is a game of probability. But with the proper training, a trader can put those odds in his favor.

The majority of the trading population refuses to think on their own. Being mentally lazy is deadly in the financial markets. Perhaps this is the reason why people continuously seek for the Holy Grail through indicators and systems. They look in places where there are no answers. The only place they should be looking is in the mirror and in themselves. The Holy Grail in trading is to find a trading style that fits you and to understand your pyschological make-up for the game. This can only be done through gaining self knowledge.

Trading should be simple. But the simplicity of it comes through hours of hard work and training. Trying to catch the subway in Tokyo, Japan can be disastrous for the first timer. But after living in the city for some time, one should be able to get across with his eyes closed.

Good luck, best of trading.

Hidden Assets in Business

2006-10-16T00:30:00.000-07:00

A couple of months ago, we had an article regarding invisible assets of Pharmaceutical companies. While it was one example of hidden assets in business, there are a lot more assets hidden in business more than you think. For an asset play, as described in One Up On Wall Street by Peter Lynch, it is important to discover this hidden asset neglected on the balance sheet. Several commonly found hidden assets are:

1. Companies that own natural resources such as oil, timber, precious metals. For example, oil companies record their oil reserves at the day they made the acquisition. With oil price at $ 60-$70 per barrels now, that oil in the ground will be worth more than is recorded in the book value. How about an example? Chevron Corp. (CVX) has revenue of $ 198 Billion in fiscal year 2005 almost entirely from extracting oil and natural gas from the ground. Meanwhile, Chevron entire asset is worth only $ 125 Billion. Furthermore, Yahoo! Finance states that Chevron has 9 Billion barrels of oil-equivalent on its possesion. With $ 60 per barrel of oil price, Chevron's oil asset is worth $ 540 Billion already. Of course, this does not count the cost of extracting that oil from the ground but it is worth noting that companies that own natural resources generally understate their book value. You can find similar situation at Exxon or ConocoPhillips.

2. Companies with real estate holdings. The most recent example would be the now-acquired K-Mart, which emerged from bankruptcy, only to be acquired by Sears Holding (SHLD). Railroad companies such as Union Pacific (UNP) and Burlington Northern Santa Fe (BNI) owned a vast amount of land since the 19th century.

3. Distribution Channel. This is harder to quantify. As we have discussed before, you have already depreciated the cost years in advance. When you have giants with excellent distribution channel, that should worth something. It can distribute new products quickly at relatively low cost since the asset is there already. How about pharmaceutical companies tens of thousand strong salesman? It forms its own assets by itself. When new product comes online, pharmaceutical companies can efficiently relay the information to its sales man which in turn will visit individual doctors for prescription. That ought to save advertising cost! These assets cannot be taken since there is small possibility that all of the pharmaceutical salesmen quit the job at the same day as their counterparts.

4. Subsidiaries of the companies. The saying that the sum of its part is worth more than the whole may be true. If a company owns various assets or subsidiaries, it will be difficult for investors to sum the whole parts. Sometimes, investors merely focus on the short-term trouble of one subsidiary and drive the stock price down. This creates hidden asset opportunity, which may be worth a lot more than stock price. For example, Altria Group Inc. (MO) (Then called Philip Morris) was trading at $ 20 per share in year 2000. At the time, the value of Kraft division was estimated to be worth $ 24 per share, already more than the value of its stocks. Furthermore, Altria also owned Miller Brewing Company, estimated to be worth $ 3 per share. Others include its hugely profitable US tobacco division and international tobacco division. With the fear of lawsuit driving the stock price down, the sum of Altria's business is worth a lot more than its stock price thereby creating a hidden asset opportunity.

Hidden assets opportunities do not appear very often. But, when you do find the opportunity, your reward will be rich.

Two Emotions That Can Influence Your Trading

2006-10-13T00:36:00.000-07:00

Short term market volatility is powerfully influenced by fear and greed.

But fear and greed aren't the only emotions that influence market decisions.

Other emotions, such as disappointment and regret, can also impact what market timers do and can have adverse effects on their timing decisions.

It is only normal to feel "disappointment" when our trades fail to meet our expectations. We feel "regret" when we think that we have made a poor decision that could have easily been avoided.

There's an assumption that underlies both emotions, and both of these assumptions can be dangerous to our ability to be profitable.

Must We Always Be Right?

We may believe irrationally that as market timers we must always be right and each buy and sell outcome must meet our expectations. If those expectations are not met, we believe it's not only unacceptable, but our fault. That it proves we are unlucky as timers, or that the markets always move against us.

This assumption, however, must be questioned. And by doing so, you will be able to create a mind set that will help you to make your timing decisions decisively and without worry.

It may be unpleasant or an inconvenience when our expectations are not met, but it isn't so terrible, awful, unacceptable or our fault.

Changing Our Perspective

First, you have to be able to execute. Following a tested timing strategy is crucial. The common trading errors of not taking trades until you see if they are profitable, or jumping the gun and taking trades ahead of time because you "think" a signal will be issued soon, can be a disaster to your profitability.

By not sticking to a timing strategy, you allow emotions to rule your finances, and that places you right in with the majority of investors. Those who are the cause of the market's volatility. The "herd" followers.

At FibTimer, all of our strategies are non-discretionary. Emotions are not allowed. Our strategies offer disciplined execution of non-emotional buy and sell signals.

The reason for following any timing strategy is to "remove" yourself from making emotional trades. To remove yourself from the herd, which is often headed in the "wrong" direction.

By merely changing our perspective, we can change how we respond emotionally to market timing setbacks. If we believe they are our fault, or a result of some rain cloud that follows over us, or that we are just not cut out for market timing, then we are going to experience extreme feelings of disappointment and regret.

Extreme feelings of disappointment and regret cause us to miss trades! This is the single most common reason timers fail. They allow their feelings to keep them from following their strategies. And this usually occurs at the most inopportune times.

However, if we assume that setbacks and losses are "inevitable," that they are to be expected in even the most successful of market timing strategies, in fact that they are caused by market fluctuations that are beyond "anyone's" control, we will be prepared to cope with them.

We will come to expect them, and we are likely to think that they aren't as terrible as we had assumed they might be.

Anticipatory Approach To Trading

By taking an anticipatory approach to trading, not only can we rein in our emotions, but we can put a market timing buy or sell signal in the proper perspective.

Remembering that a single trade is just one trade among a series of trades and the only outcome that matters in the end is the overall profit across the series of trades.

Across a typical series of trades there will be winners and losers, and usually more losers than winners. But the winning trades are much larger than the losing trades because they are made when the market trends! And market trends, by their very nature, last for considerable time frames.

Once we accept this fact of trading, we will be able to see that setbacks aren't as terrible and devastating as we had thought. They are just part of the game. There's no point in overreacting.

Control Unpleasant Emotions

Control unpleasant emotions by taking the proper perspective.

Humans tend to overstate the adverse effects of a dreaded outcome. But there are a few simple strategies we can use to control these emotions. For example, if we control our risk on the trade, and plan it out carefully, the risk will be minimized and the actual potential loss will not be catastrophic at all. Remember that all timing strategies at FibTimer use strict risk management. That is why losses, when they occur, are kept so small.

Once the risk is truly minimized, a useful thinking strategy can be used; remind yourself, "I'm making more out of this potential loss than it deserves; it is not going to be as unpleasant as I'm thinking it will be."

The Relative Insignificance Of A Single Trade

Another way to minimize disappointment and regret is to try to impersonalize the trade. Think in terms of probabilities, "This is just one of many trades. The outcome of any single trade means nothing. The big picture is all that counts."

By reminding yourself of the relative insignificance of a single trade, you'll minimize the potential regret should you lose. Similarly, it's also important to avoid over-interpreting the significance of a trade; a single losing trade (or even a few losing trades) doesn't mean that you have a poor market timing strategy. It is an unavoidable fact of trading in the markets. You ARE going to have losses.

With good risk management techniques, such as we strictly adhere to in FibTimer strategies, any losses are very small.

Remind yourself that by following the strategy, you will never miss a good gain, and that those gains, which are usually considerable in size, over time, will make you very profitable and successful at timing. But you must be there at the time the signal is issued, and you MUST take the trade.

Remember that NO ONE knows ahead of time which trade will be the big winner for the year.

Self-worth On The Line

Most importantly, never put your self-worth on the line with your money. The outcome of the trade should not influence the positive view you have of yourself as a person.

Don't let regret and disappointment influence your market timing decisions. Keep in mind that if you make a losing trade, you may feel a little disappointment or regret, but you can handle it.

Control your emotions. If you do not, you will likely miss the trade that makes the big gains. If you do control your emotions, in the long run you'll achieve the profitable results you've been seeking.

Property Inheritance Tax - Can You Avoid the Burden?

2006-10-13T00:31:00.000-07:00

When suffering the loss of a family member or when they become too unwell to take care of themselves, the last thing you need on top of the grief and stress is property IHT. This tax was originally designed to only affect the more wealthy property owners, however with property prices sky rocketing this tax is now affecting the less fortunate as well. There are places online where such matters can be discussed for example a property investment forum such as www.singingpig.co.uk. However your best defence is to have an IHT tax strategy in place, especially when house price in the South East, which can be sold for around £400,000, and property IHT can be charged at 40% on estates worth more than £285,000.

How it affects your family

First thing you should know is that you cannot give away the family home to anyone (including your children) to lower property IHT liabilities while you live on the property. This may be considered a "gift with reservation", and still be subject to property IHT. There are annual exemptions, however. For instance, you are allowed a property IHT -free gift of £3,000 every year. Anything left over can be carried on to the next year. Parents may give wedding gifts to their children up to £5,000 free of property IHT. Grandparents may give up to £2,500. Of course, they must give these gifts before the official wedding date. Small gifts of £250 may be given to anyone in any tax year. Any donation made to a UK established charity, political party, national museum or university is completely exempt from property IHT.

What can be taxed and what can't

Due to the £263,000 inheritance tax threshold, more people on average incomes are being plagued by inheritance tax. Careful planning must go into decreasing your inheritance tax liability. "Gifting", or the passing of wealth over a lifetime, is your best way of getting around this, but most people need professional advice to know how to use it properly. Many people these days do not know that ISAs (individual savings accounts), which are free from tax in life, may be taxable on death. However, jointly owned property for a married couple is generally exempt as well as pension fund payments. Problems can still ensue, however. Women who are not married but live with a partner and joint-own a property should make certain their name is on the deeds. If they are not and one of them dies, the partner may have a wrangle on their hands. The main way around inheritance tax is making gifts. As long as you make the gift and survive seven years, no IHT needs to be paid on the gift's value.

How to avoid property IHT

The best IHT tax strategy to avoid property IHT is if the individual who survives for at least seven years after the money is given. Then the sum is considered a gift or potentially exempt transfers. Another way to protect the money is if the grandparents open up a trust account where money will be kept until the account matures, usually between the ages of 18-25. However if the individual gives the gift before the end of the seven year period a special relief known as taper relief may be available which will reduce the amount of property IHT that needs to be paid depending on the size of the gift amount.

Dow Jones Goes Beyond 11,900 for the FIRST TIME IN HISTORY .. Stock Market Rally Ahead ?

2006-10-13T00:29:00.000-07:00

Things are really looking great for the stock market right now. Today (oct 12) the DOW rised beyond 11,900 for the very first time and everything indicates that we could have a strong close in 2006 and a great opening for 2007.

Our homework as traders is to pick the right stocks. The ones that are in a better position to take advantage of today's market conditions.

This is why experienced traders and investors prefer buy & sell based on momentum. It's no secret that certain momentum stocks bring the posibility of gaining as much as 100% on the same trading day. Some may only rise 10% on a few minutes, which means that you could make a cool $500 on a $5000 investment on the same day.

The problem is that if you don't know how to find those stocks and handle them while limiting your risk, you won't even get close to making some profits.

Three Online Stock Trading Systems

2006-10-06T21:35:00.000-07:00

Finding a proven online stock trading system is vital for all investors. Your profits depend on a system that works. You never consistently get profits if you'll follow a non proven approach to trading. Online stock trading system methods below will give you a direction where to start with your online stock trading system.

Dollar Cost and Value Averaging online stock trading system consists of investment on a regular basis a fixed dollar amount, in a mutual fund monthly purchase of shares. If the fund’s price is down you will receive more shares for the investment amount, and if the price is up you will receive fewer. Assuming the fluctuation of the fund up or down you will lower the average cost.

This system involves meeting a prescribed target by adjusting the amount invested, up or down. Dollar-cost averaging takes advantage of the 1/x curve non-linearity. When the value is down goes in a little deeper and when value is up in a little less. Be careful: when you are dealing with a declining market neither approach will bail you out.

Dogs on the Dow system involves buying equal dollar amounts at the beginning at the year of the 10 DJ stocks that have dividend yields. You'll need to hold stocks of these companies for one year and adjust your portfolio to have the current Dogs on the Dow. In fact you will be buying good companies that are temporarily out of market favor and that's why their stock prices are low. Hopefully they will rebound, and their stock price will go up and you will get a profit by selling them.

These are mature companies that have sufficient financial strength to overcome rough times, but of course this doesn’t happen allways so there is still a risk.

Hedging is an online stock trading system that helps you reduce the risk of holding an investment. The simplest, but most expensive method of hedging against market risks is to buy for the stocks you own a put option. To cover general market declines, buy a put option on the market, and sell financial futures to hedge.

Sell the stock you hold from a company to a competitor, that's the best and cheapest method of hedging. Futures are the cheapest way to hedge your entire portfolio, just keep in mind that the efficiency of the hedge depends on your estimated correlation between your high-beta portfolio and the broad market index.

Hedging, Dogs on the Dow, Dollar Cost and Value Averaging are online stock trading systems that could help you reduce the risk or increase your profit.

Find a system that consistently works for you, follow it 100% of the time, and you'll become a professional trader.

Stock Market Speculation or Gambling. What is the Difference?

2006-10-06T21:34:00.000-07:00

The art of speculating in one form or another has been around forever.

When it comes to speculating, there are always three things that you can be sure of – there will be always people willing to speculate, there will always be people who will love to play the game with the first group. Lastly history can be counted on to repeat itself.

Sure the object of speculation may change, the rules may change and the technology may change. But in the end it is always the same.

However what has happened before is 100 % sure to happen again. You can count on it. Everyone thinks always that they are so original when it always the same story again and again. Whether it is tulip bulbs, precious metals, mutual funds, lottery tickets or penny stocks human nature is human nature.

Ignorance, greed, fear and hope determine how people react and thus how prices move and markets behave. People have speculated on everything at one time or another,

For the last hindered years and certainly into the foreseeable future speculating on stock prices offers liquidity combined with legitimacy and purpose. Stock speculation, trading and investing have become an essential and vital parts of both our economy and our lives.

Trading is just another word for speculating and investing is nothing more than speculating, except that it supposedly encompasses a longer time horizon and for some odd reason implies less risk. Speculators speculate, trader’s trade and investors invest to make money. Traders buy stock or any other object of speculation because they anticipate a price appreciation.

Speculation and gambling are similar, with a few important distinctions. One difference is the perception, sometimes true, that successful speculators profit due to their skill or an unseen advantage, while gamblers prosper due to chance or luck.

Remember though that it may not happen to you but in the end given enough time or chances the odds will always prevail. The casinos in Atlantic City and Las Vegas were not built with winner’s money.

Another distinction is that gambling in most forms has been illegal (at least until government got involved and changed the rules in their favor) while speculation plays an essential role in our markets and thus our economy.

These important distinctions make speculating which indeed is what our investment industry purveys as an accepted occupation – indeed one with one prestige and gamblers not being accepted in the same light.

Whether a gambler, a trader or a speculator, in all cases the attraction is the same – the chance to make a lot of money in a hurry. It is the immediate gratification of the win that makes these games irresistible - an opiate of sorts.

Indeed problem gamblers have been compared to alcoholics in needing that rush which gives them such pleasure and serves amazingly to release endorphins to relax their troubled minds.

On top of that the unpredictability of the wins serves to even reinforce this addictive behavior.

Not far off of the methods of B.F. Skinner and the rats of operant conditioning fame.

Indeed some people will tell you that “it will almost always end with crying!”

Stock Investing - Tips You Can't Do Without

2006-09-23T00:36:00.000-07:00

Stock investing seems like the route to take for people who are looking to improve their financial picture. However, when it comes to stock investing there are a lot of individuals never get past the thinking stage, thinking that they do not have the kind of money it would require. The people have heard the old saying "it takes money to make money" and they feel having a stockbroker is only for the wealthy.

There are some people who have managed to get rich quick in the stock market, but stock investing can be a very risky proposition. If serious about stock investing, you want to get all the information you can before you actually start. Stock investing is buying what is called shares. Owning shares means you co-own some of a specific company. This means you can vote on company issues and have a say in company business.

Stock investing can be pursued in two ways, but both require a stockbroker. There is short-term investing where you trade shares but never own them for a lengthy time. This form of investing is known as speculation. The other is long-term investing where you buy a certain stock and intend to hold on to it for several years. Long term investing can give you a higher return for your money, but it will go up and down many times through the years. It takes a commitment not to sell at the first sign of the value going up or down right away.

Consulting with a stockbroker is recommended if you are interested in investing in the stock market. These stockbrokers have actual traders on the stock exchange floor in New York. They know other traders who will have what you are looking to invest in. Now it is also possible to buy, sell, and trade stocks electronically over the Internet at brokerage websites like eTrade, NASDAQ, and AMEX.

Investing in shares of stocks can be risky; this is because there really is no way to guarantee the success or failure of a company. Remember having inside information in regards to a particular stock is illegal, so you want to be sure you get any advice or tips from your stockbroker only.

Most companies that offer shares to the public have financial information available on a company website because they use stock investing as a way to grow by generating more money. When looking into a new company to buy shares in, the first thing you want to look at is the P/E ratio (profit to expense ratio). This shows you their operating expenses compared to the profits they are making.

You also want to look at new products. This could give you an idea of you buying shares of stock in that company will be profitable or not. Friends and family, may offer what they think is a "hot tip", but remember you would be prudent to rely on your own research and your stockbrokers advice.

There is what is called stock tickers that are used to tell shareholders how their stocks are faring. These stock tickers can be seen on the screen of any business television channel and can be checked for real time information.

Summary:

Are you one of those individuals that had the perception that you have to be wealthy to invest in the stock market? If so, you can see now how you were mistaken. You do not need a large amount of money. However, you do need to have a basic understanding, a stockbroker you trust and the ability to do some basic research. With just those few things, you can be on your way to being a shareholder. Good luck in your stock investing!

Investing Straight From the Source

2006-09-23T00:35:00.000-07:00

If you want the most pure, authentic version of anything, you must go to the source. Everything further downstream ends up being watered down and of lower quality. It's the same in the world of music programming on television; you have to go to the source to find the purest form of entertainment.

Les Garland knows a thing or two about music programming on television. Co-founder of MTV, VH1, and The Box (now MTV2), he is now heading up a new music entertainment channel that could change the face of music television.

Garland, and the team at The Tube (OTCBB: TUBM) took a gamble that a new law was about to be passed requiring television station owners to switch to a digital signal. Believing the law would pass, they put together The Tube to provide digitally broadcast music television. The gamble paid off and the law passed. Now, the Tube stands to be one of the first to market in this new concept that uses pre-existing distribution channels with a new signal technology requirement.

The programming on The Tube is simple: all music. That's it. No reality or awards shows, just music, including concert footage and music videos from a variety of Billboard toppers that span from the 60's to today. A typical hour of programming, according to their website, could include Led Zeppelin, The Rolling Stones, Coldplay, Norah Jones, and Sheryl Crow. This programming (both the variety and the focus only on music) sets it apart from the forerunners, most of which Garland helped to create and bring to success.

Research mentioned from their website shows that this mix of music will hit an audience in their early- to mid-thirties, or perhaps slightly younger. This demographic represents three quarters of the nation's wealth and spends a trillion dollars a year on goods and services. This money-controlling demographic, combined with the fact that The Tube is already broadcasting in 15% of the nation's markets, is the key to their primary income stream: advertising. Advertisers want to reach this wealthy audience and this audience is looking for entertainment. Thus, The Tube is perfectly positioned to bring in advertising dollars in exchange for reaching those with the money. By broadcasting digital signals to homes with HDTVs, they are inherently targeting a wealthier viewer segment, meaning greater revenues from advertising. What's more, additional agreements are in the works to spread them to even more markets.

Smart investors will add up the factors that can point to potential success: First-to-market leverage, cutting-edge technology now mandated by Congress, pre-existing distribution networks, quality programming, potential advertising reach, and a demographic with money that is attractive to advertisers... all of these are powerful indicators of a bright future. But the trump card to make The Tube shine even brighter as an investment is a proven success factor known as Les Garland - the man who has revolutionized the American concept of music media, and is ready to change the way millions of people listen to and learn about new music.

Stock Investing - What you Need To Know

2006-09-21T23:10:00.000-07:00

You do not need a broker's license if you are contemplating stock investing. But you do need a stockbroker to handle the transactions and a basic understanding of how the stock market works.

There are two ways used in to stock investing. The first is trading stocks on the stock exchange floor. For many people this brings up a mental picture of this chaotic scene of people running around yelling into phones.

The reality is, regardless of how much of a chaos it seems, stock market trading on the exchange floor is very organized. The other method is you can trade electronically which is done at your computer.

An important thing to understand about stock investing is that if you are a seller you do not set your selling price. This is different from retail sales or selling your automobile. To better understand, think of stock trading as an auction.

A big step in understanding stock investing is to learn the language of stock trading. For instance, "shares" means a partial ownership in a specific company. Now this only is in relation to what is known as "public" company. A company then, has to be a corporation or it cannot issue stocks for sale.

Now that you have decided you do want to invest in the stock. The first thing you do is call the stockbroker up and advise him on how many shares of a particular stock you want. He then relays this information to the order department who in turn advise a floor clerk on the exchange floor. This floor clerk then tells the stockbrokers company floor trader, who then will be responsible for finding another floor trader who would like to sell the shares you are in search of.

Now, it is a matter of the two traders agreeing on a price and finishing the deal. They then relay this price information back to your broker, who will inform you of the final price for your shares. Also,you get a confirmation notice of the share you bought after most deals. Now this confirmation can take minutes to hours to reach you.

Then we have the second way for stock investing. The stock market has been influenced by technology advances but you still need a stockbroker since individuals are unable to access the electronic markets. A human stockbroker is replaced by immense computer networks.

This picture of controlled confusion on the exchange floor is gone and it has become the choice of many people. An advantage to electronic stock trading is that you can manage your own account and you get instant confirmations in regards to your trades.

The next thing you want to be aware of is how to keep track of the trends of the stocks that you own. One way to do so is to look in the business segment of your local paper where a section is dedicated to the stock markets. If you want more minute information, the place to look is on a business channel. They will have what is called a ticker at the bottom of the screen. By watching this ticker you will know at any time what your shares are worth.

Summary:

You do not need a broker's license to get into the stock market. You do need a stockbroker and basic knowledge about stock investing.