It is precisely when the market looks worst that the opportunities are best; precisely when things are good again that the opportunities are slimmest and the risks greatest.
– Andrew Tobias, The Only Investment Guide You’ll Ever Need
On September 25, 2009, In Thought of the Day, by ElfLord
On September 25, 2009, In Good Articles, by ElfLord
MORE THAN CRUDE OIL or corn, gold or gas, the scarcest and most valuable commodity we hold is our time on this earth. And while longevity is a highly prized asset, it is, alas, one in which we can’t effectively hedge. We are all options. All wasting assets. There’s an expiration day with each of our names on it.
And while the length of our lives is somewhat arbitrary, the focus of our attentions is decidedly within our control. Our lives are ours and ours alone. Each precious moment is ours to spend as we wish.
And because there are only so many hours in the day, both our time and conscious attention carry a high price. What makes your attention so valuable is that capturing it is the only way that I, or anybody else in advertising, can encourage you to make a purchase decision. From stocks to shocks, lox to clocks, it’s hard to buy something you’ve never heard of.
Did I just say that I was in the advertising business? You bet. As a trader, I can buy a stock and hope it will go up, or I can buy a stock and help it along the way. You do this by moving the market and advertising the attractiveness of your position. Allow me to explain. (more…)
On September 24, 2009, In Thought of the Day, by ElfLord
Before you enter any trade, think that you will have to explain this trade to the world in a case study format. Trade as if the world was standing behind your shoulders.
– Tony Oz, The Stock Trader
On September 23, 2009, In Thought of the Day, by ElfLord
Be willing to make mistakes and accept small losses. Trading is trading, markets are markets, and losses are unavoidable. However, they are manageable. Set stops, either mentally or with your broker, and execute them at the planned point without hesitation. This is how you manage your risk. And it is the only way you will protect your capital and stay in the game.
– StoryTeller, TMF Boards
On September 23, 2009, In Good Articles, by ElfLord
IN LIFE AS in markets, we enjoy far less control than we’d like to imagine. There’s a trading technique that many investors like to use because it gives them a comforting illusion of control — the limit order. It’s almost always a mistake. As I’ve written before, it’s not what you buy, but how you buy. Whether it’s Palm (PALM) or pork bellies, placing the right kind of order with your broker is critical for success. And while it’s tempting to use limit orders to save some pennies, good traders know they can be a pound-foolish way to trade, and use market orders instead.
Let’s review some terms. A market order is an order that is immediately executed at the best available price. So if XYZ is bid at 50 and offered at 50 1/8, a market order given to your broker will have you buying the stock in a matter of seconds, most likely somewhere near the asked price of 50 1/8.
A limit order is an order to execute a trade at a specific price or better. So if XYZ is bid at 50 and you enter a limit order to buy at 48, you won’t buy the stock unless XYZ trades at least two points lower. (more…)
On September 22, 2009, In Thought of the Day, by ElfLord
Even great traders sometimes have completely wrongheaded ideas when they start. They ultimately succeed, however, because they have the flexibility to change their approach. Benjamin Franklin said, “One of the greatest tragedies of life is the murder of a beautiful theory by a gang of brutal facts.” Great traders are able to face such “tragedies” and choose reality over their preconceptions.
– Jack Schwager, Stock Market Wizards
On September 21, 2009, In Good Articles, by ElfLord
I HAVE TO LAUGH when any of the online brokerages — whether full-service or deep-discount — offer research reports as an incentive to open an account. The frenzied tracking of price/earnings ratios, analyst upgrades or earnings announcements is equally amusing. From a trader’s perspective, this type of widely disseminated information is useless. As soon as research is released, it becomes old news. With few exceptions, research, fundamentals and other well-publicized information offers little edge in the market: Most of it is already factored into a stock’s current price.
Cisco Systems (CSCO) offers us an excellent and timely example. Last August, Cisco reported glowing financial results, with fiscal fourth-quarter revenue up 61% and net income exploding 69%. Chris Stix, an analyst with Morgan Stanley, enthusiastically reaffirmed the stock as a Strong Buy. But for those people following the fundamentals or analysts’ research, it proved an inopportune moment to get in. Cisco is down about 70% from that date (although surprisingly, Stix’s Street cred remains as high as ever).
To understand why generally available information is all but worthless, consider the way in which popular investing strategies lose their luster. For example, buying companies that were being added to the S&P 500 or whose stocks were being split both used to be excellent tactics — until word got out and everybody started playing these angles. The effectiveness of both techniques has all but evaporated in recent years. It’s simple: The more people squeezing an orange, the less juice for each to drink. (more…)