ZF Capital > Your guide to financial world

Tradecraft – Staying in the Winner’s Circle

On July 12, 2010, In Good Articles, by ElfLord

YOU CAN’T SPEND KUDOS or deposit a victory lap into your IRA. So forget status, reputation and bragging rights. The only reason to invest in anything is to make money. Bows are for little people with big egos. Profits are the only acknowledgement I need.

And although I’ve bought my share of sour stocks, once in a while I’m fortunate enough to come up with a few winners as well. While I’d love every investment to show a profit, you only need a handful of smart ideas each year to put together a respectable return.

So far this year, one of my best-performing trades has been in utilities, a sector that’s shown exceptional strength since I started pounding the table last fall. As regular readers, along with those who watch me on Fox News Channel’s “Cashin’ In”, can attest, this has long been a favored sector, one in which I’ve been able to experience the best kind of success — that which you can spend. (more…)

Tradecraft – Mr. Green Jeans Goes to Wall Street

On July 9, 2010, In Good Articles, by ElfLord

AS A LIFELONG CITY-DWELLER, the closest I get to agriculture is the produce section of Whole Foods Market (WFMI). So while I’m not a gardener and have spent virtually no time on a farm, I do believe those who cultivate plants and those who manage money have much in common.

Consider that both planter and money manager need to periodically prune away dead wood. Beautiful gardens aren’t simply grown, they’re continuously clipped and shaped. To raise a healthy garden, experienced horticulturists will rotate crops, clip old foliage and manage the sun. It’s not just about planting the seeds, but tending to the crop along the way.

Same goes for the market, where investment success doesn’t end with simply picking a stock. Ever wonder why most analysts are lousy traders? It turns out there’s a big difference between evaluating an investment and profitably guiding a portfolio. Call me crazy, but in my world there’s more to it than just buy, sell or hold. (more…)

Tradecraft – In Defense of Hedge Funds

On July 7, 2010, In Good Articles, by ElfLord

IT’S BOTH AMAZING AND a little bit bizarre that the same mainstream media that told folks to stick it out for the long haul while the market melted in 2000 and 2001 are now writing smear pieces about hedge funds simply because they’re not minting money this year. Indeed, we’re now in the golden age of hedge fund hysteria, with each passing day delivering new negative charges against an industry that by almost every yardstick should be celebrated, not demonized.

At the heart of this hysteria is a complete ignorance of what hedge funds really are, both among the regulators who oversee them and the financial media that have, in recent weeks, whipped up a panic about how hedge funds threaten to disrupt financial markets world-wide. So let’s start by simply defining the term: A hedge fund is a pool of money pledged by “accredited” (read: rich) investors and managed by a general partner. While most people assume that hedge funds trade frequently and make big bets on financial esoterica, the truth is a hedge fund is a legal structure, not an investment technique.

So while the media routinely characterize hedge funds as “risky” or “highly leveraged,” the reality is hedge fund strategies, just like mutual fund strategies, run the gamut from the ultra-conservative to the highly volatile. Some funds use high levels of leverage, others sit in cash for months at a time. Some employ complex spread trades, while others simply buy and sell stocks. Just knowing someone runs a hedge fund tells you absolutely nothing about how it’s run. What matters are the strategies, positions and discipline that the manager uses to maximize the money. (more…)

Tradecraft – Winners Hate Losers

On July 5, 2010, In Good Articles, by ElfLord

WE LIVE IN A WORLD OF scarce resources. So from time to time most traders will find themselves anxious to put money to work, yet find that cash is in short supply because all of their capital is already committed to other positions. This is the heart and soul of trading — not guessing the market, but marshalling assets and deploying them in the most strategic fashion. Money managers big and small grapple with the same issues: What stays? What goes? How can investment dollars be stretched to generate the maximum return?

For most active traders, margin is the best first choice for stretching their dollars. But as I wrote last summer, debt should be limited to high-probability trades, and not to try and pull a half point out of the Nasdaq-100 Trust (QQQQ) or take a flier on some bulletin-board tout. I’m apt to only use margin to add to a position of strength; that is, to support a winning trade in a dominant market trend.

Let’s say, for example, that I’m holding a profitable position in Equity Office Properties (EOP). With real-estate investment trusts continuing higher in today’s market environment, I’d readily use margin to buy a unit of Simon Property Group (SPG), which would diversify the winning exposure but keep capital focused on a major, timely trend. (more…)

Tradecraft – Portfolio Positioning

On July 2, 2010, In Good Articles, by ElfLord

I’M ALWAYS AMAZED TO SEE the unabashed confidence most commentators have in their outlooks on interest rates, the dollar or the next move for company XYZ. Even at the highest level, investing isn’t a science but an art. I don’t care what business school you went to. In the market, what happens next is anybody’s guess.

And while I’m never totally confident in my market outlook, I’m usually quite comfortable with my position in the market. Unlike the Nasdaq or S&P 500, which will rise and fall regardless of what I do, I actually have control over how my money is dispersed. So instead of focusing on making predictions, a smart trader should first concentrate on managing his portfolio. The market’s inherent uncertainty can be mitigated by a prudent, disciplined approach.

In the biggest sense, position refers to the financial foundation on which an investment portfolio is built. That’s why portfolio planning needs to start before the first buy order is ever placed. You can’t make wise bets on the market if you’re being distracted by unemployment, debt, an unsustainable lifestyle or other serious financial setbacks. (more…)

Tradecraft – Where There’s Smoke, There’s Fire

On June 30, 2010, In Good Articles, by ElfLord

IN THE MARKETS, it’s often the case that where there’s smoke, there’s fire. So when I’m long a stock that abruptly craters, you can bet I’m one of the first ones running for the exit, no matter how encouraging the fundamental news might be. If a stock isn’t acting right, that’s all I need to know before kicking it to the curb. In my world, you sell first and ask questions later.

Why? Well, as longtime readers know it’s my belief that markets aren’t chaotic, but rather they move in trends that tend to persist over time. So while I can’t precisely predict the future, I can observe the present and make calculated guesses about how securities are likely to respond.

Weak stocks tend to stay weak, or at least weaker than stronger alternatives. After a sharp decline, XYZ might indeed enjoy a dead-cat bounce, but all too often that’s the signal the trade’s gravy has already been mopped up. In my experience, very rarely does an investment break 20% lower because it’s intent on marching right back to previous highs. (more…)

Tradecraft – Steady, Captain

On June 28, 2010, In Good Articles, by ElfLord

NEVER UNDERESTIMATE BALLAST. It’s the heavy stuff that keeps seafaring vessels steady amid the roughest waters.

Investors can use the idea of ballast to their benefit. Portfolios large and small should be grounded by conservative asset allocation and governed by a prudent approach, not to increase the speed of returns but to smooth the ride. When done well, adding ballast can help you boost your returns and keep you from getting seasick along the way.

Most people’s biggest investment is their home, which makes an ideal foundation for investment stability. You have to live somewhere, after all, and in most cases, buying a home you can afford is preferable to renting, regardless of where real estate prices are.

Did you catch the caveat? A home you can afford. Because while you might consider your home an asset, chances are it’s actually a liability — a rather large one. And while nobody knows for sure whether there’s a bubble in property prices right now, I can say with no uncertainty that there’s an abundance of exceptionally foolish investors taking risks in real estate they’ll no doubt live to regret. (more…)

ZF Capital

Tradecraft – Staying in the Winner’s Circle

Tradecraft – Mr. Green Jeans Goes to Wall Street

Tradecraft – In Defense of Hedge Funds

Tradecraft – Winners Hate Losers

Tradecraft – Portfolio Positioning

Tradecraft – Where There’s Smoke, There’s Fire

Tradecraft – Steady, Captain

Your guide to financial world

Categories

Tags

Looking for something?

Visit our friends!

Archives