ZF Capital > International Investing

Tradecraft – Profits Trump Patriotism

On July 23, 2010, In Good Articles, by ElfLord

I LOVE THIS COUNTRY dearly. But if you believe, as I do, that stocks are the best leading indicator for the economy, then there are some decidedly troublesome warning signs brewing right now.

There was a time in the 1990s when the thought of investing in anything other than Cisco Systems (CSCO), Microsoft (MSFT) or the major U.S. markets would’ve seemed downright daffy. Foreign stocks? Commodities? Small caps? Who needed ‘em when Sun Microsystems (SUNW) and the S&P 500 went up a tidy 20% every couple of months.

But in the markets, change is the only constant. And while American shares have long been the locomotive that pulled the world’s train along, lately they’ve been more like the caboose. Right now, the market seems to be showing a preference for most anything besides U.S. stocks. Because equity markets are the best gauge of economic growth that we’ve got, this underperformance bodes ill for both America and its currency. (more…)

Tradecraft – Beating the Tar Out of the Weak Dollar

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

A POPULAR BUSINESS cable show on which I appear regularly has launched a segment called “Stock of the Week.” The premise: Each pundit names a stock he or she thinks could rise over the next seven days. Viewers love it. Nothing bumps ratings like the promise of quick, easy money.

I’m always preaching the gospel of absolute return. The truth is, a quick pop isn’t the best way to achieve one.

It’s hard to convince most people that they don’t want a quick 10% jump in one of their holdings. But it’s true. The best trades — that is, the ones that tend to be the most profitable — don’t occur over a few days, but over months. They aren’t knee-jerk reactions to an earnings report or a TV tout. Steady, silent price action defines a trend at work.

My philosophy starts with the notion that the market isn’t chaotic. It moves in trends, most of which unfold over time and persist longer than most people think. Therefore, the smartest thing an investor can do is trade with the trend. This means following the market, not fighting it. (more…)

Tradecraft – I’m So Bored With the U.S.A.

On March 26, 2010, In Good Articles, by ElfLord

IN THE MARKETS, we’re all dumb money. But the dumbest among us constitute “the herd,” the mass of slow-moving sheep that always seem to buy too late and sell too early.

My strategy has always been to watch the markets and steer clear of the herd. While I’m certainly not profitable in all of my trades, the herd rarely gets it right. So when it comes to choosing investment strategies, my goal is to find out where the herd is, and go somewhere else.

Generally speaking, the biggest component of the herd is probably mutual-fund investors. While there are plenty of razor sharp individuals out there using mutual funds, as a group they tend to have less-than-perfect timing. For example, as we’ve pointed out before, the biggest net inflow into equity mutual funds came in the first quarter of 2000, just around the time the Nasdaq began its historic decline. (more…)

Tradecraft – Out of Their Flocking Minds

On March 24, 2010, In Good Articles, by ElfLord

THERE ARE PLENTY of investors who in 1996 swore they’d never buy a tech stock — only to end up owning Cisco Systems (CSCO), Sun Microsystems (SUNW) and Qualcomm (QCOM) near the Nasdaq peak in March 2000. And there are just as many investors who promised they’d stay in it “for the long haul” only to end up puking their positions and abandoning stocks a few months back. The market tends to test our resolve both on the way up and on the way down.

Our mantra here at Tradecraft: Technique is everything. That is, it’s not so much what you trade, but rather how you trade that ultimately makes a difference. And because the market will test your biases, it seems the best move is to not develop them in the first place. Without an open mind, even the best stock pickers won’t bend in the wind — they’ll break.

That’s why I think too much formal education in the markets is dangerous. As we wrote a few months back, the most educated traders tend not to think, but to assume. Yet the real challenge sometimes is to be able to forget history as easily as you remember it. In the market, anything can happen. (more…)

Tradecraft – Beyond Uncle Sam

On December 2, 2009, In Good Articles, by ElfLord

AT ANY GIVEN MOMENT, my first inclination isn’t to take a risk, but to reduce it. And for those readers who earn and spend U.S. dollars, one of the most important and least considered risks is that of a relative decline in the value of U.S. assets, from bonds to greenbacks.

So at a time in which most people are just starting to think about diversification away from the big domestic stocks, my sights are focused on a few more exotic locales, since it’s quite likely that the next big bull market will occur somewhere outside the U.S.

I’m not the only one making the call. In recent days, both Credit Suisse First Boston and Merrill Lynch have upped their allocations of non-U.S. equities, and although the pundits have a habitual knack for inaccuracy, I do believe this is one of the few macro calls worth heeding. A few weeks back we discussed some general opportunities in foreign and emerging markets. This time around, we’ll focus primarily on fixed income.

Because they are backed by the “full faith and credit” of the U.S. government, U.S. bonds are considered the world standard. Because they’re the most liquid and actively traded bonds in the world, U.S. Treasurys are the most often quoted barometer of interest rates. When most people refer to the bond market, they’re referring to the U.S. 30-year bond and, more recently, the 10-year note. (more…)

Tradecraft – The Diversification Delusion

On September 18, 2009, In Good Articles, by ElfLord

LIKE A WARM BATH or high thread-count sheets, nothing feels quite as comfortable as money in the bank. And with the major equity indexes down year-to-date, I’m surely not the only one who finds a sweet satisfaction in watching interest payments tumble in each month to a plain old money-market account. Cash (and cash equivalents like money-market accounts, certificates of deposit or Treasury bills) are often referred to as earning the “risk-free” rate for obvious reasons. Cash provides a predictable, but paltry, return. And while cash deserves a place in everyone’s portfolio, you can’t just hide in a money market all your life. There are other ways of dealing with risk besides hiding your money under the mattress. The name of the game is wealth creation: In order to make some money, you’ve got to make some moves.

And while it took a 68% drop in the Nasdaq to finally sink in, most investors are now realizing that the most effective way of reducing risk in their portfolio is by diversifying among various types of assets. Diversification lowers a portfolio’s volatility and can even enhance returns. And while index funds that track the S&P 500 give the illusion of diversification, because they are weighted by market capitalization they are essentially focused on large-cap stocks. Owning Cisco Systems (CSCO), Intel (INTC), General Electric (GE) and an index fund exposes you to as much diversity as a potluck dinner at David Duke’s house. (more…)

ZF Capital

Tradecraft – Profits Trump Patriotism

Tradecraft – Beating the Tar Out of the Weak Dollar

Tradecraft – I’m So Bored With the U.S.A.

Tradecraft – Out of Their Flocking Minds

Tradecraft – Beyond Uncle Sam

Tradecraft – The Diversification Delusion

Categories

Tags

Looking for something?

Visit our friends!

Archives