TTex and Lentz,
very nice to hear from both of you. Lentz's remarks painfully remind me of my investing experience. Until 2004, I had a broker, who cost me much money - bad advice, etc. I have jettisoned all brokers period. My longest (10 years) and biggest holding is VGHAX. I have also promised my wife that I will sell it. But, effective 12/2005, I no longer reinvest the dividends. Our position is just too large.
But gentlemen, this is not the "Miracle on 34th Street". I do not believe in brokers, stock house reports, "buy and hold", "averaging down", returns based on 80 year averages, investment gurus, the genius of mutual fund managers, the Federal Reserve, etc. I believe in myself and my abilities and foibles. And, I take all board postings with a grain of salt.
I did not start trading until August 2005. But, I have an advantage - I have linked up, via email, with a person, who has spend 40 years "swing trading". We exchange ideas sometimes 5 times per day. But, I put my own positions on and take them off. We trade almost the same stuff. I have learned more from him about investing (and realizing profit) in 3 months that I have learned from any other source (and I am 62 years old).
Yes, I agree that you can "not time the market" any better than you can preordain the date of your own death. But, you can plan your investment forays. Based on independent analysis, you can plan what to buy, at what price and under what market conditions and when to sell when the position goes against you. I only buy stocks that have excellent fundamentals and are Canroys, Precious Metals or oil and gas related. And, I have no present position in REM because of a perceived gap in the chart.
Without sounding boastful, I purchased SSRI two days ago because it had a chart gap on the upside. I had $76,000 at risk for one day and $40,000 at risk for two days. I liquidated the entire position for a profit of $2,340. The result was not foreordained, but had a high probably of succeeding. I just repurchased half of my position because SSRI almost closed a downside chart gap.
I do not regret selling SSRI. But, I have mixed feeling with my sale of NSS. In the case of NSS, I have "lost my position". But, the sale was prompted by the quick run up in the stock, a recent chart gap and $10,000 of unrealized profit sitting on the table. I just hope that my decision was correct, so that I can re-purchase NSS on a hopeful retracement.
You can only do this if you have made a big adjustment in attitude - temperament is everything. No egos. This is business. If you are wrong, stop being wrong as soon as possible.
The biggest difference between "buy and hold" and what I am now doing is that no one can take the $12,000.00 away from me. And, 60% of my capital is a safe harbor, i.e., the money market, earning 4% annualized interest.
If I had read this post 6 months ago, I would have said:
"That guy is crazy" - impossible.
Those are some truley outragous returns lenz.
I own REM because it is a great small cap, for all the reasons you mentioned. I first become aware of the stock in 2002, just bought recently with the pullback.
Thanks for your sincerity! Even though we differ in opinion we both arrived at REM as a good position somehow. It is funny that the stocks you mentioned, PFE and MOT, are recently two stocks I have grown an interest too. I feel your pain with Pfizer's performance over the last 8 years, it has done nothing but fade away. However that is why I recently bought at $21 because it is heavily undervalued and also paying a 3.5% dividend. We'll see how that turns out but luckily it is only a very small percent of my portfolio. If you were diversified PFEs performance over the last 5 years shouldn't have had a large effect. Same with MOT.
MOT on the other hand I haven't bought but since I've been watching the stock, just recently, and it has been strong. I have a interest in the stock due to wireless internet and a technology known as "WiMax" that could revolutionize the way we connect to the internet and MOT is in a position to benefit. This is technology that I'll recommend you consider looking into; pure plays in this technology are ALVR and AIRN.
Your example of the S%P 500 starting from 2000 is a sore spot and doesn't reveal the big picture. Of course we have stock market crashes (1929, 1987) and 2000 is right in the midst of one of the largest. While it is a fine argument it is skewed. The S&P has always recovered from these crashes and this one will be no different. Owning individual stocks during that time period, such as Nortel or Cisco or other popular stocks that were heavily recommend back then and you'd have lost your investment, that compares to you S&P example that is slightly positive.
I don't follow my own advice of owning an S&P 500 index, yet because I think I�m a hot shot, but the Spider S&P Dep Receipts (SPY), is up 12% in the past year.
I do own the ishares Emerging Market Fund (EEM) that is up 47% this year. Two other important ones are the S&P MidCap (MDY) is up over 21% while the small cap fund, iShares S&P SmallCap 600, is also up 21%. Those have been excellent returns on very small risk. That�s what investing is all about and I believe where people should be at because of the instant diversification and small risk. They�ll make you very rich man over 20+ years. There is no daily watching, stressing over commissions, or trading.
That�s my opinion and how I invest. Even though I disagree with the philosophy of your technique, I can�t argue against any practical success you�ve realized. Here�s to more success going forward.
Grrreeetings Fellow Stockholders,
Back from S.Dakota...Brrrrrr 7 inches of snow last night. I'll leave it there.
Great post TTex. If it were 2002 it could have been written by me. I have been investing 20+ years. For most of that time I felt the same. Can't beat the market. Just buy good mutuals. Can't time it. I feel different now. I had (have) Vanguard Windsor II, S & P 500, Fidelity Blue Chip, Dodge and Cox Stock Fund, Citibank Overseas, Metlife etc. Still have them all. I used to be entirely invested in mutuals. Had great returns in the 90's.
The burst tech bubble cost me about 40%. After 2002 it had not recovered and I was falling behind in my retirement goals. I took one of my mutuals and started trading stocks with it. I bought some TA books and started timing with TA. Oil and Gas was doing well then and I finished 2003 up about 36%. That became my goal for 2004. 2004 I finished up 101%. This year, on this very day, from Jan 1 to Nov 30 I am up 100%. I know guys who have done better, but this is as good as I could do. Now, if I had stayed in mutuals, I might be up about 20% since 2002.
So, call it gambling or whatever, being aggressive with my portfolio has brought me huge gains. I have discovered also that diversification will bring you safety, but extremely average results. I try to be very, very right. Buy very very cheap. Don't be wrong for long. The trend is your friend. That is how I do it. 237% in < 3 years.
So maybe I'm an out-lier in the bell curve. I don't think I'm anything special. But let me ask you this. Why did you buy REM? Undervalued? Gas trend up? Sector up? Fundamentals? All great reasons. This stock is not going to perform average. It will perform great because it has all those things going for it. If you load up your portfolio with stocks like REM, you are going to have mind numbing returns too. Sorry Tex, you are gonna make alot of money.
60% of our money is still in Mutuals. My wife won't let me touch them. (may be a good thing) An ever increasing percentage though is in stocks and options. Hate to tell you this but I started trading options in 2004 also. My wife was very against it. My options account this year is up 900%. I have lost money on one out of eleven trades. My wife is hesitantly starting to approve.
Does this mean TA is the answer. Absolutely not. This means I'm careful when buying. You can make money on almost any stock if you buy it cheap enough. Do alot of DD. Watch stocks for months to get comfortable with the trends. Make certain the sector trend is with you. Don't bet against the government.(they always win, they make the rules)
Most important of all, trust yourself. Do not read anlayst reports. They are biased. Don't trust Yahoo as a sole source. They make mistakes. Alot. Get info from many sources and have agreement among sources. Trust your own research. You are better than the so called experts. Why? Because you care very much what happens to your money.
Agree, Lynch and Graham are great. Also add Buffet, Shaeffer and Elder as personal favorites.
your words are written with sincerity. So, I accept your judgment based on your experience.
You have correctly stated that the average person, who has some money to invest, but no experience or guidance from trusted persons, has little choice other than to place funds in an index fund, if (s)he want to get involved in the stock market. But, if you had put $1,000 in the Vanguard S&P 500 Index Fund in 2000, how much would it be worth today? Answer: Minus 1.85% or about $982.00 (I just looked it up).
Now, you are just an average person and read this on the Vanguard website or this post. Would you entrust your money to a general index fund? Would it just not make more sense to buy a 5-year insured CD, paying about 4.8% annualized interest. Anything other than this would be gambling.
The problem, which all of us (savers) face today is that we have been forced by the Federal Reserve to become gamblers with our life savings. The spenders have no surplus cash to invest. So, to give impluse to consumerism, interest rates on savings are below the rate of inflation. Inflation is (and has been) greater than 5% per year. Yet, you do not get a fair return on investment for daily money, say inflation plus 2% per annum.
Like you, I believed and practiced the "buy and hold" theory for some 20 years until mid summer 2005. For example, I bought and held MOT and PFE for some 10 plus years. Net, net result:
a disaster. The winners of today can become the losers of tomorrow. This is not the fault of the investor. It is fault of the manager and time and technology and interest rates and the laws of supply and demand and much more.
I owned BRK.A for 5 years. Net investment result: a gain of $1,300.00 on $81,000.00 of capital. That was a disaster. And, I had Warren Buffett as my manager. And, I was exposed to 5-years worth of risk in the market.
You are quit possibly mathmatically inclined and most likely musically inclined because the two talents are intertwined. I have none of these talents. Anyone reading this column realizes that we are engaged in some form of gambling - call it speculation or investing or whatever. The point that Lentz and I were making is risk management. And, the additional point, which you so very well reinforce, is that the stock market is a collection of human beings, whoese behavior can not be quantified mathematically. But, just read the old "saws" of Jesse Livermore, written some 80 years ago. They are as true today, as they were then. For example:
"Develop and maintain an exit plan. Follow this plan with rigid discipline."
I could go one.
I have Graham and have his book heavily underlined with faded yellow marker. But, technical analysis does not deliver a road map to success in stock market speculation - and this is the business that all of us are in. TA gives you clues. Price action gives you clues. Rumors give you clues. News of all kinds gives you clues. But, at some point in time, you must pull the two triggers on any position: you buy; and, as an unfortunate consequence, you (or your heirs) must sell.
The buying is easy. A child or a computer can do the buying. But, who has the wisdom to sell correctly (meaning to make a profit)?
As I stated above, your remarks are sincere. But, it took me 20 years to arrive at the conclusion that "buy and hold" is dead. The simple reason is that there are more funds than stocks. This means that there are more managers buying and selling things to achieve a minimum benchmark of performance to qualify for their anuual bonus. What happens in the following year or quarter does not interest them.
Don't entrust your hard-earned money with managers. Trust yourself. Use your talents to make some decent return on your capital.
Good luck and have a Merry Christmas.
I used to study technicals when I first started watching the market in and investing in college. But one more time let me reiterate that it is not much better than gambling.
I believe, matter fact I know, that unless you're lucky and stop right then, you'll wind up right in the middle of the normal curve, aka bell curve, statistically. The absolute, time tested, academically proven way to invest is buying good companies with bright futures that are undervalued and holding for the long term; thus making nonsense volatility of days even weeks even months irrelevant as long you invest with money you can leave in the market.
Look at a chart of the broad S&P 500 index over the last century. It always trends up over the long term. That�s just about the only guarantee there has been in investing and hopefully you'll take it to your advantage. Most individual investors aren�t experienced enough, nor have enough capital to properly diversify and shouldn�t even buy individual stocks. Stick to broad indexes such as the S&P and the riskier emerging world markets if your time frame allows. Because risk(deviation) is a great thing but only if you�re NOT investing short term and can ride out the bear markets.
No one can time the market, no one, not consistently. If technicals worked as buy, sell indicators, don't you think one could develop a computer algorithm to take advantage of this to perfection? I'd program it myself, not to get me wrong I'd love it if it were reality, but it is wishful thinking and a result of human psychology from the need to define. But if I chose to sell the program and everyone in the world started using it, then it would no longer work and I�d have to program another that would fire earlier and earlier ahead of curve. I�m definitely not trying to push my opinion on anyone here, but truly it�s not even my opinion but that of all the greatest, most intelligent, successful investors of our time. If you only read one or two books on investing, �One up on Wall Street� by Peter Lynch and of course �The Intelligent Investor� by Benjamin Graham are must reads.
I�m not going to preach anymore and while I realize this is a thread for 'technicians' hopefully my advice is useful to one who has been dissapointed and is searching for the best way to invest. Not trying to step on any toes, good luck and success to us all.
I agree with all. You are wise and experienced.
I usually have an idea when to get out of a stock before I get in. For gas stocks, it is more of a time frame. In after Thanksgiving, out on March 1.
For other stocks, they usually run 20-25% and then pull back. So if I have bought it correctly and I have a 20% gain, I am watching Stochastic very carefully and looking to get out. I do not buy stocks that I don't expect a 20% run up.
I just did this with FDG. It had a huge sell off and I got in very cheaply. It ran up 20% and I sold. The stock may not be done running yet. I may have left money on the table. I took the easy money and left the tough gains for someone else.
Sometimes I am on the sidelines as well. If I can't buy at a bottom, its better to stay away. Chasing stocks is dangerous and only leaves you small gains.
I also believe in exiting a position quickly if it goes wrong. Timing is everything. I made some mistakes this year. I thought the steel stocks were turning and bought some TONS for $30. It proceeded to go down to 28.50 and I sold. Too early. It had more downside yet. About 4 weeks later it started to move. I bought back in at 32. It's at 40 now. I have a nice gain and will probably sell and wait for another pullback. So yes, I do not wait for a stock to bury me before I'm out.
Thanks for the stock recs. I will look at them also.
Thats what works for me.
I was born in Buffalo, NY - Dad from Germany; Mom from Ohio. But, I deal with German businessmen on a daily basis and have an excellent command of German for that reason.
Your TA is laudable. I just look at the 50 and 200 day MA and the MACD. I look at all possible timelines. And then, I scan the historical pricing, posssibly going back 90 days. For me, volume is everything. A price rise or fall on light volume is very suspect.
I will only trade a stock I am willing to own. I use Reuters to research the fundamentals.
But, for the handful of stocks which, I actively trade (but not necessarily every day or week) - GG, SSRI, EPEX, PAAS, NSS and misc. income-producers, it is very important for me to understand the community of investors speculating in the stock. The sum and substance of their collective behavior is the chart. Anyone, who does not believe this, is flying blind, when trying to buy or sell a stock on a trading basis.
I have all of the old "saws" of Jessie Livermore on a sheet of paper under the glass top of my desk. I don't re-read them often enough. It takes great patience to make money trading. And, one or two losses left to run amok, will kill your performance for a long time.
If you lose 10% on a trade, you have to make 20% on the next trade with same amount of capital, just to break even. That is on a cash basis. If you are leveraged with margin, say 50%, you need a 40% profit plus margin interest coverage to break even from the same loss.
The people, who make consistently good money trading, take loses quickly. They make their profit through many, many trades with small gains.
The other factor is risk exposure to the marketplace. When my capital is in cash earning interest, it has a safe harbor. When I put on a position, that capital is at risk. Time exposure to the forces of the market must be controlled. On a cash on cash basis, if your capital is at risk for two trading days and you can realize 1% or more on each investment, and do this consistently, you will become a weathly person.
Example: Exposure $50,000 to risk for two trading days and realize $500. Do this twice per week. Result: $1,000.00 profit per week.
But, exposure $50,000 and realize a 10% or $5,000 loss, you will have to work successfully for 5 weeks to make that loss up.
With the markets extremely volitile and very unpredictable like now (general market is trendless), anyone can easily get killed. If a trading house decides to short 500,000 shares of REM over a period of two weeks and protect the downside with options or otherwise, the longs can get killed in the short run. The undercapitalized players will be squeezed out.
What people have to realize is that trading is a business - not some part time hobby. You can learn this quickly after taking a few big hits.
After such a long-winded and unsolicited response to your post, could you please tell me how you decide to exit a position, most especially, at what point or percentage will you cut your loss or take your profit?