Tag: hard to be a bear

Explanation: Being a bear while everyone else is bullish is one of the most challenging propositions in investing. For instance, ‘Short selling is an incredibly lonely proposition,’ billionaire hedge fund manager Bill Ackman says.  Yet, it can pay off big time if you get your TIMING right. However, since most people, even professional investors are terrified of shorting, I will introduce a quick series about short selling, proper risk management when short selling and the best way to maximize returns. This was to be a part of my never finished book (no time to finish it)…….

Part 8

For the purposes of this book, we can apply the following tools or shortcuts.

Know What Time Frames You Are Working With and/or Trading:

If you are day trader, chances are, you are trading based on weekly, daily, hourly and minute charts. If you are more interested in catching larger moves, as I am, it is highly probable that you are trading based on both the long-term and short-term charts. Whatever your situation might be, the first step is to define, without a shadow of a doubt, what it is that you are trading.

In other words, if you are day trading based on your daily charts, stick to that.  If you are trading based on weekly or monthly moves, continue on with that approach. Do not move between various time frames until and unless the move is permanent.  Why? It is highly probable that constant shifting between different time frames will lead to multiple errors and substantial losses.

Identify The Cyclical Composition Within Your Time Frame:

Attempt to identify exactly where you are in the above mentioned cycle. Bottom, bull, top or bear. Typically, the longer the time frame you are working with the easier it is to identify exactly what part of the cycle is working in the market at the time. If you are working with short term cycles, simply understand that multiple short-term cycles will complete themselves within the confines of longer cycles. For example, one long-term completed cycle on the Dow would be a bull/bear market of 2002-2009. Yet, it was within the confines is this larger cycle that multiple short-term bull/bear moves developed at the same time. In fact, a day trader might see as many as 4-5 small daily cycles develop on a daily chart.

Identify Where In The Cycle You Are (bull or bear).       

Based on the time frames you working with, determine exactly where in the cycle you are. For instance, if you are working with weekly and monthly charts, identify if the weekly/monthly cycle is in a bull or bear market and/or distributing/consolidating.

Apply Other Time Frames For Confirmation:

Consider other time frames before deciding where in the cycle you are.  For instance, if you are trading based on daily charts it would be helpful to consider what weekly and monthly charts are indicating. While the market might be in a 5 day bull run or a bounce, weekly and monthly charts might suggest you are in the midst of a bear market.

Doing all of the above should give a you fairly good indication of where in the cycle you are coming in. Allowing you to take an appropriate trading position in the process.

For example, today’s (September 16th, 2014) market environment presents us with a perfect analysis opportunity for the Dow Jones.  Here is a sample analysis to show you how to determine exactly where in the cycle we are and what positions or entry points are optimal.

To be continued……

It’s Hard To Be A Bear When Everyone Is Bullish. Part 9 Google

Continuation of Part 1: It’s Hard To Be A Bear When Everyone Is Bullish. Part 1

And what will you find out there in the wilderness? Three primary investment dogmas and a million different offshoots of each one. They are….

• Value Investing: The idea of value investing is a fairly simple one. To find and purchase stocks that sell well below their intrinsic value. Minimizing risk in the process as the risk of a value stock going lower is diminished due to its general undervaluation. If you play your cards right and identify stocks that are not only undervalued, but those that are growing fast or turning around, the return on your investment should beat the market by a large margin. For most value investors, a long-term holding periods are a must. Warren Buffett amassed his multibillion dollar fortune through this approach alone.

• Growth Investing: For the most part, growth investors are not concerned with finding undervalued securities.  In fact, for quite a few growth investors’ valuations become somewhat irrelevant. Only the growth of the underlying business is all that matters. This approach presumes that if the underlying business continues to grow fast, the stock price will continue to appreciate much faster than the overall market.  Yielding market beating results in the process. Yet, this approach carries inherently more risk when compared to value investing. For instance, should the company disappoint in their growth trajectory, investors can find their stocks tumbling down 20-50% or more in a matter of days, if not hours.

• Active Trading: This particular approach to the market is inherently more difficult to define as it contains millions of different strategies. Everything from simple day trading to using supercomputers to run complex algorithms to trading based on planetary movement. It is highly probable that each individual trader who is serious about participating in the financial markets will have his or her own strategy. Developed though years of experience and trial and error. Understandably, the amount of risk each trader takes depends entirely on the strategy used.  Yet, one truth reigns supreme in this category as well. Most traders fail to outperform the market. What’s more, a high percentage of people who attempt to make a living through this craft get washed out within a few years. Due to losses, inexperience and unwillingness to improve on their skill.

So, which investment approach is the best for our newly enlightened investors?

To be continued tomorrow……

It’s Hard To Be A Bear When Everyone Is Bullish. Part 2 Google

Let me ask you something. If you knew that a 2007-2009 sell-off was about to happen and the extent of it, would you have sold everything and went 100% short? Of course you would have, most likely with put options to maximize the effect.  At the very least you would have gone 100% into cash.

Being a bear while everyone else is bullish is one of the most challenging propositions in investing. For instance, ‘Short selling is an incredibly lonely proposition,’ billionaire hedge fund manager Bill Ackman says

Yet, it can pay off big time if you get your TIMING right.  However, since most people, even professional investors are terrified of shorting, I will introduce a quick series about short selling, proper risk management when short selling and the best way to maximize returns. This was to be a part of my never finished book (no time to finish it)…….

“BUY LOW, SELL HIGH, GO SHORT & COVER”

Are You Sure?

Starting in the late 1960’s the mutual fund industry picked a simple truth to sell to investors. To buy stocks for the long-term and to keep adding money to their coffers month after month and year after year.  And according to most people in the investment industry, this simple strategy should outperform the market over the long term, yielding you just enough moolah to fully enjoy that awesome retirement in Boca Raton.  And if you play your cards right, you might even have enough investment gains to be able to afford early bird dinner specials until you are 100.  Today, so very few people question this investment approach that the “truth” above might as well be recorded in the New Testament as the Gospel of Goldman Sachs.

As accurate as this investment premise might be, it is a well known fact that most investors fail to beat the market on the consistent basis. Mutual fund or not. Plus, the stock market history does not support the claim. Did you know that between 1899 and 1949, a 50 year period of time, the Dow went up just 185%. Yielding an annual rate of return of just 2%. That translates to NO capital gains when adjusted for inflation. That’s right, a big fat ZERO.

The same thing happened between 1790 and 1860. A 70 year period of time. Between 1966 and 1982 the market declined 25%. Hell, we don’t have to go further than today to see how inadequate the strategy above is.  With the market facing another bear leg, the Dow is up just 45% since its secular bull market top in January of 2000. The Nasdaq is just now breaking even.

Don’t get me wrong, for most passive investors; the strategy above is a fairly good one.  Yet, those who invest in such a fashion over the long-term shouldn’t expect to earn much more than a rate of inflation or the yield on a 10-Year Treasury.  In other words, the mutual fund industry will never make you any money. They will make a ton of money for themselves through various fees, but they will never make you rich.  If you want higher returns you have to take risks by dismissing the gospel above and by venturing outside.

To be continued on Monday….. 

It’s Hard To Be A Bear When Everyone Is Bullish. Part 1 Google