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Here is an interview I did for my book "Stock Trading Riches" on the book site "SellingBooks":
http://www.sellingbooks.com/praveen-puri-stock-trading-riches/
Here is a nugget from the interview:
What inspired you to write this book?
Years ago, I became passionate about stock trading, and spent hundreds of hours and thousands of dollars on books, DVDs, seminars, etc. Those techniques never worked for me and I got frustrated. A light bulb went off when I read a book called “Zen in the Markets.” I decided to focus on the present moment and simplicity, and developed a successful trading system that almost feels like meditation. I love sharing it with others who are interested in trading and investing.
Ev Bogue, "Minimalist Business" interview, part II:
http://simple-trading-system.blogspot.com/2012/03/interview-with-ev-bogue-author-of_20.html
My interview of Ev Bogue, Author of "Minimalist Business", Part I
http://simple-trading-system.blogspot.com/2012/03/interview-with-ev-bogue-author-of.html
My experience has been that successful investing is about finding a simple strategy that works, and then having the patience and discipline to stick with it - even when it is not performing in the short term.
Over short periods of time, randomness has a bigger influence. A lot of investors get impatient, and they then abandon the system and switch to trying something else.
With hedge funds and mutual funds, a lot of it is about needing good short term results to attract new money, so they keep trying complicated stuff to avoid any down performances - this helps keep them from getting good long-term results.
On my blog, I wrote about a book called "The Hedge Fund Mirage", which is critical of that whole industry:
http://simple-trading-system.blogspot.com/2012/02/who-really-benefits-from-hedge-funds.html
Today, the kindle version of my book Stock Trading Riches reached the top 100 on the Kindle Business and Investing best seller list.
The Second Best Performing Chicago Area Stock of 2011 was Akorn, Inc (AKRX), which is based in Lake Forest, IL. Akorn sells ophthalmic antibiotics, dry-eye treatments, and injectable drugs for hospitals.
This is another growth stock. Akorn's CEO, Raj Rai, took over in 2009 (when the stock was below $1) and led a remarkable turnaround - the stock increased 239% in 2010 to $6.07/share, and increased 83% in 2011, to $11.12/share.
Rai turned the company around by focusing on its profitable eye treatments and injectable drugs, selling its money-losing divisions like vaccines, investing in sales, marketing, and R&D, and acquiring factories in India to serve that country's fast growing markets.
Akorn has a lot of room to grow, so it could make a good growth stock purchase, especially at a lower price.
Ulta is the Top Performing Chicago-Area Stock for 2011
The Chicago Tribune recently had an article listing the best-performing 2011 stocks among Chicago area-based companies.
The number 1 performing stock was Ulta Salon, Cosmetics, and Fragrance, Inc. (ULTA). The stock was up 91% in 2011.
Ulta has been called the "Best Buy" of the beauty market. It offers one-stop shopping for cosmetics at every price range, as well as a full-service hair salon.
It is a classic example of a growth stock.
On one hand, some analysts feel it could sell off this year because it trades at 32 times estimated earnings. Also, they may face competition as Walgreens and CVS increase their beauty product offerings, and from women shopping online.
On the other hand, the reason for their success is the fundamental shift of women going from malls to strip malls. Most high-end beauty products used to be bought from department stores. Now, women like the convenience of being able to drive up to an Ulta in a strip mall and find all products in one place.
As a result, Ulta is growing at a fast pace. They currently have 449 stores, and have room to expand - especially on the East Coast and Northwest. They plan to increase their number of stores by 15 - 20% a year until they reach 1,000 stores.
At the same time, they recently experienced a 12.6% increase in sales open at least one year.
In addition, since their stores average 10,000 square feet, they are experimenting with launching 300 square foot stores inside devoted to men's skin care and grooming products.
You can look to buy it on a drop for a GAARP play (Growth at a reasonable price) or buy it now as a growth play. Either way, you could then manage it with the "Stock Trading Riches" or AIM formula to play the fluctuations, and pump money out to enhance your return, while reducing your risk/cost basis.
Hi 1step,
A reader of my book used my spreadsheet to test my system on the SPDR (SPY) S&P 500 ETF from 2001-2008, and said it beat the index (2.0% vs. 1.7%).
They posted it on Amazon.com, in a list mania:
http://www.amazon.com/Contrarian-Stock-Investing-Systems/lm/RKU02DVM0IS13/ref=cm_srch_res_rpli_alt_2
With systems such as AIM or "Stock Trading Riches", a general index fund such as SPY isn't ideal because the individual movements of the components cancel each other out, thus dampening the volatility.
Instead of investing directly in SPY, you would get better results by replicating the index with multiple funds, such as by sector, or market cap (i.e. small, midcap, etc.) That way, you would be rebalancing each fund. They would be more volatile because the stocks in each fund would be more inclined to move up or down together.
Praveen, thanks for all the info! I'll be taking a further look into your book, it sounds very enlightening
Hi Praveen
Do you have figures of using your technique on the s&p itself. How would your system fare.?
1step
For the past 7 years (2005-2011), I have exclusively used my "Stock Trading Riches" system to manage my portfolio.
While I lagged the market in 2011 (-5% vs. +2.11%), I have beaten the S&P 500 over those 7 years:
Year, Me, S&P 500
2005, +13%, +4.91%
2006, +14%, +15.79%
2007, +22%, +5.49%
2008, -40%, -38.49%
2009, +44%, +23.5%
2010, +22%, +13%
2011, -5%, 2.11%
My portfolio has had a cumulative seven-year return of +57.38% vs. +12.32% for the S&P500.
Today I finished rebalancing my portfolio, as required by the "Stock Trading Riches" system. This involved buying or selling each stock that was under or over my constant value target by at least 10% - so that each stock position was now at the constant value.
This year, I did it in two parts: sales last Friday and the buys today. This was because I now keep the majority of the cash portion of my portfolio invested in a no-load short-term bond fund.
After selling the gainers, I then calculated how much more money I would need to complete the buys, and then placed a sell order for the mutual fund on Friday. Today, the mutual fund sale proceeds were in my account, and I used them to complete the buys.
Stocks can be separated into 4 groups, according to their market capitalization:
1. micro caps - below $300 million
2. small caps - between $300 million and $1 billion
3. mid caps - between $1 billion and $5 billion
4. large caps - over $5 billion
I talk in more detail about market cap analysis in my book "Stock Trading Riches" because it's important for investors to allocate their portfolios among all market caps to provide diversification, avoid cyclical returns, and take advantage of "regression to the mean" (e.g. one market cap segment outperforms another, but then they converge).
Market cap is calculated by multiplying the number of shares outstanding by the share price. For example, if stock ABC issued 6 million shares, and the price of each share is $6, then ABC has a market capitalization of $36 million.
In general, micro caps are new companies that are just hitting their stride. Small caps tend to have their infrastructure in place and are in growth mode. Mid caps are big regional or national companies. Large caps tend to be established multinational corporations.
Stocks within each market cap share important characteristics in the areas such as growth rate, risk, dividends, visibility, and international exposure.
Thanks Clifford, I think that the code you posted might just be what I need to get Excel to do what I want.
I don't know how to do that in Excel.
=IF(Q5<0;B5;IF(Q5>0;B5;N4))
Hi PraveenP, this is a bit of code from my Hi/Low demo spreadsheet. Column N is my last buy/sell price. Row 4 is just setting everything up, the action starts in row 5. column B is where you input the stock price. Column Q is where I determine if I have bought or sold any shares. If that number is zero, the number in (N5) is pulled down from (N4). IF I had a buy or a sell in (Q5), then the number in (N5 is gotten from (B5) the stock price that was inputed.
Hope this helps
Clifford
Many traders use charts of past prices to trade stocks. They feel that, if the chart makes certain patterns, it can predict what the stock is likely to do in the near future.
One of the problems with chart reading is that pattern recognition is fairly subjective (the human brain likes to organize random data into pictures). One trader may see a pattern where another one doesn't. This makes charting-based trading systems hard to test.
However, studies that have been done using objective definitions of patterns consistently detect no trading advantage. They show that trading on chart patterns are equivalent to buying randomly.
I think that another flaw of chart based systems, which nobody really talks about, is scaling. Chart scaling, in my opinion, is the reason that patterns looks so seductive and accurate in hindsight.
Traders develop patterns by studying charts of big moves that have already occurred. They frequently "see" consolidations and patterns before the big moves.
For example, one pattern is called sideways consolidation - where the market trades almost horizontally in a narrow range. Then, prices eventually "breakout" and make a big up or down move.
The problem is that, after a market's range has expanded, the scaling of the chart changes as well. This scale change smooths out the movements that occurred prior to the big move, and creates the sideways consolidation. Prior to the big move, traders would not have seen the sideways consolidation, because the chart scale would have been different.
Let's assume that the market moved in a range between 10 and 20 for 6 months. The chart would be scaled from 10 to 20, and the chart will show lots of peaks and valleys. After the market moves to 85, the chart now reflects a range from 10 to 85. This compresses the peaks and valleys between 10 and 20. The result is that the 6 months before the move looks like a sideways consolidation pattern.
Unfortunately, you can't trade on patterns that occur after the move.
This is why my trading system does not use charts - only prices. Numbers are objective, and not open to interpretation. I only use charts to find prices for stocks I want to back test using my spreadsheet.
I received an email from a "Stock Trading Riches" reader who had a question about the spreadsheet (it is a free download for people who buy the book, in either format - paperback or kindle).
His spreadsheet question was:
In the "number of shares" column I notice that you are checking for a 10% price change between the current years price and the previous years price. This is ok in Year 1 and Year 2 but in the longer term you are not comparing the current years price to the initial Year 1 price. So what could happen is you could have a steady increase/decrease of less than 10% every year over a number of years (cumulatively > than 10% over a number of years) but none of them will trigger any selling/buying as the price is being compared to the prior year. Was the sheet deliberately designed this way?
My answer was:
What the basic system does in real life is only rebalance if the stock has moved 10% or more from the last time it was rebalanced. So, the spreadsheet should actually not compare the current and previous values, or the current and first. Instead, it should compare the current value with the last value where a rebalance occurred.
I don't know how to do that in Excel. So, I put the 10% check between the current and previous row just in case a value isn't 10% apart. But the best way to use the spreadsheet is to manually exclude prices less than 10%.
So, if the monthly prices were 100, 99, 95, 97, 85,... you would put in 100, 85 in the spreadsheet.
The best trading systems are simple and minimally beautiful - at most, they only use a handful of indicators or formulas, and they implement a simple model of the market.
They don't aim to explain market behavior rigorously and precisely like an economist - instead, the model aims at robustness, where it lets you manage your risk appetite and set the odds in your favor.
The purpose is to give you an edge - like the house has in a casino game. It won't win every trade, but it will have a positive expectation where, over time, you can expect to make more money than you lose, thus letting you build your account over time.
If a trader attempts to develop a complex system that could win every trade, then that is a set-up for failure. As systems get more complex, they have more moving parts - which results in unpredictable interactions and bugs that will eventually cause your system to blow up and suffer heavy losses.
With a simple system, your ego may not be satisfied - it will tell you that you are smart enough to come up with something more accurate, so you will lose less trades - but your bottom line account balance will benefit.
tffdo, you can change the constant value. I plan to do that eventually, because I don't want to have hundreds or thousands of stocks.
It's just that this part is handled manually, by your judgement. It's not a mechanical rule.
Though, you could follow the variation for mechanically increasing the constant value. In the book, this is the optional rule where, if the position has gone up, you can average the new value and the constant value to get a new, larger constant value.
Also, remember that, even though it is simpler to have the same constant value for all positions, you can have different constant values (for example, a large one for an index fund, and smaller ones for individual stocks).
I try to stress that the basic "Stock Trading Riches" system is simple, so it is easy to customize it to suit your personality and risk/reward goals and tolerance.
Running out of cash:
When I ran out of cash (which I did at the end of 2008 because of the big drop), I added more cash into the account.
I could not add enough to rebalance all my positions, so I followed the "triage" rule on page 24 of my book (5th paragraph), which is to raise more cash by selling off the worst performing stocks.
I think is it better to sell off some positions to make sure all remaining ones are rebalanced, then keeping all the positions and having them unbalanced.
This worked because I made a 44% return in 2009 (vs. 23.5% gain for the market).
Hi tffdo,
As Toofuzzy said, the leveraged funds are only designed for short term (day) trading, so they are not good for weekly or longer trading.
Compare the year-to-date returns of the profunds bull (SP500) with the ultrabull (2xSP500) and ultrabear (2x inverse SP500):
http://www.profunds.com/funds/bull.html
http://www.profunds.com/funds/ultrabull.html
http://www.profunds.com/funds/ultrabear.html
The bull YTD is -3.49%
The ultrabull YTD is -10.49%
The ultrabear YTD is -12.72%
As you can see, the longer term returns are not what you might expect because the funds are designed to leverage the daily movement, not the movement over time.
Hitffdo
>>> I have begun to think about a short term trading system utilizing 3x leveraged etfs.<<<<
The leverage funds will just get you in trouble. They don't work over longer time periods. They are only good for short term (day, week) bets. Investing should not be betting. They are derivatives of derivatives for G-Ds sake.
Check out www.aim-users.com for a non emotional way of investing. It is best used with funds in my opinion even if you lose some volatility. You also lose some risk that way.
Not always
Toofuzzy
Praveen:
Could you ever change the constant value of a position if the cash increases above the 30% level and you don't want to add new positions? Thx
After reading your book, I have begun to think about a short term trading system utilizing 3x leveraged etfs. Really to generate cash income. Don't know if it would work but thinking about a constant value of 10000, rebalance +/- 5%, weekly rebalance, use sogotrade $3 trades. Thoughts? In any system, what do you do if you run out of cash to invest say on a precipitous market decline and not able to rebalance to the constant value amount? Thanks
"Stock Trading Riches" is now available in Kindle format on Amazon.com:
http://www.amazon.com/Stock-Trading-Riches-ebook/dp/B0065CE3VO/ref=pd_rhf_dp_p_t_1
They did a good job in the conversion - I saw that the stock tables and programming scripts display well, and the links are clickable.
You don't need to own a Kindle to buy this edition. You can download free readers for PC's, Mac's, iPads, etc.
Hi tffdo,
Thanks for buying my book! I hope it helps you build a trading system that suits your risk-reward level.
I have exclusively used the basic Stock Trading Riches system on my portfolio for the last 6 years, and I have beaten the S&P 500 over those 6 years:
Year, Me, S&P 500
2005, +13%, +4.91%
2006, +14%, +15.79%
2007, +22%, +5.49%
2008, -40%, -38.49%
2009, +44%, +23.5%
2010, +22%, +13%
My portfolio had a cumulative six-year return of +65.66% vs. +10% for the S&P500.
Of course, my system is flexible and you can use the book's section on rule variations to customize the system. For example, you can increase or decrease the maximum cash percentage at the portfolio level from the basic 30%. You could implement the position growth rule, or the stop loss rule, you could change the rebalance frequency, or experiment with percent triggers.
You can back-test these variations on paper with various stocks and see if they improve the system in ways that make you more comfortable.
Bought your book today. In your experience what kind of annualizrd returns can expect utilizing your system? Thanks
On Monday, I bought two small cap stocks: ACME Packet (APKT) and 51Job (JOBS).
As I mention in the market cap section of my book, I try to balance my portfolio across market caps, since companies in the different caps have different risk / reward profiles, and the caps themselves follow different cycles.
APKT specializes in session border controllers (SBCs), which provide control and security at the edges of IP networks that carry voice, video, and multimedia traffic. This is a fast growing company, but volatile stock with quartely fluctuations. The stock was up 104% in 2010, but I bought it now because it fell 50% after it missed it's third quarter estimate (due to a large order slipping into the fourth quarter). I don't mind volatility, of course, since I will manage the position through my "stock trading riches" system.
51Job, based in Shanghai, is the human resources market leader in China. They provide recruiting, payroll processing, and training to companies across 25 cities in China. The stock fell into the $40's after a peak of $70. They have $10/share in cash. According to small cap guru Jim Oberweis, the stock trades for 15 times his 2012 earnings estimate, and has expected earnings growth of 55%.
Investing in management.
The Oct. 10 issue of Forbes had an interview with billionaire growth fund manager Ron Baron.
He listed 4 criteria for investing in a new company. He said many others look at the first three, so the fourth one is especially important:
1. The business must have growth opportunities.
2. The business must be appropriately financed.
3. There should be a competitive advantage (i.e. barrier to others from competing with them).
4. There needs to be a trustworthy leader that inspires people to follow them - who will invest in the business, even if it hurts the short term bottom line.
The example he gave was Ralph Lauren. His European franchisee was doing poorly, and Lauren realized that Europe was the next big market. He had to pay such a high price to acquire the franchisee, that it diluted the stock. In the long run, however, the move paid off.
I agree with you Praveen. Where were all the budget cutters during the Bush administration. If you want to cut the budget and reduce the balance of payments, close most of the 1000 military bases we have overseas and bring the troops home. You don't even have to reduce the military (though that would be a good idea) just have all the troops spending their money on US soil. Create a US Medical corp to soak up reduced military personal to be available for natural disasters and such. Could even be the start of lower cost medical care.
Anyway instead of the banks saying we really don't want the money but OK we will take it. The congress should have 1) given money to the states so state workers wouldn't need to be laid off in the short term. 2) Planned and built infrastucture projects. Repaired roads and bridges, built high speed rail. improve sewer treatment, etc
Most of the stimulus money went overseas. If you give me a tax cut I go to Walmart and it goes to China. If you build something, you hire workers to design and build it and create the materials all in the US. The money we pay the workers then goes to Walmart and then to China but as a country we end up with something for the money. The infrastructure that was just built. In the depression we got rural electrification, the Hoover Dam, the interstate highway system, etc. What did we get this time except a large national debt?
Then wait for the banks to be worthless and just take them over. After cleaning up their books, split them into much smaller banks that are not "too big to fail" and pass a law that no bank can become greater than 1% of the GNP or something like that.
Toofuzzy
Hi Aim Hier,
I agree that private business tends to be more efficient and, over the years, government (especially at the federal level) has gotten too large. I also agree that, eventually, the government needs to strive for balanced budgets and eliminating the deficit.
Right now, though, there is a lack of demand and a liquidity crisis. Individuals and businesses are sitting on cash. A lot of people I know who have jobs are overworked. My team at the bank where I work is short handed, but we can't get approval to hire any permanent workers.
I think the Republicans and Tea Party are focusing on a good issue (cutting spending / deficit), but at the wrong time.
I think it will push the unemployment/deflation cycle more if we reduce government right now and push government workers into unemployment and into competition for private sector jobs.
I think it will be less painful if the government waits a couple of years until the private sector comes back and the recession ends. Then, there will be plenty of time to slim down government before we have to worry about inflation.
"Cutting government spending right now will reduce demand. The time to reduce the deficit by spending cuts will be after the economy recovers out of recession"
Praveen,
I suspect that we are all somewhat vulnerable to our individual political beliefs, myself included. But, I will try to explain why I disagree with the foregoing. History has shown, case after case, that free markets channel resources more efficiently than central government planning. Our federal and many state governments, have in the last century, grown exponentially, and are way more intrusive and inefficient than desirable, and in opposition to how the U.S. constitution was originally interpreted.
Now I'd love to see government spending 'cut'. But for all the hysteria in the news, no one is actually talking about reducing spending. What is in question is how much of the budgeted increases in spending over the next ten years, might be reduced. I think this can be done, and the economy won't be harmed. Now if you are the beneficiary of government monies, you'd be harmed and you would need to find a new source of revenues, just as people in private busineses need to do every day.
Our gargantuan government is shifting the playing field to favor large corporations. Increasing regulations creates an economic moat that helps protect these dinosaurs. If we want to see a robust economy that creates jobs, the solution, to me at least, is clear- cut taxes and onerous regulations. Don't require California hotels to use fitted bedsheets, for example.
In the meantime, I see permanently high unemployment rates and a slow growing economy as long as Americans favor European style socialism. And I pray that one of the solutions of this new super panel, is not to start some ambitious job training programs. The idea sounds great, but all such previous programs have been boondoggles.
Hi 1step,
Thanks for buying my book and I'm glad you were able to benefit from it!
In hindsight, I don't think L-1 Identity stock or its p/e were very high, but they were not low in the range of a value stock.
Instead, I bought it as a growth at a reasonable price (GAARP) stock. I figured that governments and corporations would be interested in new technologies to prevent terrorism, industrial espionage, etc.
I didn't anticipate that this spending would be derailed by a global financial crisis and recession.
That is why your statement "I feel the entry point in any stock purchase should signal value or a fair deal" is a good one.
While I have made money using my technique on GAARP or growth stocks, and I think diversifying across stock picking methods is good, I think you can sleep better at night and have a higher success rate if you focus on value stocks.
Hi Praveen
In Hind sight is there any way you could have know via some metric that you purchased at the wrong point. Perhaps the p/e or some other parameter would have signaled an ill advised purchase.
I feel the entry point in any stock purchase should signal value or a fair deal. The starting point is so importanrt in my mind.
I did buy your book and do use your constant value method on some shares I own. Again different type of shares probably are best handled by different methods.
I hope in the near future you put out a third volume . I own your original work as well as the recent update
The Threat Right Now is Deflation - Not Inflation!
Too many people are preaching a gloom / doom scenario where the Chinese (and others) reject U.S. bonds because of the debt, we have to raise interest rates, and suffer hyperinflation.
That is just a fantasy at this point.
Since the "downgrade", investors have been piling into treasuries - S&P's view was completely rejected. U.S. bonds are still considered the safest and most liquid investment. There are no other options. Swiss bonds are considered safe, but their market is not nearly large enough.
Right now, we are more in danger of deflation than inflation. There is currently a liquidity trap. Companies are awash in money, but not spending. So there is no demand.
Proof: Bank of New York just started charging negative interest on large cash deposits. Any return the bank can get by investing its balances in overnight / short term paper can't even cover the insurance / overhead of holding deposits!
Even though everyone wants the debt burden eased and don't want any more government stimulus, that might end up being the only course of action. The Fed can't cut interest rates any further. Companies have money, but there is not enough demand for goods/services. Cutting government spending right now will reduce demand. The time to reduce the deficit by spending cuts will be after the economy recovers out of recession.
L-1 Identity Solutions (ID) - Another Real Life "Stock Trading Riches" Trade
On April 23, 2007 (my birthday by coincidence), I bought 101 shares of L-1 Identity Solutions (ID) at $19.61. L-1 makes biometric security products (retinal scanners, etc.) for government agencies, border control, courts, corporations, etc.
On July 25, ID was acquired in an all cash deal for $12/share. Thus, buy and hold yielded -39% for the last 4 years.
However, I managed the position with the Stock Trading Riches system. The formula had me do the following additional transactions:
12/29/2008 buy 230 shares at $6.04
6/4/2009 sell 107 shares at $8.91
12/22/2009 buy 89 shares at $6.40
12/28/2010 sell 145 shares at $11.90
I ended up with a +$18.6% return for 4 years. This is an annualized return of 4.4% - not bad considering that, in hindsight, I bought the stock too high.
This was another example of how my Stock Trading Riches system self-corrects your positions over time.
I am on Fox Business. I was interviewed for a personal finance article on FoxBusiness.com which featured "Five Smart Money Lessons From Reality TV" (http://www.foxbusiness.com/personal-finance/2011/07/19/5-smart-money-lessons-from-reality-tv/). They even mentioned my book "Stock Trading Riches".
They wanted financial experts to describe financial lessons that one can learn from reality TV shows. They used my example of "The Biggest Loser" - where people can learn that, like losing weight, controlling debt and making wise financial choices are skills that improve slowly and steadily. Don't get discouraged if you find it hard to make instant progress.
The "Stock Trading Riches" Ebook is Now $4.99
You can click on this link to purchase and instantly download it:
https://www.paypal.com/cgi-bin/webscr?cmd=_s-xclick&hosted_button_id=YNX3AM3XA32N8
The "Stock Trading Riches" Ebook is Now Only $2.99
You can click on this link to purchase and instantly download it:
https://www.paypal.com/cgi-bin/webscr?cmd=_s-xclick&hosted_button_id=YNX3AM3XA32N8
Trading With Charts and Technical Analysis Is A Good Way To Go Broke!
Every day, thousands of people decide that they want to "trade stocks and make millions". Unfortunately, there are no shortage of snake oil salesmen willing to encourage them, and sell books, and fancy technical indicator and charting software.
The truth is that if you approach the stock market with a small amount of capital, and expect to get rich quickly, you are setting yourself up for failure:
1. You might gamble a large percentage of your money on one or two risky trades.
2. Pay too much in expenses (commissions, fees, books, software, DVDs, seminars, etc).
3. Use technical analysis and charting.
4. Get involved in futures and options.
The stock market is a fantastic way to make your money grow and work for you, but you can't expect it to triple or quadruple a small stake. Instead, count yourself as a good trader or investor if you can reliably generate between 10 - 20% per year consistently.
Please do not buy into hype about technical analysis and charts. Now, you do need to use technical (i.e. price based) rules for deciding buy and sell points, but these are about managing risk and taking profits from positions determined through fundamental analysis. But, you need to beware of depending on charts and technical indicators to predict when stocks will go up or down.
Most of these technical indicators have been recycled and sold since the 1970's, when computers and calculators were available for the first time. "Trading gurus", who make more money from selling systems than actually trading, found they could create indicators that sometimes gave reliable signals, and then could cherry pick these examples for their sales pages.
Chart patterns and technical indicators are seductive because most people - especially successful professionals from other fields - think in an employee mentality - rather than an entrepreneurial mindset. In other words, they want a consistent paycheck and reliability. They want a boss to give them instructions. In this case, the trading guru gives them a well defined job - buy when this line crosses this, or sell if this chart pattern occurs. They don't want to think for themselves, take risks, and invent their own systems.
This is why many doctors, lawyers, and engineers make lousy traders and business owners.
I never consistently made money with traditional technical analysis. I only became consistently successful when I turned unconventional and developed my Stock Trading Riches system.
The Stock Trading Riches formula is technical, in that it works on price, and it is as easy to apply as a moving average or oscillator. But, it is not trying to predict when to buy or sell a position, or trying to predict the market. It's a tool for managing a position - lightening up when the position has increased and bulking up the position when it is down.
I found the secret to trading a stock is not to jump in and out. The key is to always hold core position and mathematically adjust the number of shares, depending on a formula - like STR or AIM.
Hi Dan,
My site http://www.stocktradingriches.com is back up. My hosting service fixed the issue. Sorry for the inconvenience.
Praveen
Hi dangreene,
Thanks for letting me know!
I opened a ticket with my hosting service. Hopefully they fix it soon!
Praveen,
Today, 06/24/2011. Why am I unable to access your stocktradingriches.com site ?
Challenge: What if you could only hold 3 stocks for retirement and could not touch them for decades?
I got challenged with the above scenario.
Here are three choices for stocks that can be held through retirement for growth and income:
1. Archer Daniels Midland (ADM) - They have a good history of dividend increases, and are a great hedge for inflation, since they process agriculture and food products. In addition, they are a hedge on a weak dollar because they have substantial foreign product sales and own a lot of undeveloped land overseas.
2. American Assets Trust (AAT) - This REIT should produce a growing amount of income over the next few decades. It is a 45 year old company based in San Diego that owns a high-quality portfolio of office, residential, and retail properties on the West Coast - including California, Hawaii, and Portland OR. While the national vacancy rate is in double digits, AAT's properties in California and Hawaii are just 5% vacant.
3. Illinois Tool Works (ITW) - This company is part of the S&P 500 and has increased its dividend every year for the past 44 years. It continues to grow, year after year, by buying smaller industrial product and equipment manufacturers.
2 stock picks for the railroad industry:
1. Union Pacific (UNP) - they haven't missed an earnings forecast in 5 years, and their business is increasing as the economy recovers, and the price of fuel makes them more competitive with trucking firms. Even after a recent run-up, the stock trades at a reasonable price / earnings ratio.
2. Canadian National Railway (CNI) - CNI has the rail industry's highest net profit margin (27%) and has shorter term freight contracts than other railroads - which allow it to raise prices. CNI also has exclusive rail access to the container terminal at the Port of Prince Rupert in British Columbia. This terminal should capture more freight traffic to Asia because it is 10 days to Shanghai vs. 12 days for the Port of Los Angeles. Finally, it doesn't hurt that the largest shareholder is Bill Gates.
I own CNI, and manage the position with the "Stock Trading Riches" system.
Who Is To Blame For The United State's High Level of National Debt?
There is plenty of blame to go around for our present debt situation:
1. Under Bush, we cut taxes and started 2 wars - and Obama continued this while
adding another 1/2 war (air strikes on Libya). During WWII, the folks at home made sacrifices, such as rationing, etc. that made them feel connected to the war effort. While we no longer need rationing, we should have ended the tax breaks after 911 - when we went to war.
2. The bottom line cause of the financial crisis was Greenspan pumping too much money trying to lessen the effects of the dot com crash. Booms and busts are a natural cycle in capitalism, and we keep trying to use the government to smooth out the down cycles.
3. Finally, we have had historically low interest rates for the last few years. While responsible homeowners locked in low, fixed rate 30 year mortgages, the government is still mostly stuck with short term debt. We should have been issuing less short term bonds and lots of 20, 30, and even 50 year bonds.
Sometimes it's fun to explore the internet without any plans - just following links and "googling" interesting phrases.
This morning, I started off reading an article about an American sumo wrestler who set a world record for heaviest finisher of a marathon.
One of the comments was a joke that the sumo guy would cause a shortage in Gold Bond medical powder - in other words, a joke about chafing.
I remember hearing commercials for Gold Bond years ago so, feeling nostalgic, I googled it and went to the Wikipedia site.
From there, I learned that a lot of cool products from the past - like Gold Bond, Icy Hot, Selsun Blue, etc. are made in Chattanooga Tennessee by Chattem, a 100 year old company.
The Chattem Wikipedia entry mentioned that they are a subsidiary of French drugmaker Sanofi-Aventis, which sounds very interesting. An old time Chattanooga company owned by a French drugmaker.
It makes me think of the "Beverly Hillbillies"'s Jed Clampett mingling with a French aristocrat. So, I googled the merger.
Turns out that Sanofi bought Chattem in 2009 on December 21 (my brother's birthday). They paid $1.9 billion - offering $93.50/share, which was a 34% premium over the closing price.
From an analysis point of view, it looks like it was a good deal. Chattem is in the top 10 for consumer products in the U.S. (and has a higher profit margin than leaders Johnson & Johnson and Proctor & Gamble), but they don't have much market overseas. Sanofi is losing patent protection from many drugs, and wants the stable earnings from consumer products to make up the lost income. Also, they want a sales network to sell an over-the-counter version of Allegra in the U.S.
So, it was a win-win deal for everyone.
Finally, I saw an interesting article on the Wall Street Journal that 2 French businessmen in Brussels got charged by the SEC for insider trading on the Sanofi-Chattem deal. They found out about the deal before hand, bought options (expiring on Jan 15) on Chattem stock, and sold the options right after the merger was announced for a $4.2 million profit.
So I had a fun and educational "surf session" all because of a Sumo running (actually walking) a marathon
Bank of America Foreclosed On:
A couple who had no mortgage on their home got erroneously served with foreclosure by Bank of America. They won their case and were awarded about $2500 for lawyer fees. BofA wasn't paying, so they got a foreclosure order from court against the local branch and showed up with sheriff's deputies...
http://news.yahoo.com/s/time/20110606/us_time/httpmoneylandtimecom20110606homeownerforeclosesonbankofamericayesyouheardthatrightxidrssfullnationyahoo
RE REITS
I bought WRI because I liked its valuation better than the ETF ICF about 2 years ago at $10 and $13
Since I am using AIM I have been selling as it goes up.
While I think REITS may go higher I would not buy any that are at a current high and would wait for a pull back in price to get in.
Toofuzzy
I Bought Two REITS Today - AAT and CPT
REITs trade like stocks, and can be thought of as real estate mutual funds. In other words, instead of owning companies, they own real estate. They get special tax breaks, providing that they pass most of their earnings to shareholders. Because of this, REITs provide a lot of income.
I have always wanted to buy some REITs to diversify my portfolio, and I decided now might be a good time after reading an article in the recent edition of Forbes entitled "REIT Merger Boom is Brewing".
I bought two REITS: American Assets Trust (AAT) at $21.88 and Camden Property Trust (CPT) at $62.51.
AAT went public in January at $20.50 per share. It is a 45 year old company based in San Diego that owns a high-quality portfolio of office, residential, and retail properties on the West Coast - including California, Hawaii, and Portland OR. While the national vacancy rate is in double digits, AAT's properties in California and Hawaii are just 5% vacant.
Camden Property Trust specializes in apartment communities, is considered a buy because its stock price hasn't gained as much as bigger apartment REITs, such as Equity Residential. In fact, CPT makes an attractive takeover target for bigger REITS (like Equity) because of its large holdings in the Southwest and Southeast.
I'm Praveen Puri, the author of "Stock Trading Riches". It describes my Stock Trading Riches (STR) trading system which, like Robert Lichello's AIM system, is based on constant value rebalancing. (My book is available in paperback and Kindle formats).
I have been involved with investing for over 30 years. I have been a full-time trader, financial software developer, consultant at the Chicago Board of Trade, and a vice-president at a major bank. I'm currently an independent business consultant who use Strategic Simplicity to help clients achieve faster change and innovation.
I'm passionate about simplicity, and so I always gravitated towards designing simple systems. I was originally a big advocate of trend-following, but years of experience and testing convinced me that counter-trend rebalancing systems (such as STR or AIM) are better for achieving a repeatable and dependable economic-based edge in the market.
I read Robert Lichello's book on the AIM system in the early 1990's, but I ended up developing my own system because I felt that AIM had several drawbacks:
1. Lichello originally intended for AIM to be applied at the portfolio level. Thus, there would be one portfolio control and one cash. The problem with this is that individual stock movements cancel each other out, thus dampening volatility.
2. While AIM can be applied individually to each stock, I felt, as an evangelist for simplicity and elegance, that this was a bit too clunky and complex - having to track separate controls, safes, cash, etc.
3. I also didn't agree (when trading individual positions) of portfolio control increasing during down cycles, and not increasing during prolonged bull moves.
Note that these views don't mean that I think AIM doesn't work. AIM and the STR systems are cousins and any re-balancing system is a good approach to the market.
The basic Stock Trading Riches system is to build a portfolio of many positions. Each individual position is assigned a constant value (which never changes) and is rebalanced once a year. Growth happens at the portfolio level. The portfolio consists of the individual positions and a cash balance. At this level, the system uses constant ratio balancing to have a maximum cap on the cash level. For example, the default value is 30% cash.
If cash builds up over 30%, then the cash is used to add new positions. Besides the basic system, my book also discusses optional rules, trading psychology, and (in the 2009 updated section) ideas for stock picking, IPOs, portfolio design, etc. Readers of my book also get a link to download an Excel spreadsheet of the basic rebalancing system.
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