Here are my notes on ways to get my money to work harder for me. Here are my notes on the different places where I can get my money to work harder for me.
You single biggest expense is probably your home loan mortgage. So consider the net savings from this clever no-cost way of paying it off earlier.
Stock Index futues have a lower transaction cost than ETFs. ETFs (Exchange Traded Funds) buy all the stocks of a particular target index. So they don't have the stock-picking expenses of mutual funds.
Before you buy index funds from companies such as Ameriprise, compare what you are charged to get in and out of the fund, which can be exorbitant: At many borkerages such as Schwab, you don't have to pay a front load, only a redemption charge to take money out after a few months. Vanguard got big because they charge less for their S&P500 index funds.
Funds also make money by taking small amounts of money out along the way. (good ratios are less than 0.40).
Current capital-gains tax is 20% (down from 28%).
Use IRA accounts to invest in high-turnover funds.
Put taxable liquid money in government bonds. Double tax-free bonds are issued for each state.
Good companies have:
"Value investing" is the startegy of investing in quality assets temporarily underappreciated by the public. But beware -- stock in companies may dip ahead of upcoming nasty announcements.
Peter Lynch says a growth stock is fairly valued as long as its earnings growth rate is greater than its P/E ratio. Look for companies that have a 1 or lower "PEG" ratio — the company's Price Earnings ratio divided by its annual earnings Growth rate.
A small investment in a high-soaring stock (such as Microsoft, Ebay, Google, etc.) early in its life can change your lifestyle. So it makes sense to have some money in such potential.
But the trick is in picking them.
Invest in individual stocks for excitement as topics of conversation, pointing to framed stock certificates obtained from oneshare
Mutual funds are often closed to new investors because each mutual fund by law can't own more than 10% of a company.
Prefer stocks that have a “Franchise” - a name brand.
The Arial Fund (ARGBX) buys socially responsible companies — no tobacco companies, casino operators and makers of weapons, beer, and graphic video games. The Vice Fund (VICEX) focuses on them because people continue spending on them regardless of a recession.
When the price has broken above an old high, there is no unhappy holders who are waiting to dump the stock.
Go for value. Be careful of going long on a stock with estimated 5-year earnings growth rate of the stock plus dividend that is higher than the P/E based on next year's earnings estimate.
In the past, markets have peaked around 20 times earnings and hit a trough around 10 times earnings. S&P 500 P/Es average reached 46 near the end of the 1999 prior bull market, 23 since 1988, and 18 since 1963. At the peak of the market in 2000, Nasdaq sold at a multiple of 245 times earnings.
P/E's have been bid up by baby boomers pumping money into the market hoping to make up for lost time. This will end by 2006 when those born in 1946 begin reaching 70 -- when mandatory withdrawls from IRA accounts begin kicking in.
It takes about 12 years to obtain a 100% return at 6% per year.
It is true that over very long periods stocks have returned on average about 10% a year. However, of that 10% return, 4% came from dividends. The dividend yield today is about 1.7%.
To trade on margin (7-9% compounded daily), Federal Reserve Board "Regulation T" requires a minimum initial deposit of $2,000 and equity percentage of 50%. Each brokers also have a MMR (minimum maintenance requirement) and list of non-marginable (internet & biotech) stocks.
The RiskMetrics Group (a 1998 spinoff from J.P. Morgan) score of risks in individual stocks, indexes and mutual funds range from 21 for a security that almost never changes in value) to 22,344, out of the universe of U.S. stocks, based on price movements over the last 250 trading days, weighted so the most recent 11 trading days account for 50% of the overall assessment.
“Be greedy when others are fearful. Be fearful when others are greedy.” —Warren Buffet
Buy fundamentally good assets that are temporarily not of general interest (such as general market gitters that is not related directly to the company).
Buy after the market bottoms. Sell before the peak.
A market is in a bull "rally" mode when current prices are higher than its 20 week average.
GTC (Good Til Cancelled) means forever.
A "bear" market occurs when the market is overvalued and inflation and interest rates are rising. Technically, a bear is confirmed when prices move down below its 20 week average. This has occurred on the average once every 39 months, or 3.3 years.
Before sentimentbecomes "recessionary", when prices are feared to rise:
Terrorism has created opportunities in the following:
When jobs rise, these benefit:
The biggest one-day drops on the DJIA historically happened in August, September, and October — the worst six months (WSM).
The best months for stock market gains has historically been in November through March — the best 6 months (BSM).
Back-testing has found that selling all stocks to cash before the MACD signal crossing after April 30 and buying them again on the MACD signal crossing after October 31st tripled returns while reducing risk (since money is at risk only 49% of the time).
Traders for large institutions sometimes attempt to kill a stock price at the end of the day in order to make themselves look better with VWAP (pronounced vee-wop) numbers — the Value Weighted Average Price at which the greatest volume of the stock was traded that day.
To protect profits, put limit orders to automatically sell a stock when prices drop to a pre-specified price (such as at 4% below).
A "stop order" is a fixed-activation price order that becomes an active market order
when the price reaches a specified "stop" price.
Better yet, participate in the derivatives market to collar positions.
New issues (IPO shares) can't be shorted during the first 30 days of public trading.
To prevent a "snowball or "dogpile" in a downward market, shorts can't be excuted on a downtick when a bid price is lower than the previous price. Shorts can only be executed on individual stocks after an uptick.
This is why NASDAQ Level II quotes are necessary to see demand drying up.
On the NYSE, "size" -- the number of shares attempting to be bought at the current price, is shown only on brokerage office screens.
Back Test StrategiesThe process of finding patterns by "crunching" history is called "back testing." Use software such as TradeStation Platform or Ultra 7. Note that they do not yet model the effect of transaction fees or use of short funds.
Charting techniques use historical patterns and statistical analysis to identify predictive indicators of the most likely outcome.
"The plans of the diligent lead
to profit as surely as haste
leads to poverty."
Put some money (10%) into Pre-IPO Emerging Growth Stocks, where one spectacular gain can change your lifestyle. Get one with a preferred cash return, with a bonus at redemption. This is the reason by investment bankers such as Goldman Sachs make $500,000 a year to start.
When interest rates rise, bond prices drop because new bonds now pay more.
John Bollinger's school of Rational Analysis uses both Technical and Fundamental analysis.
Fundamental Analysis (FA) aims to determine the actual value/price of a company — the price which reflects theoretical worth. This is useful to know because this price acts like a magnet to the market price, pulling it back from extremes of overvalue and undervalue.
If you buy to hold stocks, you can purchase stock directly from companies through their Transfer Agents:
MFS (a division of Sun Life Financial - SLF) is the nation's oldest fund firm
Discounting on trades was first allowed on May 1, 1975.
Position traders buy and hold a stock hoping for long term appreciation from improvements in fundamentals, riding out short term volatility.
A swing trader is a stock trader who holds onto a position for more than one day, but closes out all trades before the weekend, to reduce vulnerability to events.
"Day Trading" is an investment position entered into and closed out during the same trading day. It requires the discipline to let go of losers rather than hanging on to hope that the price will turn up soon.
A momentum trader is a day trader who watches for stocks that are suddenly traded actively as a result of breaking news of events.
"Scalpers" trade many (50, 100, or more) large blocks during a day, trying to reap small gains (of an eighth or a quarter of a point each).
Momentum trader work on stocks that are "in play" — responding to news.
Technicians use charts and graphs to identify buy and sell signals.
A buyer is "paid up" in a stock if he bought it late in the rally (and will try to get out at a price to avoid losing money).
Pristine supports swing traders
Day Trading International emails swing traders with picks based on technical analysis, rumors, IPO opportunities, and Zacks & Briefing.com. 2 week free trial.
Tradehard.com provides a complete set of resources for the day trader: Quotes, indicators, market analysis, strategies, tactics, advanced strategies, learning tools, chat, interviews, articles, tips, charts, and news. This site seems to have it all. Daily lists of stocks show momentum, breakouts, or other high potential opportunities.
Avid Trading provides short-sale ideas, stock picks, narratives, market-indicator commentary.
The Momentum Trader has an active chat room monitored by founder Ken Wolff. Realtime recommendations and calls for bottoms and tops are entered for traders to see and discuss.
Ratings by investment bankers such as Citicorp, Goldman Sachs, Morgan Stanley Dean Witter Chase, Merill Lynch are "tainted" because they need to be self serving since bad ratings hurt the underwriting side of the firm.
Analyst Fred Hickey, editor of the fiercely independent $120/yr High-Tech Strategist newsletter from Nashua, NH, is called the "king salmon" among "Live fish" (Uncorrupted analysts who do their homework) by short hedge fund manager Bill Fleckenstein in his Contrian Chronicles.
As part of the recent settlement, brokers must now supply investors with second opinions: analysis purchased from outside research firms.
But more than ever, the most pioneering, market-moving research is going exclusively to big mutual funds and the private investment pools known as hedge funds, not to the small investor for whom regulators waged their campaign.
stock-analysis boutique, Majestic Research LLC
Independent Stock Rating Agencies
$300/yr Market Technicians Association publishes the Journal of Technical Analysis containing papers by level 3 candidates for Chartered Market Technician (CMT) exams, based on these standards in the field available on loan:
$65 Technical Analysis and Stock Market Profits: A Course in Forecasting (Pearson Education POD; October 15, 1997 Reprint of 1932 first edition) by Richard W. Schabacker, a pioneer in TA.
Some characterize Market timing as "rapidly" buying and selling shares to profit from pricing inefficiencies.
In October 2001 Barron's published a graph illustrating that if an investor who bought $1,000 of the Standard & Poor 500 Index in February 1966 and held it 36 years would have $11,710.
Investment research firm Brinyi Associates adds that if an investor who missed just the five most profitable trading days every calendar year, that $1,000 investment would have shrunk to $150. More importantly, a $1,000 investment that missed only the five worst days each calendar year would have grown to $987,120.
Jesse Livermore -- who Edwin Lefevre's 1917 Reminiscenses of a Stock Operator called one of the gratest stock speculators of all time (operating from 1890 to 1929) -- wrote in his book How to Trade in Stocks “One cannot be successful by speculating every day or every week. There are only a few times a year, possibly four or five, when you should allow yourself to make a commitment at all. In the interim you are letting the market shape itself for the next big move.”
NewslettersFor $69, Select Information Exchange enables you to get 5 months of 4 newsletters from a list of 169, of which 37 focus on market timing.
The Hulbert Financial Digest tracks 165 investment newsletters
Jim Schmidt's $175/yr Timer Digest rates the performance of S&P 500 & gold market timing newsletters relative to consensus signals. Those consistently among the top 10:
International Association for Financial Planning members are CPAs, CFP, and stock brokers.
Institute of Certified Financial Planners sponsor classes and training
IBD's Relative industry strength (RIS) grades the performance of a company's industry against other industries.
IBD's A/D (Accumulation/Distribution) grade A shows a stock accumulating on the buy rather than distributing ask (sells).
A figure is trading slang for the nearest whole dollar price. Since 1997, exchanges began allowing trades in teenies — Stock-market slang for 1/16 -- a sixteenth of a point (cash value of 6.25 cents per share). This narrowed spreads and thus market makers' profits.
To use the "Fed model" to value an index of stocks against the 10 year treasury bond yield (0.042 for 4.2%), divide it into the total of expected annual earnings forecast from a consensus of analysts (e.g., $56 for the S&P 500),
The direction of futures price from ending price to the opening bell is a good indicator of where the marketing is headed that day.
The Intelligent Investor by Benjamin Graham, first publised in 1940, is the timeless classic on "value" investing, used by Warrent Buffet. The 2003 version adds Jason Zweig's commentary on current dotcoms
Martin Zweig's 1968 Winning on Wall Street describes the Value Line Composite Index (VL4%) tading system developed by Ned Davis.
Valueforum.com is a stock discussion community for value and income investors.
Stock Value Spreadsheet to perform Financial Ratio Analysis Intrinsic Value Projections
In an ideal world, the price of a stock would equal the present value (PV) from adding up the expected dividends from each year in the stock's future.
Because of expected future impact, when interest rate rises 1%, a stock's price (PV) drops by more than that percentage. Thus, stock prices and interest rates have an inverse relationship.
Interest rates usually come down at the end of a normal business cycle, which is also the beginning of the next cycle.
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