Wednesday, October 10, 2012

The Road to Real Estate Riches Series.

I'm starting a series of postings that will act as a journal for our Real Estate investing journey.
Our government is deflating the dollar at a more accelerated rate now with an open ended license to "print".  They are printing 40 Billion/Month with no end in sight.  This is good for paying down our national debt as the lower value of the dollar pays down more debt effectively, but it immensely hurts the American people.  The devaluation of the dollar brings rising commodity prices and cost of living overall. 

We do not have to worry about inflation, our problem is the deflation of the dollar.  Think about it, an ounce of gold back in the Roman days bought you a very nice Toga, a cool sash and head cover, and some good leather sandals.  Now an ounce of gold does exactly the same, you take it to Saks Fifth Ave and you get a nice $1200 suit, a stylish $300 shirt and tie, and some awesome $300 Italian leather shoes.  The value of gold hasn't changed, it just takes more dollars for that ounce of gold.

Throughout history, real estate has kept its value.  The home your parents bought in the 50s and 60s for $40K is now worth $400K.  The value of real estate is inversely related to the value of the dollar and the dollar has been deflating since it came off the gold standard.  As the deflation of the dollar continues, real estate prices will rise in this post bubble era.  And if the government is printing dollars to devalue its debt, we can do the same by getting a mortgage that will be easier to pay down in the future.

We have been investing in Real Estate for many years and realize its potential for the future from a cash flow point of view and from building generational wealth in general.  Everything is on sale now, so it is time to buy.  Once you realize the truths above, you will know you have to act now to ensure a good future for yourself and your family.

The million that you thought is needed to retire with your basic needs met, will not be enough and you will need more like two or three millions in a few decades.  If you are calculating your retirement number based on today's income and dollars, you will need to reconsider as today's dollar will buy you 50c worth of goods by the time you retire.

As I've said in previous posts, keep an open mind, and look for alternatives.  We are programmed to work, save, retire.  This will not do.  Open your eyes and smell the print presses.

Peace and profits to all.

Tuesday, January 24, 2012

Chatting with

I met Mike Illenberger over a year and a half ago over twitter and immediately admired his passion for helping other traders by providing trading education from experienced traders and by example.  Now he has partnered up with Jason Matias, a like-minded entrepreneur and trader, to create a community for all traders to help each other learn and make money.   They've recently launched their joint venture websites and asked me to "hang out" with them at and answer a few questions that many traders ask.

I couldn't pass it up, so in a relaxed, friendly atmosphere we had a chat about trading psychology, which happens to be my favorite topic about trading, we had a good time chatting about the subject.  Check it out for yourself here, and give kudos to those guys for their dedication to trader education and awareness.

Peace and Profits to all.

Wednesday, January 11, 2012

Why is Shorting Risky?

I’ve been asked this question many times by mentees and by friends alike as soon as the topic of shorting stocks starts up. Why is shorting riskier than getting long?   The answer is simple.    If you are long a stock, you can only lose a maximum of 100% of your investment when a stock reaches $0, therefore capping your loss to the amount you allocated for that trade.  However if you are short you can lose more than you allocated and the actual loss is unlimited since the stock can move up with no upper limit.

A chart is worth a thousand words, take a look at INHX on Jan 9, 2012.  INHX gapped up 140% the morning of Jan 9, 2012.    So if you were short that stock, you’ve lost all your allocated amount + 40% more of that amount from your overall account that you did not designate for this trade.    On the other hand if INHX gapped down while you were long your loss would still be limited by the 0 lower limit of a stock price.  I’ve never seen a stock gap down to 0 in my trading career, but have seen many stocks gap up more than 100%.

So that’s why shorting can be risky and has unlimited loss potential, which you don’t have when you’re long.

I also have to add that these kinds of over 100% jumps happen mostly with thinly traded/low float stocks, you will likely not see this happening with higher quality stocks in general.  Shorting can be as safe as getting long in the heavy weight stocks, as long as you disciplined to get out when the exit lights come on.
Another question I'm asked often is do I personally short the market.  Of course.  It's a must have skill in every profitable trader's repertoire.  However I don't always have short positions in my accounts, since I'm generally a swing trader, the trading environment has to support shorting in general, and of course each stock is different and some stocks are just asking for it.  In general if the market is bearish my short/long ratio is much higher than if the market is bullish. The market dictates that for swings.  This is a personal preference as I know traders who make a good living using mostly short strategies in any market conditions.  The down moves are swift and large in magnitude when panic sets in, so it can be very lucrative when done right.

If you have any question on this or any other trading topic, send it to me and I'll answer it when possible.

Peace and Profits to all

Monday, September 26, 2011

Becoming Your Own Banker

Nelson Nash's concept of privatized banking discussed in his book Becoming Your Own Banker is intriguing and worth your time to understand.  This concept works on many levels;  building financial security for the future, retirement planning and income, life insurance, and the possibility of creating family generational wealth with your children carrying on with this plan for generations to come.  One of the major advantages of this concept is the ability to borrow your own money back out to use for anything you normally use a loan for, such as buying a house or a car while your policy still makes you money.  Then you pay yourself the interest that you'd normally pay a bank while you recapitalize your "bank account".  Sounds interesting doesn't it.  I've talked with a life insurance agents/friends of mine and they were not aware of the side benefit of this specific life insurance policy and were only aware of the death benefit part of it, which is really a perk to know that your loved ones will be taken care of as well.
So educate yourself if you're interested in learning more about this.  Here's a link to a pdf file that helps you start to understand some of the concepts used as well as some history of the financial system in the US.
get familiar with Nelson Nash's book, the Infinite Banking Concept (IBC), The idea of privatized banking that will free you from using these sick and greedy banks.  Knowledge is power.  Open your mind and find what works best for your financial needs and goals in life.  Who else cares about your financial future? 

Peace and profits to all.

Thursday, March 17, 2011

Book Review: One Good Trade, by Mike Bellafiore

One Good Trade, is one good book about prop trading.  You are sitting with an old friend and listening to his stories when reading this book.  It was certainly hard to put down for me as it read more like a collection of stories on trading wisdom than your typical technical trading book.

Bella invites you to his trading firm and introduces you to his trading family as soon as you enter the book.  He shares his family's endearing qualities that make you feel welcome right away, and connected to Dr Momentum, Franchise, Gman, and Spencer family members to name a few.

The book covers many topics that pertain to Proprietary Trading and how to get into this competitive arena, so if this is an endeavor of yours, this book is a must read.  However, it also talks about the "trade" itself.  You will learn a lot about trading psychology and basic trading setups from the many anecdotes that Bella shares throughout the book each with its sports analogy to drive the point home.

If you are a beginning trader or an advanced one, you will be able to read about yourself and learn how to deal with trading issues you may have/had or those that may pop up every once in a while, and you will learn how to deal with these issues.  The best teacher doesn't teach, the best teacher shares his knowledge with others!  Thank you for sharing Bella and for the Many One Good Trades to come!

Peace and profits to all,

Tuesday, November 30, 2010

The CAN SLIM System for Finding Growth Stocks

William J. O’Neil is the Founder of Investor’s Business Daily and the creator of the C.A.N.S.L.I.M. system for selecting growth stocks that move 100s – 1000s % in a Bull Market. He has studied the characteristics of stocks that were big winners since 1953 and came up with his now very popular CAN SLIM system. These growth stocks have two key components in their selection; fundamental indicated in the CAN SLIM approach outlined below, and Technicals in the cup-and-handle as well as the 7 week base then breakout approach to time entry into these stocks. There are other key factors on the technical front that identifies entry and exit points into such stocks and warning signs to look for according to his method. The TA aspects of O’Neil’s method are simple and will likely be the topic of a future blog.

Below are the highlights of the CAN SLIM system taken from O’Neils book The Successful Investor.

C = Current quarterly earnings per share: the higher, the better.

Primary factors :

· Should show a major percentage increase (18%-20% minimum) in the current quarterly EPS when compared to the prior year’s same quarter.

· Omit a company’s one-time extraordinary gains.

· Look for accelerating quarterly earnings growth.

Secondary factors:

· Look for quarterly sales growth of 25% or at least an acceleration in rate of sales percentage improvements over the last three quarters.

· Find at least one other stock in the same group showing string quarterly earnings growth.

A = Annual earnings increases: look for significant growth

Primary factors:

· The annual compounded growth rate for EPS should be at least 25%

· Significant growth in EPS for each of the last three years.

Secondary factors:

· The consensus earnings estimate for the next year should be higher than the current year.

· Return on equity of 17% or more.

· Look for annual cash flow per share greater than actual earnings per share by at least 20%

· Earnings should be stable and consistent from year to year over the last three years.

N = New products, new management, new highs: buying at the right time.

Primary factors:

· Look for companies with a major new product or service, new management, or a positive change for the industry.

Secondary factors:

· Look for stocks close to or making new highs in price after a period of consolidation.

· Strong volume on price move up.

S = Supply and demand: shares outstanding plus big volume demand.

Primary factors:

· Any size stock can be purchased under the CAN SLIM system.

· The market will shift its emphasis between small- and large-cap stocks over time.

· When choosing between two stocks, the stock with the lower number of shares should perform better to the upside, but can come down just as fast.

Secondary factors:

· Stocks with a large percentage of ownership buy top management are generally good prospects.

· Look for companies buying their own stock in the open market.

· Look for companies with a lower debt-to-equity ratio and companies reducing their debt-to-equity ratio and companies reducing their debt-to-equity ratios over the last few years.

L = Leader or laggard: which is your stock?

Primary factors:

· Buy among the top two or three stocks in a strong industry group.

· Use relative price strength to separate the leaders from the laggards –a stock with a relative strength rand below 70% is lagging and should be avoided.

Secondary factors:

· Look for companies with a relative strength rank of 80% or higher that are in a chart base pattern.

· Don’t buy stocks with weaker than average performance during a market correction.

I = Institutional sponsorship: follow the leaders.

Primary factors:

· Look for a stock to have several institutional owners. 10 might be a reasonable minimum.

· Look at quality of owners—seek out stocks held by at least one or two savvy portfolio managers.

· Look for stocks with an increasing, not decreasing number of sponsors.

Secondary factors:

· Avoid stocks that are over-owned—excessive institutional ownership.

M = Market direction

Primary factors:

· It is difficult to fight the trend, so try to determine if you are in a bull or bear market.

· Follow and understand what the general market averages are doing every day.

· Try to go 25% into cash when the market peaks and begins a major reversal.

· Heavy volume without significant price progress may signal a top, but initial market decline may be on lower volume.

· Follow market leaders for clues on strength of market.

Secondary factors:

· Look for divergences of key averages and indexes at major turns—divergence points to weaker and narrow market movement.

· Sentiment indicators may help highlight extreme psychological reversal points.

· The change in the discount rate is a valuable indicator to watch as a confirmation of market moves.

Peace and Profits to all

Friday, November 12, 2010

Stop Loss Selection

How many times were you taken out of a trade just before the stock turns around and takes off in your presumed direction with you as the spring board?  Not pleasant.  So when a friend of mine asked me to help with placing stops I wanted to be clear on the topic since stops are a key risk management skill that traders must have to survive this game.  This article talks specifically about stop losses, not for break even or stop with profits type exits.
The short answer is the same to many trading questions: it depends.  It depends on the style of trading, time frame, risk tolerance, etc.  That’s why system trading is very popular as the trading parameters; entries, exists, stop losses, stops, targets etc, are mostly pre-defined.
So let’s pick a specific scenario/system and take it from there: Swing trading days/weeks hold-time with buying support on signs of strength on the intra-day/daily/weekly/monthly charts review, using close prices.
You are at a point where you have identified your support levels and have your entry area with a good risk/reward ratio selected.  For picking a stop, you have to get familiar with the stock's personality first to see how it behaves around key levels: Look at the history of the stock, does it trade cleanly around key levels or does it violate it before it recovers?   This will help you decide your initial risk, whether to give your stop more room, use a soft or hard stop, or use that stock at all for that matter.  The cleaner the levels the better.
Keep in mind that key levels can also change from day to day when they are an active moving average.  Or when that moving average enters into the trading range of a stock that previously had clearly defined/drawn lines representing key levels, such as channels, breakout levels, etc.
Now that you have your support levels and are more familiar with the stock behavior, you can have a stop that’s lower than the support levels by roughly 0.5-1.5% depending on the price of the stock and how volatile it is.  On shorter term momentum holds, you can enter as close to the low of the day (LOD) as possible with a stop under the LOD.  Breaking the LOD+ and holding there is your signal that there’s more selling to come and the stock is not ready yet to bounce.  In this case either step aside and let the sellers finish their business or if there’s a good short setups play then take the short side of the trade with as many checks in your favor as possible.  Everything that applies for the long side the reverse applies on the short side, just make sure you are going with the trend in the time frame you are trading (many different topics here beyond the scope of this article.)
In addition, keep in mind that you do not have to stop out your entire position at a single level.  You can get out of your position in stages depending on your risk and the strength of the supports.  It does not have to be an all or none type trading depending on your style.
If you have any questions let me know. 
Peace and profits to all,