Time To Grade The Financial Markets and Yourself – Mike Swanson (06/07/2016)

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By Mike Swanson on Wed, 06/07/2016 from: http://wallstreetwindow.com/

With the S&P 500 at 2,100 it’s now time to grade the market and your own performance.

The stock market went up yesterday following the Yellen talk in which she said the economy is doing good, but she can’t raise rates now, because it’s not doing good, but wants to do so in the future.

Expect her to stick now to this line for months on end.

It is now time though to step back and see what is happening not just to the US stock market, but to ALL financial markets so far this year.

Here is an interesting performance chart from Finviz.com showing how everything has performed.

Take a look.

 performancechart
So the S&P 500 is up 4.3% as of this morning year to date while the Nasdaq 100 is red.

Of course it is a basket of soft commodities leading the way this year and silver and gold, with gold up 16.5% year to date, which makes the performance of the S&P 500 look like a total joke.

At the top of this graphic much of what you seeing are big gains that are coming at the start of new bull markets, although I’m skeptical that oil is actually starting a new bull market this year).

But this is where the money is going.

To beat the market you cannot be one of those people that puts all of their money in the US stock market in hopes of making some giant killing, but instead you need to spread out in what is really working and going up for real.

Today the market is gapping up and US stock market bubble bulls are excited, because the S&P 500 is above 2,100 today, but it could dump on them today who knows.

There are people on margin in this market dreaming of a giant stairway to heaven run, because they love to gamble it up.

This year I have been warning of the risks in the stock market as I did last year and I publicly talk about shorting and betting against stocks – and I have some bets against junk POS stocks. In fact I just shorted a new debt buyback disaster stock the other week.

As a result I get angry messages from these bubble bulls, because they hate hearing from someone who is not chasing their favorite market fads and Cramer picks.

One email I got yesterday demanded to know when I will “capitulate” and give up on being cautious on the stock market and start to buy.

He said the S&P 500 is going to go above 2,100 by year end.

He assumed I was somehow losing money.

Well I looked at my account today and I’m 10.66% year to date in my largest account.

This can change tomorrow though and a few weeks ago I was up just over 4% as I had a dip myself with a pullback in many of my long positions (although that was still better than the S&P 500 at that time too).

The important thing is that I’m beating the stock market like crazy so far this year and I have no doubt that I am probably beating this bubble bull too.

So when he makes assumptions in his bubble brain that people who are not all long the US stock market ETF’s and stocks like Facebook and Apple are “missing out” he is totally deluding himself.

I own both long and short positions so am operating like a hedge fund and using the ETF rebalancing strategy I talk about with the bulk of my money.

What the market does today or tomorrow isn’t that important to me (although I think it’s just a dead stock market that will lead to a big drop later this summer).

It’s time to grade the markets and yourself.

Are you beating the S&P 500 this year?

It’s actually not hard to do that, because so many new bull markets are starting outside of it and it hasn’t really done much this year.

Just look at the chart above.

If you are fully invested in lots of stocks and not beating the market that’s not because you cannot pick out stocks, but because most stocks are simply dead now.

Apple is the poster boy for dead stocks, because everyone owns it and just about everyone who bought it in the past 18 months is losing money.

That’s because we are in a nasty market with a lot of problems in it.

What the stock market bubble bull doesn’t understand is that there is more to investing than just buying into the US stock market and hoping that it will go up again like it did in 1999.

To invest properly you need to diversify into a mix of markets and asset classes, because the times of watching the US stock market go up to new highs and beyond month after month are over and will not come back now FOR YEARS.

And if you want to buy individual stocks you need to be buying mining stocks, because that is where the action is now.

And if you still want to just trade the US stock market you need to be able to move in both directions.

Boosting returns through safe diversification and not desperate gambling or “fast money” style plays is what I advocate.

It really isn’t about predicting the future like most people think or talk like it is.

If you never read my last book The Stock Market Bubble Bust of 2015 and Beyond now is a good time to do it, because it lays out a simple money management and asset allocation strategy that anyone can use and is what is enabling me to beat the market this year with little worry.

If this is the first time you have come to this website get on my free update list for more by clicking here.


Are Stock Market Prices an Accurate Reflection of the Value of Your Stock Portfolio?

stock-priceThe usual description of any market assumes that every trader wishes to purchase or sell a known quantity at each possible price.  All the traders come together, and in one way or another price is found that clears the market – that is, makes the quantity demanded as close as possible to the quantity supplied.

After all it has been said by the authoritative stock trader W. Haddad of B.K. Labovitch that ultimately economics is supply and demand.

This may or may not be an adequate description of the markets for consumer goods, but it is clearly inadequate when describing security markets.  The value of any capital asset depends on its future prospects, which are almost always uncertain.  Any information that bears on such prospects may lead to a, which s we know are always uncertain.  Any information that depends on its future prospects may lead to a revised estimate of value.  The fact that a knowledgeable trader is willing to buy or sell some quantity of a security or commodity at a particular price is bound to be information just of that sort.  Offers to trade May this affect other offers.  Prices may, therefore, both clear markets and covey information.

The dual role of prices has a number of implications.  For example, it behooves the liquidity motivated trader to publicize his or her motives and thereby avoid an adverse effect on the market. Thus, an institution purchasing securities for a pension fund that intends, simply to hold a representative cross section of securities should make it clear that it does not consider the financial interments under priced.  On the other hand, any firm trying to buy or sell al large number of shares that it considers wrongly underpriced should try to conceal its motives, its identity or both (and may try).  Such attempts may be ineffective, however, as those asked to take the other side of such trades try very hard as you know to find out exactly what is going on and many do well succeed in these days of rapid communications and access to many sources of information succeed.

Most securities are sold in very standard ways which requires payment and electronic notification of delivery within the standard settlement period (standard is three Business as opposed to calendar days).  On rare occasions, a sale may be made as a cash transaction requiring payment immediately on receipt.  Sometimes as a reward or as in effect a marketing or sales promotion payment may be extended over a longer time period – usually 15, 30 or 60 days.

Sometimes in the case of new issues a payment extension period is also granted for the same reasons as above.

It would be extremely insufficient if every securities transaction had to end with a physical delivery of transfer of actual share certificates from seller to buyer.  A brokerage firms might well sell 1000 shares of ABC Co. for one client. , Mr. Stevens to another client and later that day buy 1000 shares for Mr. Felon obtained by accepting delivery from her seller. Mr. Stevens’s shares could be delivered to his buyer, and Mr. Felon’s shares could be obtained by accepting delivery from her seller.

However, it would be much easier to transfer Mr. Steven’s shares to Mr. Felon and instruct Felon’s seller to deliver the 1000 shares directly to Mr. Steven’s buyer.

This would be especially helpful if the brokerage firm’s clients Mr. Felon and Mr. Stevens held their securities in street name.  Then, the 1000 shares they traded would not have to be physically moved and then the ownership would not even have to change at ABC Company.

As you can see valuation of your portfolio of stocks and securities are not always indicative of the true and exact value of your securities.  Actual logistics, human emotion and even greed play major and ongoing roles.


Dealing With Market Corrections: Ten Do’s and Don’ts

MarketCorrections

A correction is a beautiful thing, simply the flip side of a rally, big or small. Theoretically, even technically I’m told, corrections adjust equity prices to their actual value or “support levels”. In reality, it’s much easier than that. Prices go down because of speculator reactions to expectations of news, speculator reactions to actual news, and investor profit taking. The two former “becauses” are more potent than ever before because there is more “self directed” money out there than ever before. And therein lies the core of correctional beauty!  Mutual Fund unit holders rarely take profits but often take losses. Opportunities abound!

Here’s a list of ten things to do and/or to think about doing during corrections of any magnitude:

1.  Your present Asset Allocation should have been tuned in to your goals and objectives.

Resist the urge to decrease your Equity allocation because you expect a further fall in stock prices. That would be an attempt to time the market, which is (rather obviously) impossible. Proper Asset Allocation has nothing to do with market expectations.

2.  Take a look at the past.

There has never been a correction that has not proven to be a buying opportunity, so start collecting a diverse group of high quality, dividend paying, NYSE companies as they move lower in price. I start shopping at 20% below the 52-week high water mark, and the shelves are full.

3.  Don’t hoard that “smart cash” you accumulated during the last rally, and don’t look back and get yourself agitated because you might buy some issues too soon.

There are no crystal balls, and no place for hindsight in an investment strategy.

4.  Take a look at the future. Nope, you can’t tell when the rally will come or how long it will last.

If you are buying quality equities now (as you certainly could be) you will be able to love the rally even more than you did the last time… as you take yet another round of profits. Smiles broaden with each new realized gain, especially when most folk are still head scratchin’.

5.  As (or if) the correction continues, buy more slowly as opposed to more quickly, and establish new positions incompletely.

Hope for a short and steep decline, but prepare for a long one. There’s more to Shop at The Gap than meets the eye.

6.  Your understanding and use of the Smart Cash concept has proven the wisdom of The Investor’s Creed.

You should be out of cash while the market is still correcting. [It gets less and less scary each time.] As long your cash flow continues unabated, the change in market value is merely a perceptual issue.

7.  Note that your Working Capital is still growing, in spite of falling prices, and examine your holdings for opportunities to average down on cost per share or to increase yield (on fixed income securities).

Examine both fundamentals and price, lean hard on your experience, and don’t force the issue.

8.  Identify new buying opportunities using a consistent set of rules, rally or correction.

That way you will always know which of the two you are dealing with in spite of what the Wall Street propaganda mill spits out. Focus on value stocks; it’s just easier, as well as being less risky, and better for your peace of mind. Just think where you would be today had you heeded this advice years ago…

9.  Examine your portfolio’s performance: with your asset allocation and investment objectives clearly in focus; in terms of market and interest rate cycles as opposed to calendar Quarters (never do that) and Years; and only with the use of the Working Capital Model, because it allows for your personal asset allocation.

Remember, there is really no single index number to use for comparison purposes with a properly designed value portfolio.

10. Finally, ask your broker/advisor why your portfolio has not yet surpassed the levels it boasted five years ago.

If it has, say thank you and continue with what you’ve been doing. This one is like golf, if you claim a better score than the reality, you’ll eventually lose money.

11. One more thought to consider. So long as everything is down, there is nothing to worry about.

Corrections (of all types) will vary in depth and duration, and both characteristics are clearly visible only in institutional grade rear view mirrors. The short and deep ones are most lovable (kind of like men, I’m told); the long and slow ones are more difficult to deal with. Most corrections are “45s” (August and September, ’05), and difficult to take advantage of with Mutual Funds. But amid all of this uncertainty, there is one indisputable fact: there has never been a correction that has not succumbed to the next rally… its more popular flip side. So smile through the hum drum Everydays of the correction, you just might meet Peggy Sue tomorrow.


Beyond the Brink

Learn the techniques needed to become a successful penny stock trader

pennystocksuggestionPenny stocks represent an excellent investment vehicle for producing gains, while the risks are equally as high. When you finally decide to get involved in penny stocks, to go ‘Beyond the Brink,’ there are some things you need to know.

In fact, whether you have been burned by penny stocks in the past, or have never even invested, the following theories are designed to give you an instant and significant advantage over all those inexperienced and uninformed traders. After all, to make money in stocks someone usually has to be losing money. Which side of the fence do you want to fall on?

Glass Jaw

Lots of people have made lots of money from trading penny stocks. Lots of people have lost plenty, as well. What is the difference between a successful micro-cap trader, and one who continually takes it on the chin?

Uses professional stock picks and research. Does their own due diligence. Observes patience. Takes lessons from past trades and stock activity. Takes lessons from other traders. Decides between 10 stocks at a time.

Uses tips at work, rumors, and so-called ‘inside scoops’ to pick stocks. Doesn’t investigate financials and corporate position. Falls victim to negative emotions like greed, anger, and desperation. Makes the same mistakes more than once. Looks at one stock alone on its own situation.

So Let’s Learn

The fact that you have taken the time to review this feature demonstrates that you have the characteristics of a successful trader, specifically the willingness to learn from experts and the experiences of other traders.
So let’s learn. As mentioned above, you should always examine groups of stocks together when looking for a new issue to invest in. For example, make a chart and write down the revenues of each. In the next column list the earnings. Follow this by each of the subsequent criteria you think are important. With all of the data on one table and available at a glance, you can easily get a clear picture of which are the one or two strongest companies from your pool of potential investments.

However, understand that stock prices do not necessarily act in concert with the underlying fundamentals of a company. For example, there is nothing saying that the stock of the worst company on your list won’t out perform the top ranked one.

For that reason you should also include factors such as trading volatility, your opinion of a potential break-through due to some new product, potential positive press releases, etc… This method is not intended to reveal the best stock, but instead to give you additional clarity about which are the best few and worst few according to your own weighting of the various factors you have chosen.

Available Advantages

Get a discount broker. Monitor your portfolio online, do your research online (and offline), and place your trades online. Embrace the technology, because it provides superior advantages all across the board. You can screen stocks, put those into comparative charts, instantly access the corporate press releases, check the latest industry news, and then place your trade… all for about $20.

Then you can monitor your trade order fulfillment, verify that the money and shares traded hands, track the progress of the stocks, get instant alerts for press releases… It is truly endless and complete, and each step that you take full advantage of leaves other traders one step behind you.

Keep small amounts of money in each stock, and only ‘risk’ money for penny stocks. While these low-priced, volatile investments can produce some truly incredible gains, they usually bounce among all sorts of price ranges.
On a related note, if you get ‘freaked out’ or worried about a stock you hold, you should consider selling your position. Try to invest in solid penny stock companies that have a low share price because they are small or undiscovered, not because they are having business troubles.

Beyond… And After That

Some of the most successful traders have a few things in common. Firstly, they have made some major trading mistakes in their day. However, they learned more from these mistakes than they ever did from any of their great trades. Don’t squander your failures by trying to put them behind you.

Secondly, keep a journal with dates, specific trade amounts and prices, and even the stocks you were thinking of investing in but didn’t. You can use this for a hundred different purposes as you become a more advanced trader, such as seeing opportunities you missed, or learning that your strategies are valid, or just to monitor your improvement as you become more experienced from month to month.


Against The Top Down Approach To Picking Stocks

stockpicking
If you have heard fund managers talk about the way they invest, you know a great many employ a top down approach. First, they decide how much of their portfolio to allocate to stocks and how much to allocate to bonds. At this point, they may also decide upon the relative mix of foreign and domestic securities. Next, they decide upon the industries to invest in. It is not until all these decisions have been made that they actually get down to analyzing any particular securities. If you think logically about this approach for but a moment, you will recognize how truly foolish it is.

A stock’s earnings yield is the inverse of its P/E ratio. So, a stock with a P/E ratio of 25 has an earnings yield of 4%, while a stock with a P/E ratio of 8 has an earnings yield of 12.5%. In this way, a low P/E stock is comparable to a high – yield bond.

Now, if these low P/E stocks had very unstable earnings or carried a great deal of debt, the spread between the long bond yield and the earnings yield of these stocks might be justified. However, many low P/E stocks actually have more stable earnings than their high multiple kin. Some do employ a great deal of debt. Still, within recent memory, one could find a stock with an earnings yield of 8 – 12%, a dividend yield of 3- 5%, and literally no debt, despite some of the lowest bond yields in half a century. This situation could only come about if investors shopped for their bonds without also considering stocks. This makes about as much sense as shopping for a van without also considering a car or truck.

All investments are ultimately cash to cash operations. As such, they should be judged by a single measure: the discounted value of their future cash flows. For this reason, a top down approach to investing is nonsensical. Starting your search by first deciding upon the form of security or the industry is like a general manager deciding upon a left handed or right handed pitcher before evaluating each individual player. In both cases, the choice is not merely hasty; it’s false. Even if pitching left handed is inherently more effective, the general manager is not comparing apples and oranges; he’s comparing pitchers. Whatever inherent advantage or disadvantage exists in a pitcher’s handedness can be reduced to an ultimate value (e.g., run value). For this reason, a pitcher’s handedness is merely one factor (among many) to be considered, not a binding choice to be made. The same is true of the form of security. It is neither more necessary nor more logical for an investor to prefer all bonds over all stocks (or all retailers over all banks) than it is for a general manager to prefer all lefties over all righties. You needn’t determine whether stocks or bonds are attractive; you need only determine whether a particular stock or bond is attractive. Likewise, you needn’t determine whether “the market” is undervalued or overvalued; you need only determine that a particular stock is undervalued. If you’re convinced it is, buy it – the market be damned!

Clearly, the most prudent approach to investing is to evaluate each individual security in relation to all others, and only to consider the form of security insofar as it affects each individual evaluation. A top down approach to investing is an unnecessary hindrance. Some very smart investors have imposed it upon themselves and overcome it; but, there is no need for you to do the same.


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