Credit Card ’s Talk

When trading penny stocks, once you’ve had a big success, your first thought me be about cashing out in order to enjoy the fruits of your investment. Keep in mind however that taking all the money off the table in the middle of a good deal (such as buying a house or car) may not the best course of action. Of course these are the things you are hoping to buy with your earnings and if you let all of your money ride you risk loosing it all if the stock dives. So what’s an investor to do?

Savvy investors have developed a rather solid strategy of selling a portion (typically half once the stock has increased in value by 100%). This leaves you with the benefit of potential future increases while protecting the value of your initial investment.

If you’ve found another investment that you’re interested in you could take a one third approach. This means leaving one third where it is, cashing out a third, and investing a third in the other stock you are interested in. While each situation is different the method is solid and used by many successful investors, particularly those who invest in the volatile market of penny stocks.

While one big win often leaves you hungry for the taste of another, it may be a good idea to take some time off after a successful trade and before putting your gains back into the market. It is always better to be ruled by reason than emotion, particularly when dealing with money. Investing should be done with reason and rather boring instead of made as the result of emotions and a need for adrenaline.

Vegas has a term for players who are much more risky with their winnings than they tend to be with their own money. It’s called ?playing with house money?. The reasoning on the part of the players is that this money wasn’t their money to begin with and it’s no big loss. These players are also often less upset once they’ve lost it all.

This mentality often takes over with stock market investing. Rather than seeing that money as theirs, investors see it as house money they can play with and are willing to take investments that they would have otherwise passed on in hopes of another big win. Rather than relying on the pain staking hours of research and agonizing over the decision to purchase for your last win, you invest foolishly and loose it all. Taking a little time in between investments is often a good strategy for keeping your head in the game and money in your pocket.

Cashing out after a big rush on a stock is also a good idea. Especially if you are confident in the potential of that stock, this allows you to sell your stock then buy back after the initial rush when prices have gone down. Most of the time you can buy it for far less than you sold it.

There’s only one thing that is worse than selling too early when investing in stocks and that is selling too late. Do not try to pick the absolute top and sell at that price. It is much better to sell on the way up, than on the way down and it is nearly impossible to predict at exactly which point stocks will peak. Have a cut off point, once you’ve reached that point and made an acceptable profit, then it’s time to sell. Don’t look back at what you didn’t make either, be content with you much you’ve made and move on to the next stock. If you begin obsessing over every penny you could have made, perhaps this is not the best investment option for you. If you can walk away clean you can enjoy the exhilaration of the greatest game on earth.

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The Break-even-or-better strategy is designed to either (1) show a profit for the year or, (2) at least, show no loss.

How:
A portfolio invested in 1 year Treasury bills, purchased at a discount and maturing at face value provides the cash, through the interest earned, to purchase (hopefully) attractively priced options.

Results:
Best case: If an investor is good at picking the right options on the right stocks that rise or fall a good distance during the life of the options, the profits can be significant. And the investor gets to reinvest the interest.

Worst case: The interest earned on the maturing Treasury bills offset the option losses (break-even).

Advantages:
Leverage and truncated risk (no margin calls; no short squeezes). No fuss, no muss.

Heads you win, tails you break even.

Sort of like visiting a casino that pays off if you win or returns your bets if you lose. Not bad.

Caveat:
In an inflationary era, simply holding the same number of dollars over any period of time constitutes a real loss of capital. Capital value hinges on purchasing power and, as purchasing power erodes, so does capital.

That being said, I’m sure, at the end of some years, there are more than a few investors that wouldn’t mind being in a break-even or better position. Know what I mean?

As an alternative, growth stocks, rather than options on those stocks, financed from the interest earned from the Treasury bills in your portfolio, replaces wasting assets with permanent assets.

Results: Win, lose or draw, the stocks are yours for better or for worse, for as long as you both shall live.

Seriously though, if you’re a good enough stock-picker, you should enjoy capital appreciation through growth, increased income from dividends, and your rolling-over maturing T-bills will be throwing off a constant source of fresh cash with which to buy more stocks.

On the other hand, should your stocks go bust, your Treasury bill interest will provide the cash for you to try again. Again, not bad.

Because No One Cares More About Your Money Than You

http://dynamic-stock-market-strategies.com

Good trading,
Don Heggen

All of the talking heads have been telling us that this market is different. You are going to have to be patient and soon (hopefully in your lifetime) the DOW and the Nasdaq will be back at their old highs. They cite all the statistics about how the economy is improving - consumers are spending, the consumer confidence index looks OK, unemployment is getting better, blah, blah, blah.

Those trees are all nice, but they better step back and look at the forest. It’s on fire and going up in smoke. The major trend has been down since the beginning of 2000 and is continuing with only occasional brief upward movements. The Dow lost 6% in 2000 and another 7% in 2001 and so far this year is off almost 8%. I won’t mention the Nasdaq. That is ugly.

From 1931 to 1951 the economy doubled. The Gross Domestic Product was up 100% yet the stock market did nothing for 20 years. What few investors that were left after the ‘29 Crash made their money from dividends not stock price appreciation. It took 25 years for the stock market to go back up to the 1929 high.

Why are we in a bear market that can last for many years when things look so good? There does not seem to be a correlation between a good economy and stock prices. For more than 100 years the P/E ratio for the S&P500 index has been about 15. Today it is 41. That is figured on the earnings of a company paying you back your money in 41 years. YEARS! Are you kidding? I’ll need my money before that. Very simply this is telling you that the stock market is very over-valued. Either corporate productivity must increase dramatically or stock prices must come down. Right now it looks like the latter is happening. So far about $6 trillion (that’s with a ‘T’) has vanished from stockholders portfolios these last 2 years. Nobody else got it. It’s just gone. It was all paper profit anyway.

Your broker tells you you don’t have a loss until you sell and not to worry as the market always comes back - except when it doesn’t. Since 1920 there have 3 major bull markets that have lasted about 16 years. The last one started about 1982 and ended at 2000. Each one of the bulls has been followed by a sideways to down market for the next 16 years. I am no soothsayer, but this has all the makings of one of those 16-year periods. What to do?

There is only one thing that is prudent until the carnage stops. Sell out of all stocks and stock mutual funds except no-load bond funds. (It is not too late to sell.) There are many good ones such as Government, International and Mortgage Backed no-load bond funds with varying lengths of maturity. It may not be exciting like the 1998-99 run up, but you will have your money when the dust settles.

This market is different. It’s a bear.

Al Thomas’ best selling book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter to receive his market letter for 3 months at www.mutualfundmagic.com to discover why he’s the man that Wall Street does not want you to know.

Comments to al@mutualfundmagic.com

Copyright Albert W. Thomas All rights reserved.

On the path of life there will be some rain and therefore puddles. Most are shallow and we easily splash through them and occasionally there might be a very deep one. Learning to navigate them will make the journey more pleasant.

Your investment journey to the pot of gold at the end of the rainbow will require your not stepping into those deep holes. It is almost impossible to know the depth of any pothole so an investor must have a strategy for the unexpected and it must be in place before the foot sinks out of sight.

Every professional trader (and you are a trader whether you believe it or not) has an exit strategy for his portfolio. Those who do not are doomed to sink out of sight in a very deep and muddy pool. When any stock, mutual fund or ETF is purchased it must be determined prior to purchase how much the investor (trader) is willing to lose or how take profit.

It is pretty stupid to sit and watch an Enron, Delta or AT&T take all or most of the money. No one wants to see hard earned dollars evaporate. There isn?t even a cloud of smoke to go with it; it just disappears. In 2000 to 2003 we saw the NASDAQ lose 78% of its value and the DOW go down 40%. Don?t let this happen to you; it can occur again. You must set your investment exit strategy now.

The first thing any successful investor does is determine how much he is willing to lose. Is that shocking? When people buy a stock they immediate think about how much they are going to make, not lose. Knowledgeable traders think about their losses first and profits second. Losses must be dealt with today. Profits will take care of themselves.

This means you must have a selling guideline. Most brokers will not help with this as they are not taught to protect customers? money. The simplest method is the stop loss order. Say you paid $40 per share for a potential pot of gold. How much are you willing to risk? One hundred shares cost $4,000 plus commission. Are you willing to see it drop to $3,000 before you sell or is that too much? Twenty-five percent is pretty steep and many traders will not risk more than 10%. Whatever amount you decide upon should be set with your broker as a permanent stop loss order. Don?t let him tell you he will watch your account because he won?t.

As your stock moves up the stop order should be moved up to protect your profit. This is known as a trailing stop and most brokerage firm offer it. Every path has puddles. Don?t step into one that is over your head.

Al Thomas’ best selling book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter to receive his market letter for 3 months at www.mutualfundmagic.com to discover why he’s the man that Wall Street does not want you to know.

Comments to al@mutualfundmagic.com

Copyright Albert W. Thomas All rights reserved.

Previously, I’ve noted similarities between the recent SPX and the 1994 SPX, which suggested a bottom at 1,197, and the April 2005 SPX, which suggested a bottom at 1,228. Last week, SPX fell to 1,219 and rallied strongly to close at 1,252 Friday. Currently, intermediate-term technical indicators suggest SPX may have reached or is close to an intermediate-term bottom and may begin a rally soon.

Below is a two-year daily chart of SPX (black line and right scale) and NYSI (blue line and left scale) with 50-day MAs of VIX NYMO and CPC above and below the price chart. The gray arrow indicates similarities between the current SPX and the Apr 2005 SPX. The indicators suggest there may be a final wash-out below 1,200 or a continuation of the volatile trading range e.g. between 1,220 and 1,260 next week. SPX may then begin an uptrend for at least several weeks.

However, fundamentally, SPX may be in a volatile range throughout the summer, rather than rally to new highs, because the general price level is high enough to carry on uncertainty about monetary policy. Consequently, SPX upside may be limited, e.g. 1,280 or 1,290, although all the intermediate-term technical indicators should turn bullish in June or July. Currently, the NYMO 50-day MA and daily NYSI have not turned bullish, although the CPC 50-day MA is at an all-time bullish high.

Free charts available at PeakTrader.com Forum Index Market Forecast section.

Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.

Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time and over time. This methodology has resulted in excellent returns with low risk over the past four years.

Free stock quotes are valuable for looking at your investments and determining whether or not you want to trade in the stock market. There are several free stock quotes online and one of the most popular is Yahoo Finance. This site will allow you to search your stocks to see the growth or decline and determine if you want to buy or sell. Free stock quotes are ideal for the novice investor. They can practice their skills without investing any money until they are comfortable enough to actually invest. Once you decide to invest, though, you will need to get with a broker and there are additional fees associated with trading. However, there are many do it yourself places that only require a small fee and will often have valuable articles and free stock quotes so you can watch your portfolio continually to ensure you have made sound investments.

Before investing in the stock market, you should be aware of the basics of stock trading. This can be learned by doing some research online or by getting a book at your local library. Once you know the basics, you can start looking for individual investments. It is recommended that the novice investor start off with only the amount of money they can afford to lose. There are no guarantees you will earn money and sometimes you will lose it. So, it is important to carefully watch the stock market by looking at free stock quotes each day. You may want to buy or sell your stocks depending on how well the individual stock is doing and what forecasts are for the stock.

Free stock quotes are also great for classes in finance or the stock market. This is ideal for investor clubs, high school classes or college projects. You can either use mock money to track an investment from start to finish without actually putting in money or you can use pooled money to determine which investment you will watch and what you will do with it. This is a great way to have a bit of fun with a group while learning about investments and possibly making a bit of money.

Hot, free stock quote information updated all the time.