Investment Strategies 02 (Jun 10 - Jun 13)

[winston]

Investors Need Strong Stomachs… Not Big Brains by Alexander Green,

How to Avoid Following the Herd

How can you avoid this fate? With four steps:

• Number one, it’s your money. You should understand the basic fundamentals of investing. Many people lose confidence and panic because they simply don’t know what they’re doing. (If you need a refresher course, check out my book The Gone Fishin’ Portfolio.)

• Two, expect the unexpected. Look back at the history of the market. Waiting behind every bull market is a bear market. And behind every bear market is yet another bull market. That’s just the nature of things. So don’t be surprised when it happens.

• Three, take the long view. If you’re investing your long-term-growth capital for use in 2020, for instance, is it really important what the market does this week, this month, or even this year?

• Lastly, understand that we are hardwired to react emotionally. When our ancestors on the plains of Africa heard a rustling in the bushes, they fled (even if it was just the wind).

Those who shrugged it off and kept whistling didn’t leave as many descendants.

But a fear response in the financial markets is not generally helpful. As investment legend Peter Lynch used to say, “If you’re going to panic, do it early.”

http://www.investmentu.com/2012/Novembe ... rains.html

[winston]

5 Alternative Investments — for the Few

These assets can pay off, if you know what you're doing

1. Fine Wine

2. Art

3. Coins

4. Real Estate

5. Antiques

http://investorplace.com/2012/11/5-alte ... the-few/2/

[iam802]

How a guy turned 20k into $2M

- video from Bloomberg

http://bloom.bg/TId35K

[winston]

Is Twitter Making the Stock Market Predictable? by Mike Kapsch

Imagine just how rich you could be if you had the uncanny ability to predict the daily movements of the stock market.

Instantly, you’d have a major advantage over other investors, knowing which way the majority of stocks would go each day.

Of course, this could never actually happen, right?

Past research has shown – such as Random Walk Theory and Efficient Market Hypothesis – that stock market prices can’t be predicted with more than 50% accuracy.

Wait, not so fast.

An academic study from Johan Bollen and Huina Mao at Indiana University revealed the stock market may be more predictable than originally thought.

In the middle of the Great Recession, they were able to predict the direction of the Dow Jones Industrial, two to six days in advance, with an amazing 87.6% accuracy.

Source: arXiv.org

By analyzing “useless” Twitter feeds. How’d they do it?

Hello, Sentiment

Every minute, an estimated 236,000 tweets are fired off in the “Twitterverse.”

That’s over 339 million messages a day. Plenty of people have attempted to make profitable sense of this mountain of data in the past.

But Johan and Huina were the first ones who discovered one algorithm, called the Google-Profile of Mood States (GPOMS), can actually be used to financially exploit tweets.

GPOMS analyzes the level of six emotions on Twitter: calm, alert, sure, vital, kind and happy. Of these six states, there was a direct connection between calmness and the direction of the Dow.

The calmer people seemed on Twitter, the more likely it was that the Dow would rally. The more anxious, the more likely the Dow would drop.

From March to December 2008, they processed 9.7 million tweets to come up with their incredible findings.

The authors have since teamed up with DCM Capital to use Twitter sentiment as a predictive tool for specific stocks such as Apple (Nasdaq: AAPL), Facebook (Nasdaq: FB) and BAE Systems (LSX: BA).

Today, the company is considered the world’s first trading platform with built-in social media sentiment analysis.

In fact, it even released an app earlier this year that can be used to track sentiment for various stocks and indices.

A New Tool for the Tool Belt

Whether or not calmness is the key ingredient to predicting stock market movements remains to be seen, in my opinion.

But stocks often do become oversold in the marketplace because investors let emotions – like anxiety and fear – get the best of them.

Having real-time access to at least a hint of that broad sentiment could be a useful tool for traders and investors alike… “Tool” being the keyword here.

Because as interesting and potentially lucrative as sentiment analysis may seem, finding solid companies that are selling at good prices, while consistently increasing their earnings and shareholder value, should always be at the core of your stock purchases.

But this sure is interesting stuff…


Source: Investment U

[iam802]

Is Twitter Making the Stock Market Predictable? by Mike Kapsch

..
But Johan and Huina were the first ones who discovered one algorithm, called the Google-Profile of Mood States (GPOMS), can actually be used to financially exploit tweets.

GPOMS analyzes the level of six emotions on Twitter: calm, alert, sure, vital, kind and happy. Of these six states, there was a direct connection between calmness and the direction of the Dow.

The calmer people seemed on Twitter, the more likely it was that the Dow would rally. The more anxious, the more likely the Dow would drop.

..

We have VIX, don't we?

[winston]

Be Wary of Top-Down Investing by Eddy Elfenbein

The problem with top-down investing is that it misses that point that profits can be found anywhere.

Profits are made wherever a good or service intersects with a need. It’s just that simple; there’s no magic formula.

The trick isn’t finding that special industry. Rather, it’s finding that special stock.

http://www.crossingwallstreet.com/archi ... sting.html

[winston]

What You Need to Know About Your Stocks
Author: Zacks Investment Research

[quote]
■ Did you know that roughly half of a stock’s price movement can be attributed to the group that it’s in?

■ Did you also know that oftentimes a mediocre stock in a top performing group will outperform a ‘great’ stock in a poor performing group?

■ And did you also know that the top 10% of industries outperformed the most?

■ Did you know that stocks with ‘just’ double-digit growth rates typically outperform stocks with triple-digit growth rates?

■ Did you also know that stocks with crazy high growth rates test nearly as poorly as those with the lowest growth rates?

■ Did you know that stocks receiving broker rating upgrades have historically outperformed those with no rating change by more than 1.5 times? And did you know they outperformed stocks receiving downgrades by more than 10 x as much?

■ Did you know that stocks with a Price to Sales ratio of less than 1 have produced significantly superior results over companies with a Price to Sales ratio greater than those levels? And did you know that those with a Price to Sales ratio of greater than 4 have typically shown to lose money? That doesn’t mean that all stocks with a P/S ratio of less than one will go up and those over four will go down, but you can greatly increase your odds of success by following these valuations.


http://www.yolohub.com/trading/what-you ... our-stocks

[winston]

By behappyalways

Trading what you think

http://www.youtube.com/watch?v=ktKNEGSq ... r_embedded

[winston]

A Simple System for Buying Stocks By Jeff Clark

If you weren't willing to buy stocks three months ago, you shouldn't be buying them today.

Three months ago, the S&P 500 Index was trading at 1,360. It was down 7% from its mid-September high. And less than 25% of stocks were trading above their 50-day moving average (DMA).

In other words… stocks were on sale. Shoppers could find plenty of bargains.

On Friday, the S&P closed above 1,500 for the first time in five years. It's up 5% just for the month of January. And now, 92% of stocks are trading above their 50-DMA.

Outside of precious metals, it's hard to find any bargains today… Yet shoppers are rushing into the market to pay full price.

That's a mistake.

I'm not saying stocks will fall from here or that today's investors can't make money. But there's a good time and a bad time to buy stocks – just like there's a good time and a bad time to buy skis, swimsuits, and lawnmowers.

We have the opposite condition in the stock market today. Take a look at this chart showing the percentage of S&P 500 stocks trading above their 50-DMA…

The blue circles on the chart indicate when less than 25% of stocks were trading above their 50-DMA. The red circles show when more than 80% of stocks were above their 50-DMA.

Here's how that chart lines up with the action in the S&P 500…

As you can see, anyone who bought stocks in the previous red circles – and held through the declines – is still making money today. But you can do far better by simply waiting for the blue circles.

Like I said earlier… anyone buying today can still make money. But you'll do far better if you follow this simple system and wait until less than 25% of stocks are trading above their 50-DMA before aggressively jumping into the stock market.

Source: www.growthstockwire.com

[winston]

The Only Chance You've Got to Be a Successful Investor By Porter Stansberry

Today, I'm going to tell you an unpleasant truth…

Most of you reading this note will not make money with your investments this year… or next year. Most of you, in all likelihood, will never make money in the stock market.

It may shock you to hear it. It might make you angry. It might fill you with strong doubts about my credibility.

I'm telling you anyway because I'm convinced the only chance you've got to become a successful investor is to start by acknowledging that reality. Once you know that individual investors generally fare poorly in stocks, you can begin to examine why…

We know most individual investors don't make money in the stock market from Dalbar… a Boston-based consultancy that studies actual mutual-fund returns. We know from the investment-management firm BlackRock, whose study is shown here…

We also know from discussions with dozens of certified public accountants that almost all their clients lose money in their personal brokerage accounts.

Why?

Let's start with the most obvious reason: The financial industry does not exist because it enriches its clients. The clients provide all the wealth required to maintain the financial industry.

The profits that power the branding and the marketing of mutual-fund companies and big investment banks came out of the pockets of their clients. Think about that. Think about it carefully the next time you consider following any financial institution's advice about what to do with your savings.

Investment banks exist to raise capital for corporate clients. They do not exist to give you a good stock tip or put you in a safe bond. (If you need a refresher course on the way Wall Street really works, read the famous book Liar's Poker.)

The other main reason people, on average, tend to fare so poorly in stocks is that very few individual investors know anything about how to value a security – a stock or a bond.

Let me give you a vital tip: If you don't know more about the value of something than the person who is selling it to you, the chances of you profiting from the transaction are extremely close to zero.

We've written volumes about how to value stocks and bonds. But… the writing is boring. It requires careful thought and attention. Most people, it seems, would rather trust some lines on a chart… Yes, sometimes these guides will work. But if you believe charts can compensate for a complete lack of basic financial skills… you will soon go broke in the stock market. That, my friends, is a fact. If you don't know how to value the business you're about to invest in, don't make the investment.

The last nail in the coffin of the failed individual investor is a complete lack of risk management. We've talked about the importance of exit strategies over and over in DailyWealth. (Review the idea here and here.)

Catastrophic losses happen for the same reason, every time. They don't happen because an investment idea didn't work out. Even great investors are only going to be right about stocks roughly 60% of the time. Catastrophic losses happen because people can't stand to take small losses. They allow them to grow into big losses.

There are two good ways to make sure this never happens to you. The first way is completely foolproof: Never invest more in any individual stock than you're OK losing. If it goes down 100%, it shouldn't matter to your financial well-being.

That means if you're investing a total portfolio of $100,000… you'll limit your position sizes to $2,000 (or maybe $5,000 at the most). Worst-case scenario, you lose 5% of your portfolio. That's not going to kill you. With some kinds of companies (risky biotechs and mining stocks, for example), this is the only kind of risk-management technique that really works because the shares are too volatile for trailing stops…

The other way to prevent catastrophic losses is to simply decide, in advance, when you will sell. It might be on the basis of negative price action (a trailing stop). Or it might be at a fixed price – you'll sell if shares drop to less than $10, for example. Or you can use charts to find points where you no longer want to risk owning the stock.

I don't really care what kind of risk management you use… so long as you use something. I can guarantee that if you don't have your risk strategy figured out, sooner or later, you will suffer a catastrophic loss… and it will completely wipe out all your previous gains. That's just what happens.

This is the most important information I can possibly give you.

You need to realize that most investors will fail. You need to understand why they fail and how they fail. They fail because they allow their emotions to overtake their reason. They fail because they don't have the most basic tools – they don't know how to value stocks. And they fail because they eventually suffer a catastrophic loss.

I truly hope you'll take this essay to heart. I hope you'll look back on the investment mistakes you've made and think about why they happened. It wasn't just because you bought the wrong stock.

Find a way to eliminate these mistakes and you'll be on your way to becoming a more successful investor.

Source: Daily Wealth