Investment Strategies 03 (Jul 13 - Mar 19)

[winston]

We’re Staying Disciplined – and Still Making Profits

BY MICHAEL A. ROBINSON

http://strategictechinvestor.com/2015/0 ... g-profits/

[winston]

Bull Market, I Win... Bear Market, I Also Win By Brian Hunt and Ben Morris

If the S&P 500 falls 20% in the next year, how will your stock holdings perform?

If the S&P 500 climbs 20% in the next year, how will your stock holdings perform?

What if there were a stock market strategy that would allow you to make good money in either of these outcomes?

What if you could say, "Bull market, I win… Bear market, I also win"?

There is such a stock market strategy. Not many individual investors use this strategy, but professionals have used it for years to profit in both bull and bear markets.

It's a technique called "pairs trading." It involves a simple combination of two trades… And today, we'll show you a handful of the best ways to employ the strategy.

A pairs trade is when a trader takes a position in two different assets… but treats the two positions as one trade.

You short one asset (bet that it will go down) and buy another (bet that it will go up). This results in a pair of trades that is "market-neutral."

This is an important concept. A trade, or even a full portfolio, is market-neutral when it doesn't have a bias toward higher or lower prices. If you have $30,000 invested in positions that profit when prices rise and $30,000 invested in positions that profit when prices fall, that's market-neutral.

Because pairs trades are market-neutral, you don't have to rely on the market to rise in order to profit. You only need the asset you bought to perform better than the asset you sold short.

Here's how it works…

Let's say you buy $10,000 worth of American Express and sell short $10,000 worth of Southwest Airlines. If American Express climbs 10% and Southwest Airlines falls 10%, you make $2,000. (That's 10%, or $1,000, on each $10,000 position.)

If American Express climbs 10% and Southwest Airlines also climbs 5%, you make $500. (That's a $1,000 gain on American Express and a $500 loss on the Southwest Airlines short position.)

And, if American Express drops 10% but Southwest Airlines also drops 15%, you also make $500. (That's a $1,000 loss on American Express and a $1,500 gain on Southwest Airlines.)

The only way you lose on your pairs trade is if Southwest Airlines outperforms American Express.

Now that you know how pairs trading works, let's look at some of the types available to you…

One market sector vs. another market sector

Let's say two years ago, you recognized the big tailwinds supporting the health care sector… But you didn't like the look of U.S. banks. You could have bought $10,000 worth of the iShares U.S. Healthcare Fund (IYH) and sold short $10,000 worth of the iShares U.S. Financials Fund (IYF).

As you can see in the chart below, the health care fund is up 50% over the past two years and the financials fund is up 25%.

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You would have made $5,000 on IYH and lost $2,500 on IYF. That's a $2,500 profit (13% on the $20,000 in the trade)… earned without taking any broad market risk.

One stock in an industry vs. another stock in the same industry

Earlier this year, our colleague Porter Stansberry and his research team recommended buying EOG Resources and shorting Suncor Energy.

EOG is one of the world's elite oil companies. It has an extraordinary package of properties in America's biggest new oil fields. This makes it one of the country's lowest-cost large producers of oil. Suncor Energy is a Canadian oil-sands producer with high production costs. Porter's thinking was that in a prolonged period of sub-$60 oil, EOG would fare much better than Suncor.

This was a classic pairs trade inside a sector.

Individual stock vs. the broad market

You can also execute a pairs trade by buying an individual stock and shorting a stock index. For example, let's say you think Apple is a better business than most of the businesses in the S&P 500 Index. Let's also say Apple is trading at a cheaper price than the overall index.

In this case, you could buy Apple and short the SPDR S&P 500 Fund (SPY). The success of this trade comes down to you being right about Apple versus the S&P 500. It does not come down to the movement of the stock market as a whole.

And while we presented this trade as a hypothetical, the neat thing is, this situation exists right now in real life. Apple is trading at an EV/EBITDA ratio (a useful alternative to the common price-to-earnings ratio) of 6.3. The S&P 500 is trading at an EV/EBITDA ratio of 11.6.

Given that Apple is a much better business than almost every other business in the S&P 500, we like the idea of buying Apple and shorting the S&P 500. It's a market-neutral position that could easily make 25% in the next 12 months.

One commodity vs. another commodity

You can also put on pairs trades in the commodities market. For example, in mid-2013, we pointed out in DailyWealth that gold was cheap relative to crude oil. We told readers to expect gold to advance against oil. In this situation, you'd buy gold and short oil.

Over the next 18 months, gold fell 3%. Oil fell 57%. A $10,000 long gold position taken in mid-2013 would have been worth $9,700 18 months later, a loss of $300. A $10,000 short position in oil would have been worth $15,700, a gain of 57%.

Put together, the two parts of this trade would have produced a gain of 54%, or $5,400.

The profit on this trade wasn't dependent on the movement of the overall stock or commodities markets. It was all dependent on the quality of analysis of the two assets.

One country vs. another country

Finally, you can also execute a pairs trade by trading one country's stock market against another's.

For example, in May 2011, we alerted DailyWealth readers that the commodities sector was exhibiting weak price action and looked dangerous.

In a case like this, you could short the stock market of a country whose economy is tied to commodity prices, while going long the stock market of a country whose economy isn't pulled down by weak commodity prices.

Brazil gets a large portion of its foreign earnings from the sale of oil, iron ore, and agricultural products. It was a good candidate to short at that time. You could have shorted the iShares MSCI Brazil Capped Fund (EWZ). The United States has a diversified economy. This made it a good country to "pair" with a Brazil short.

Over the next four years, most commodities plummeted in price. The big Brazil fund fell 60%. The S&P 500 fund climbed 69%.

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The success of this trade depended on you being right about the U.S. versus Brazil. It did not depend on the ups and downs of the global markets in general.

As you can see, there are lots of great applications for pairs trading. Professionals have used the strategy for years to profit in all kinds of markets… And you can use it, too.

It's one of the only strategies that lets you say, "Bull market, I win… Bear market, I also win."

Source: www.growthstockwire.com

[winston]

Don't forget these investing keys By Abigail Stevenson

No. 1: What's going to make this stock go up, besides the stock market?
No. 2: Why is it going to go up? Is there something time sensitive?
No. 3: Is this the best time to buy it?
No. 4: Have you missed a lot of the move? How much has the stock gone up without you? Is it extended on a technical basis?
No. 5: Should you wait until it comes down a bit more? What's the harm?
No. 6: What do you know about this stock that others are missing? Is your instinct to buy based on general knowledge, and you're working on a herd mentality? And have you listened to the conference calls and done the research, or are you flying blind?
No. 7: What do you actually know about the company and sector? Do you have personal knowledge? Do you know how the cloud works, what stock trades with what, or where it lies in the sector food chain?
No. 8: Do you like this stock more than others you own and why? Is there anything to get rid of before buying this stock?

Source: CNBC

https://finance.yahoo.com/news/cramer-r ... 23267.html

[winston]

Where Retirees Should Invest in Today’s Uncertain Markets by DENNIS MILLER

Right now the investment options are shaky.

Cash. Congratulate yourself if you got stopped out of some positions and now have cash to deploy. Holding cash today is losing ground to inflation; however it may be the least risky option.

Bonds. Bond yields stink. Alan Greenspan warns about a bubble ready to burst, “…it was appropriate to be very afraid of the bubble. He said the bond market price-to-earnings ratio was at an “extraordinary unstable position.” Don’t be in any hurry to buy bonds. The Federal Reserve is not sending clear signals.

Stocks. Don’t fall for the buy and hold mentality. When you are retired, your capital has to last. A 40%-50% market drop may come back, but can you guarantee it will happen in your lifetime? Use extreme caution.

Gold and precious metals. Famed pundit Marc Faber says, “There Is No Safe Asset Anymore, so Buy Gold and Precious Metal Stocks.” Gold should be part of every investor’s core holdings to protect against inflation. Speculating with retirement money is a recipe for disaster.

What do do now

1. Review your portfolio and make sure your stop losses are current.
2. Take profits on positions where you feel it is appropriate.
3. If you need to increase your core holdings now is a good time.
4. Don’t jump into the market because you feel “you have to do something.” While there’s always a good reason not to buy a stock, until you see a darn good reason to buy a stock, holding on to your cash might be the least risky choice.
5. Ignore the hype. Too many newsletters trumpet, “Had you bought this stock you would have had a 2000% gain.” They infer their hot tip is your road to riches. Until the economy, Federal Reserve, and the markets show clear signs, extreme caution is in order. 6. Clear signs will appear; it just takes a while.

source: Investors Alley

http://www.investorsalley.com/where-ret ... ptmcdenmil

[winston]

10 Tips For The Successful Long-Term Investor

Source: Investopedia

http://www.investopedia.com/articles/00 ... er=YahooSA

[winston]

Basic Business Principles

1. Always do the math and invest for maximum-risked return. Every company says it, but most rarely do it.
2. The denominator matters. Maximize value creation per share.
3. Have a feisty independence. Minimal advisory input.
4. Charisma is overrated. Results are what matter.
5. Have a crocodile-like temperament. Wait patiently for the right opportunities...
6. [Take] occasional bold action, when the time is right.
7. Take a rational, analytical approach to all decisions
8. And have a long-term perspective. Ignore the noise on the street (Wall/Bay).

Source: Non-Dollar Report

[winston]

Ang’s strategy on investing

BY TEE LIN SAY

Source: The Star

http://www.thestar.com.my/Business/Busi ... ?style=biz

[winston]

How To Spot A ‘No-Brainer’ Investment In 30 Seconds Or Less

By Dave Forest

Source: Street Authority

http://www.thetradingreport.com/2015/11 ... s-or-less/

[winston]

10 Questions That Will Help Define Your Investing Philosophy

The following questions can help you sort through the noise and create a personalized investing philosophy:

1. What are your core investment beliefs?
2. Do you understand your philosophy and why you believe in it?
3. Do you know the potential risks?
4. Does it suit your personality and individual circumstances?
5. Will your philosophy help you follow whatever strategy you implement?
6. What constraints are necessary for turning your philosophy into a portfolio?
7. What will you own and why will you own it?
8. What will cause you to buy or sell?
9. What will cause you to make changes to your portfolio over time?
10. What types of investments or strategies will you avoid?

Source: AAII

http://www.aaii.com/journal/article/def ... philosophy

[winston]

This is the best investing strategy I've tried (and I've tried them all)

by Dan Steinhart

Source: Casey Research

http://thecrux.com/james-altucher-this- ... -them-all/