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Saturday, June 30, 2012
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Monday, June 14, 2010
Saturday, March 27, 2010
The Horse is Offically Beaten
Is anyone else getting tired of news and commentary on the health care issue? I know I am. Of course I am pretty guilty of participation having commented and written virtual books about it on facebook. But I am even getting tired of reading my own drivel about it.
I want to make money. While Obamacare certainly affects each of us and our investments, we need to focus on how to profit from it instead of griping about its existence. I have personally spent the past week griping about it, but now that is over, I am searching for ways to profit.
I wish there were something to offer for you right now, but I am still in investigation mode. Pfizer looks to be a good bet as it is a huge company with a market leading position trading at a low valuation. But with the market volatility so low right now, my favorite strategy, selling naked puts on stocks I want to buy anyway, is not very profitable.
So for now, I am going to sit on my hands and enjoy the arrival of Spring here in Estonia.
I want to make money. While Obamacare certainly affects each of us and our investments, we need to focus on how to profit from it instead of griping about its existence. I have personally spent the past week griping about it, but now that is over, I am searching for ways to profit.
I wish there were something to offer for you right now, but I am still in investigation mode. Pfizer looks to be a good bet as it is a huge company with a market leading position trading at a low valuation. But with the market volatility so low right now, my favorite strategy, selling naked puts on stocks I want to buy anyway, is not very profitable.
So for now, I am going to sit on my hands and enjoy the arrival of Spring here in Estonia.
Thursday, March 18, 2010
The market is just a bit overheated for my taste
I would encourage anyone reading this blog to analyze your portfolio and consider taking some money off the table and maybe tighten up your trailing stop losses to protect your profits.
I analyzed our investment partnership fund yesterday and we are up 7.7% YTD compared to the S&P500 - up 2.3%. This is a great return and our portfolio is well hedged, but I am cashing out some positions and closing some option trades for big gains now to lock in some profit.
My instinct tells me that the markets are a bit toppy. I say instinct, but really, the markets are historically high right now with the Wilshire 5000 at about 22x P/E. As a value based investor, this is expensive to me. With such huge gains in our portfolio, I am trimming some holdings and increasing the cash position waiting for a pullback and some good buying opportunities.
I suggest you consider the same. Happy trading.
I analyzed our investment partnership fund yesterday and we are up 7.7% YTD compared to the S&P500 - up 2.3%. This is a great return and our portfolio is well hedged, but I am cashing out some positions and closing some option trades for big gains now to lock in some profit.
My instinct tells me that the markets are a bit toppy. I say instinct, but really, the markets are historically high right now with the Wilshire 5000 at about 22x P/E. As a value based investor, this is expensive to me. With such huge gains in our portfolio, I am trimming some holdings and increasing the cash position waiting for a pullback and some good buying opportunities.
I suggest you consider the same. Happy trading.
Tuesday, March 16, 2010
Here Comes the Rate Hikes
The pressure is now on to raise interest rates. Read this article here from Yahoo Finance. Now is the time to start thinking about our portfolios. We need to not only prepare our defensive strategy, but we need to understand how to profit from imminent interest rate increases.
The obvious choice is to short long term treasuries. When interest rates rise, all of the existing bonds fall in price due to the higher rate paid on new issues. This drives down bond prices so shorting is the obvious and easy way. There are several ETF's the allow you to take advantage of this. you can sell short the ETF TLT as it tracks the long bond. If you aren't comfortable with shorting, you can buy the ETF TBF, which is a fund that shorts the long bond for you. There are a couple of double and triple short and long ETF's, but I personally don't like the volatility and the lack of a direct correlation.
You can also buy put options or sell call options on these ETF's if you are interested in leveraging your returns. Happy trading.
The obvious choice is to short long term treasuries. When interest rates rise, all of the existing bonds fall in price due to the higher rate paid on new issues. This drives down bond prices so shorting is the obvious and easy way. There are several ETF's the allow you to take advantage of this. you can sell short the ETF TLT as it tracks the long bond. If you aren't comfortable with shorting, you can buy the ETF TBF, which is a fund that shorts the long bond for you. There are a couple of double and triple short and long ETF's, but I personally don't like the volatility and the lack of a direct correlation.
You can also buy put options or sell call options on these ETF's if you are interested in leveraging your returns. Happy trading.
Monday, March 15, 2010
Bad news for BSX - Good news for me
Boston Scientific took a nosedive overnight. They are having a bad few months. See the news report here. I won't go into the details, you can read it on the link. But BSX has seemed to have reached rock bottom.
They are hated and the price is near all time lows as of today. The news today has created a massive sell off destroying the stock price. And all I can hear is ka-ching.
Today I sold August $7 put options for $.95. This is the kind of market anomaly I love. I look for stocks the world hates. But I generally sell put options and collect the premiums in lieu of buying the stock. I prefer the income and the downside protection it gives. Happy trading.
They are hated and the price is near all time lows as of today. The news today has created a massive sell off destroying the stock price. And all I can hear is ka-ching.
Today I sold August $7 put options for $.95. This is the kind of market anomaly I love. I look for stocks the world hates. But I generally sell put options and collect the premiums in lieu of buying the stock. I prefer the income and the downside protection it gives. Happy trading.
Wednesday, March 10, 2010
How to Track Trailing Stop Losses
Today I want to discuss trailing stops. If you have any experience with investing or trading, you are surely aware of stop loss orders. However, this is not exactly what I am talking about.
I want to show you how to track trailing stops. I will illustrate. You buy stock X for $100 and track a trailing stop of 10%. This means if X goes to $90, you sell and book a $10 loss. Of course no one wants to lose, but keeping track of your losses and cutting them early will eliminate emotion from your trading and protect you from a catastrophic loss. With a trailing stop, the 10% moves up as the price of the stock increases. So if X goes to $150 then you sell at $135. Thus locking in your profit at a minimum of $35.
It is really quite easy to do this. I personally just use an excel spreadsheet. I enter the stock name, symbol, purchase price, and high price. Then in the next column I enter my trailing stop of 25%, 15% or 10%, depending on the stock. I use a formula that autmatically gives me my sell price. At least 2-3 times per week, I look at the closing prices of my stocks and adjust. If a stock makes a new high, I adjust my high price. If it closes below my sell price, I enter a sell order for the next day. It took about 30 minutes to create the original spreadsheet with the formulas and about 5-10 minutes to update. I consider this time well spent.
You will also need to consider your dividends when tracking your trailing stops. If the stock is trading at $50 and it pays a $1 quarterly dividend, then the stock will drop by approximately $1 on the ex-dividend day. Keep in mind that each time you are paid this $1 dividend, this reduces your cost basis by $1 and thus should lower your high price by $1. This way you don't get stopped out of a stock too early due to a dividend payment.
You may ask, "why don't I just enter the trailing stop order with my broker?" It is true that most brokers now will allow you to enter a trailing stop loss order and just not worry about it any more. I would never, ever enter any type of stop loss order with my broker. The market makers are there to take advantage of you. If you enter a 10% trailing stop order in with your broker on a stock that cost $50, the order is in the system to sell at $45. If the stock drops to $45.50, market makers can push the price down to $45 to buy your shares and almost immediately the price can run back up. I have personally experienced this and it taught me my lesson.
I used to think with high volume stocks, I could enter my trailing stop orders with my broker and just forget about it. Once I had a stock trading at about $340 per share and my trailing stop order was approximately $312. One morning my shares were sold at EXACTLY my trailing stop order price, TO THE PENNY. To the penny!!! And within minutes the stock was back trading at around $330 per share. Lesson learned.
The point is you need to take control of your trading and not let someone else decide when you sell. It is important to have an investment strategy. This strategy involves both the price you pay AND the price you sell. If you establish this in your strategy, you eliminate the emotion from your investments. Trailing stops has been one of the most important things I have learned in my investing career and I hope you will employ this strategy as well. Happy trading.
I want to show you how to track trailing stops. I will illustrate. You buy stock X for $100 and track a trailing stop of 10%. This means if X goes to $90, you sell and book a $10 loss. Of course no one wants to lose, but keeping track of your losses and cutting them early will eliminate emotion from your trading and protect you from a catastrophic loss. With a trailing stop, the 10% moves up as the price of the stock increases. So if X goes to $150 then you sell at $135. Thus locking in your profit at a minimum of $35.
It is really quite easy to do this. I personally just use an excel spreadsheet. I enter the stock name, symbol, purchase price, and high price. Then in the next column I enter my trailing stop of 25%, 15% or 10%, depending on the stock. I use a formula that autmatically gives me my sell price. At least 2-3 times per week, I look at the closing prices of my stocks and adjust. If a stock makes a new high, I adjust my high price. If it closes below my sell price, I enter a sell order for the next day. It took about 30 minutes to create the original spreadsheet with the formulas and about 5-10 minutes to update. I consider this time well spent.
You will also need to consider your dividends when tracking your trailing stops. If the stock is trading at $50 and it pays a $1 quarterly dividend, then the stock will drop by approximately $1 on the ex-dividend day. Keep in mind that each time you are paid this $1 dividend, this reduces your cost basis by $1 and thus should lower your high price by $1. This way you don't get stopped out of a stock too early due to a dividend payment.
You may ask, "why don't I just enter the trailing stop order with my broker?" It is true that most brokers now will allow you to enter a trailing stop loss order and just not worry about it any more. I would never, ever enter any type of stop loss order with my broker. The market makers are there to take advantage of you. If you enter a 10% trailing stop order in with your broker on a stock that cost $50, the order is in the system to sell at $45. If the stock drops to $45.50, market makers can push the price down to $45 to buy your shares and almost immediately the price can run back up. I have personally experienced this and it taught me my lesson.
I used to think with high volume stocks, I could enter my trailing stop orders with my broker and just forget about it. Once I had a stock trading at about $340 per share and my trailing stop order was approximately $312. One morning my shares were sold at EXACTLY my trailing stop order price, TO THE PENNY. To the penny!!! And within minutes the stock was back trading at around $330 per share. Lesson learned.
The point is you need to take control of your trading and not let someone else decide when you sell. It is important to have an investment strategy. This strategy involves both the price you pay AND the price you sell. If you establish this in your strategy, you eliminate the emotion from your investments. Trailing stops has been one of the most important things I have learned in my investing career and I hope you will employ this strategy as well. Happy trading.
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