Friday, July 29, 2011

The "Social Media" Investing Model

Good Advice
I was doodling on my note pad at the Social Media seminar I attended earlier in the week.  It occurred to me the advice we were receiving would be useful for those wanting to learn more about investing.

The fastest way to learn anything (other than from adversity) is from other people's experience.  Since there are as many investing strategies as there are people, look for the classics like "The Intelligent Investor", by Benjamin Graham, "Stocks For The Long Run", by Jeremy Siegel, "The Wall Street Journal Guide To Understanding Money and Investing", by Kenneth M. Morris.  I like "How To Make Money In Stocks", by William O'Neil.

Technical Analysis has increased in popularity of late.  I recommend achieving an intermediate (as opposed to beginner) level of understanding.  Search Amazon, and look for something of interest.  I started with Stan Weinstein's "Secrets For Profiting in Bull and Bear Markets".  The investing world is divided between fundamental and technical investors.  Why rely on a monaural approach when we can enjoy the advantages of a fully enhanced stereo experience?  I suggest using fundamental analysis to determine what to buy, and technical analysis to identify when to buy. 

Set Goals
Do you want to become independently wealthy?  Do you want to supplement your income?  Do you want a fully paid vacation?  Remember, goals should be SMART (Specific, Measurable, Achievable, Realistic, Time-sensitive).  Consider setting short-term goals based on longer term ones.

Paper trade.  There are sites and contests on the internet which allow us to buy and sell stocks using practice accounts instead of losing real money.  It is rather like learning to ride a bike.  We are bound to fall and get a few scrapes before we can hold our own at the Tour de France.  Understand, however, paper trading only goes so far.  There is nothing like the feeling of losing significant amounts of money in a bad trade, or the excitement of riding a huge gain.  Learn to set limits based on the level of personal experience.

Keep accurate records.  Use those records to identify what works for your situation and what doesn't.  Do more of what works and less of what does not.  What works in some situations will not work in others.  Nothing in investing works all of the time.  Anyone who says otherwise is lying.  Be prepared to shorten time horizons, or lengthen them.  Trade more; trade less.  Never fall in love with an investment, or a trade.  They all have their day, then, can turn on us in a heartbeat.  Investing is like public speaking; getting too comfortable or too lazy is usually a mistake.  Anticipate various scenarios and plan appropriate responses.  Plan ahead, do not react.  Instinctive reactions are necessary for survival; they usually go contrary to good investing practices.

Measure progress toward goals.  Make improvements without relying only on the advice of others.  Investing is like playing poker.  People come to the table with their own agendas and strategies.  If their real agenda is consistent with what you are attempting, then fine.  Understand that nobody in the Financial Services industry wants to make you money if it interferes with how they make their money.  Also, understand that they almost never get paid based on the amount of money they make for you.  If that were the case, there would be a lot of starving workers in the industry.  Ever wonder how companies can afford to pay those huge bonuses?

The advice for determining the percentage of equities in a portfolio based on age is only a guideline.  Revise your goals based on your results and your desired results based on your goals.  I know that sounds like double talk, but just like fundamental and technical analysis, we are not limited to one instead of the other. 

I started out in the safest of mutual funds, then sector funds, then Exchange Traded Funds (ETF's), then leveraged funds, then individual stocks.  I will be trying my hand at options when I open my first Tax Free Savings Account (TFSA).  Each time I found myself repeating the process.   Sometimes it is necessary to repeat the process because of a change in goals, or because of differing results.  It took me a long time to determine what works and what doesn't, and that wasn't for a lack of asking questions - I rarely received straight answers.  According to the industry, we are not supposed to do it ourselves ("Doctors don't operate on themselves!"), and we sure as heck are not supposed to time the markets ("It is time in the markets, not timing the markets!")  I invite you to take advantage of what I have learned.  Use me as your resource.  I love doing this stuff, it is what I do, and I am more than happy to share what I do with others.

Have you followed a similar approach?  How do you test your ideas?

Tuesday, July 26, 2011

Good Time To Buy Gold?

Click Here To Play The Video
Short Term Bearish; Longer Term Bullish
Shorter term, Thomas Winmill of Winmill & Co. is bearish on gold and thinks we could see a bit of a pull-back after the U.S. politics over the debt ceiling gets resolved.  Longer term, he believes as long as the government continues to issue dollars, gold will continue to go higher.  He thinks we could see a correction close to one hundred dollars in the price of gold.  Myself, I think it could even get as low as 1480 from here.  From there it could go lower by another hundred dollars, but that is unlikely since we have begun the period of seasonal strength for gold.  Gold companies have underperformed the increase in the price of gold lately, but if we get a correction in the gold price during the shorter term, I will be watching for the stocks of gold companies to correct.  After that, I will be looking for them to begin a new leg up as the price of gold goes higher.  At least, that is the way I am reading the charts.

Wednesday, July 20, 2011

Time For Investing

Daily.  That's how often I tell people I check on my investment portfolio.  I often get the feeling it is not the answer they were looking for.  How often do we brush our teeth?  How often do we bathe?  How often should we exercise?  For me, the answer is at least daily.  I used to have some difficulty with the exercising thing, then I decided to ask myself a different question than, "Am I going to exercise today?"  I changed the question to, "When am I going to exercise today?"  Different question, better result.

Managing Priorities
I just read something the other day where the person said, "We will never find the time [to do something], we have to make the time."  I learned a long time ago that time management was really nothing more than priority management.  Here's a reality check:  track your time for the next week, and see if where you are spending most of your time is consistent with your own priorities.  The first time I did it, I found I was spending too much time on work - seriously!  Family time is very important to me. 

When it comes to investing, the problem for most people is the time for them needing investment income is too far in the future.  It is like smoking a cigarette without thinking about the cancer because the need for nicotine is now, while fighting disease seems to be a long time from now.  There is no single more powerful tool in the investor's toolbox than the power of compounding over time.  Invest enough in the first 10 or 15 years of our working careers, and we can retire wealthy, yet how many people do?

See The Future
Still, it is never too late to get started now.  The internet provides us with access to so much information, most of what we need to do can be learned from the comfort of our home.  I know for some people, money, and investing is just not their thing.  I can't say I'm really into flossing my teeth, but I do it anyway!  Whether it is flossing, exercising, or investing, what keeps me motivated is a mental picture of the result.  Flossing improves my oral health, as well as my heart health.  In the end, exercising may not increase the number of years I have, but I can guarantee it will improve the quality of my years.  The more I know and understand about investing, the more wealth I will have to spend on my family, myself, and others.

Can a few minutes a day really be too much to invest?

What is your excuse for not enjoying the returns investing brings?

Wednesday, July 13, 2011

June Portfolio Update

Click to Enlarge
I have been enjoying some Albertan hospitality, which also means it is the middle of July and I am only now posting my June results. 

My own returns came from my correctly choosing the inverse Exchange Traded Fund for Natural Gas futures in the middle of June as the price of Natural Gas dropped a little over 12 percent.

The correction in longer term bonds at the end of the month provided a good entry point to what I believe should be a continuation of the summer rally.

In my May update I had mentioned that gold looked promising, but during the month of June it ended up being flat to down.  I am watching for energy stocks to break out of their downwards trend as seasonality tends to favour them around this time.

XIU dropped below it's 200 day moving average at a price which I will call $19.00.  This would trigger a sell in my Basic Timing Model.  Since the 200 day moving average was rising, I would have purchased XIU again as close as I could to that same price after XIU bottomed and approached the moving average from below.

Six month return for TSX @ June 30, 2011 = -0.86 percent
Six month return for Basic Timing Model using XIU = -1.6 percent
Six month return for Advanced Timing Model (my returns) = -3.57 percent
Money for charity = $411.27