Jim Cramer Says, "Discipline Trumps Conviction"

How Much Is Enough?
I love how Cramer talks about going to movies to distract himself from the stock markets when his fund was up big going into the end of the year.  I can't say that is the approach I am taking, but currently I am very, very careful about putting new money into this market.  Not everyone has the luxury of sitting, watching the markets, and being able to day trade.  Still, with most price charts running up into the top right corner of the chart, it would seem to me to be a good time to shorten one's investing horizon. Why give up all, or even most of those hard earned gains?

Setting Targets
To me, this speaks to the importance of setting targets, then taking profits as those targets are achieved.  Fund managers are all in at this point, and pushing hard on the few stocks showing the most promise - not a good time to be in more speculative stocks.  The personal investor has the distinct advantage of being able to get in and out of the market very quickly.  Most personal investing goals for the year, if they were in any way reasonable, should already have been met.  Time to spend more time at the movies!

How is your portfolio doing?

Tolerance - A Trader's Mindset

Truth
I am increasingly amazed by the quickness of people to condemn others.  Examples include road rage, comments on the internet, political parties, and yes, even participants in the stock market.  Somebody once said, "Just because we disagree, that does not mean we should be disagreeable".  Disagreeing is normal - attacking the person we disagree with is not.  It is almost as if proving the other point of view as wrong, automatically proves us to be right.  Worse yet, assassinating another's character proves that they deserve no say in the matter, even when the two are not even related. Often the truth lies somewhere in between various points of view.


Once And For All
What works for one, seldom works for all.  I have to laugh at the advertisements which suggest if we are not using their solution, or their product(s), that can only mean we are obviously doing it all wrong.  The fact they try to suggest that they know what is best for me, without even knowing me, is comical, if not misguided. But to attack me because of what I believe, is nothing but intolerance, plain and simple.  When did we become so intolerant of other points of view?  Maybe it just goes hand in hand with our intolerance of other people who don't look like us.

Buy and Hold
Can we really believe there is only one correct approach to the stock market?  Again, I laugh when "experts" look down their noses in disdain at anyone they believe is behaving contrary to their "buy and hold" approach.  It is as if traders are of the lowest class of people while (buy and hold) investors are what everyone should aspire to be.  Clearly, there is no such thing as timing the market, so not only is anyone attempting it, ignorant, they are probably really, really bad at managing their financial affairs, as well!  Not.

Trading Costs
One of the reasons many can't believe timing the market could ever work, despite evidence to the contrary, is the so-called high cost of trading.  Everyone knows, the more we trade, the less we earn.  I have just discovered an interesting concept which would help explain why that is not always the case.  Next time, I will go into more detail.

Mindset Matters
I did not start this blog post with the mindset that all traders are tolerant, and all investors are not.  Believe it or not, markets actually represent people of all viewpoints.  What one person wants to sell, is exactly what another wants to buy.  We don't (and shouldn't) judge the person on the other side of the trade.  The market is able to exploit any weaknesses we might possess, and makes us pay the price, no matter what our strategy.  Still, if there were only two choices, (which I don't believe is true),  I think I would rather be less wealthy and tolerant of others, than rich and falsely believing I was smarter (and hence, better) than everyone else.  Why? Because being able to let go of judgement, I believe, makes me a better person as well as a better trader.

What are your thoughts?

Looking Ahead With Christine Hughes

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Quantitative Easing
Christine Hughes, of Otterwood Capital Management says the driver of equity markets has been quantitative easing by the US Federal Reserve.  This approach is hugely beneficial to the banksters, and as a result, the financial markets, but does nothing for job creation.  Even with a new Fed. Chairperson, she expects more of the same next year, despite rumours of the Fed. withdrawing stimulus.

Japan
Not so for Japan.  She feels it is only a matter of time until Japan defaults on its huge government debt.  Because government bonds in Japan are owned mostly by the Japanese, she sees the affect of a default being even worse than would normally be the case.  In the case of a world-wide liquidity event (banksters unwilling to lend to other banksters) she says there will be no government bail-out next time.

Next Year
It isn't all bad news, however.  At least for next year, she sees as much as a thirty percent return on US equity markets next year.  Just don't confuse that with the beginning of a long term bull market (no matter what those selling financial products are going to say).  My father always told me, "The bigger they are; the harder they fall!"

What do you think, much higher, or much lower from here?

Wealth Of Habits

Habit
People who lack the wealth they desire, lack the habits that produce wealth.  There is much material on the habits of successful people, not the least of which is Stephen Covey's "Seven Habits of Highly Effective People".  This video is a high level review of that popular, and successful book.



Character
There are multiple takes by numerous people on which habits are important, and how many there are.  Let me make it simple.  From everything I have seen and read, wealthy, healthy and successful people have three character traits which allow them to maintain the appropriate habits.  They are: focus, discipline, and connection.

First Things First
Wealthy people focus on the things that are important to their goals (which they have written down) and accomplish those tasks before they become incredibly urgent.  They have the discipline to put first things first and to also make time for exercise, friends and family, and learning.

Common Good
Zig Ziglar has always maintained we can get everything in life we want, if we just help enough other people get what they want.  An understanding that we, collectively, are greater than the sum of the parts is often missing in all aspects of life, today.  Anything we do to undermine any of the parts (people) of that whole is detrimental, not only to them, but to our success, as well.  The common good, as well as our own, is best served through an attitude of humbleness, and gratitude.

While character is something that can take a life-time to build, habits, only take about 30 days.  Good habits build good character.  You too could be on your way to a healthy, and wealthy future, in just about 30 days.        

I'm Absolutely Positive

Too Critical?
I know I sound critical of the financial services industry.  I've worked in the industry, I've watched it for years.  I've been there, done that, and got the T-shirt.  It is my personal experiences with the financial services industry that prevents me from believing their propaganda and the many cheerleaders who endorse their message (and receive compensation for doing so).  While critical of the financial services industry, I'm also very positive about our own ability, with the available technology today, to better the results of the average fund manager.  Remember, very few of them beat the market averages over the long term.

Tactics
I know people have difficulty believing they deserve better.  After all, the professionals are the best at doing what they do and I'm not disputing that.  That means, either I can settle for the bread crumbs they throw my way, or I can look for something better.  If we are trying for a different result, why would we try to mimic the professionals with their millions and billions of dollars for which they earn outlandish fees?  You and I have so much less.  I remain convinced that our primary advantage over the big professional fund managers is our ability to out-run them. That means being very tactical.  The philosophy of fund managers has always been to buy and hold.  I have said in this blog, and I've said for years, that buy-and-hold is a marketing strategy, not an investing strategy.

Trends
So, if we want to outperform buy-and-hold and run rings around these professional fund managers then how do we do it?   Many would tell me they don't have all day, every day, to sit in front of their computer watching markets, and playing with the numbers while trying to do better, especially when they don't even believe that timing the market is possible.  And that's fine.  People who don't believe it is possible will never be able to make it happen, anyway.  Faith is funny that way.  To outperform the average fund manager, people don't have to write a blog, they don't have to surf the internet every day, they don't have to crunch the numbers all the time.  We simply need to monitor trends; long or short, up or down.  I get confused as to why that is so hard to understand.  Just me?  I don't know.  Like I said, I don't understand why.

Profit
I'm not even saying we need to identify the very beginning of a trend.  Once the market confirms there is, in fact, a trend, then we can take part, and get out again when either the trend seems to be faltering, or when our profits are sufficient that we should take our money off the table.  Even if we get it right only fifty percent of the time, but cut our losses short, we still come out ahead.  So what if we can't identify how long the trend will actually continue?  I guarantee, another new one will shortly follow.

Charts
It doesn't take a huge amount of skill to read a chart.  People do it all the time.  We look at charts of the outdoor temperature, performance charts, health charts, progress charts, budgets, forecasts, to name a few.   Yes, it takes a little practice, it takes knowing what to look for and what to watch out for. In the end, anybody can do it, anybody who wants to, and has a little desire to spend a bit of time monitoring their investments in return for a greater than average payoff.  Again, I have to admit I don't know why more people don't take this approach.  I do know it's partly because people think it's too hard, and that it is a waste of time, especially since we are always told by the professionals we couldn't do it even if we tried, anyway.

Full Time Returns; Part Time Effort
As for me, I'm not giving up.  I will continue to blog.  I will continue to talk about the methods in which people can take control of their own destiny through just a little bit of time and a little bit of effort in order to make more money working part-time than any other part-time job would ever pay them, and even more than some full-time jobs.  It takes practice.  I'll grant the critics that, but it's neither too difficult, nor too time-consuming - let alone impossible - that most people shouldn't, at least, try.

What is your single biggest reason for not trying?  Care to share it?

Bernanke, The Face of Modern Day Capitalism

"I Don't Think So"
When asked if it were fair to say that Wall Street had benefited more than Main Street from the Federal Reserves' stimulus, Mr. Bernanke's response was "I don't think so".  It goes to show even Central Banksters are as much politician as they are bankster.

Survey Says...
C'mon.  The Federal Reserve has more than enough data at its disposal which should clearly show that the main benefactor in all of this is, in fact, Wall Street.  Stock market prices are racing to all-time highs while employment rates and the numbers for full time employment remain stuck in the mud.  Is Mr. Bernanke asking me to believe he is not aware of what those numbers really mean?

Lies, Damn Lies...
To me, the big problem in looking right at the camera and lying because they think that everyone else is too stupid to know any different, is it destroys the credibility of their whole argument.  They may not think we can prove they are lying, but we don't need degrees from Harvard University to know when they are, and where the money is ending up.  If they are lying about these things, then what else are they lying to us about?

Practice Makes Perfect
I was never a fan of the ideas that government's borrowing of more money is the solution to government's borrowing of too much money, or that banksters should be rewarded for gambling away the wealth of nations by giving them more money to practice with.

The Morale of The Story
In the end, Mr. Bernanke will be long gone and away from the scene when the problem chickens begin to come home to roost.  Again, the average working slob will be left picking up the pieces of yet another failed experiment - failed in the sense that it did not help anybody but the immediate benefactors.  Clearly, Mr. Bernanke and his ilk will have accomplished their mandate if they can suspend judgement just long enough that the perpetrators have enough time to laugh all the way to the bank before people wake up to the fact that new regulations are required that hold politicians, CEO's, and banksters, including Central Banksters to account.

Do you reckon they might end up wrecking the joint before that can happen?

Fight Back - Ellen Roseman

Click Here To See The Video

What To Buy
Ellen Roseman is the author of "Fight Back".  I have not read the book, but wanted to highlight some of the things said in this interview.  Ellen makes the point we need to invest only in the things we understand.  We should not buy products we don't understand especially since financial advisors get paid for selling us product, whether we understand what we are buying, or not.  Know how the advisor is compensated - it determines what they sell and what they don't.  Also, we are told to get references every time we hire a professional - why not for our financial advisor?  Don't stop there, either, search online.  Employers do it all the time now, we should as well for the people we want to hire.

Start Small
There is no other hobby, or part-time job that can make us the amount of income that investing can.  Why more people don't learn how, is beyond me.  Ellen suggests starting small and increasing the percentage of one's self-managed portfolio over time.  Avoid getting overwhelmed - start with the advice of the bank you already deal with.  As for international diversification, she recommends it.  To me, that is out-dated advice.  Inverse Exchange Traded Funds allow us to make money when the market is falling, not just when it is rising.      In my humble opinion, most people don't know enough about foreign markets to invest in them.  Paper trading is the best way to start to learn the mechanics of investing.  Investopedia has one such free account to start the learning process.

Have you ever used an inverse ETF, or started by paper-trading?

Market Volatility & Exchange Traded Funds

Exchange Traded Funds
The video that follows is about Exchange Traded Funds (ETF’s) and the growth seen in that type of investment product.  I have chosen this particular video for a couple of reasons.  The first reason has to do with managing expenses within our portfolios and the second is to talk about the way in which I use ETF's.  iShares used to be a separate company that offered ETF’s.  It is now owned by Blackrock and is a subsidiary of that company.  The good news about ETF’s is they are cheaper to buy and own than mutual funds.  The bad news is ETF’s are not actively managed like most mutual funds. Since ETF’s normally mirror a particular index, they don't need to be managed the same way as a mutual fund.

Expenses
Personally, I like ETF’s because they offer better diversification than individual stocks, while at the same time, controlling expenses better than mutual funds (or buying the stocks individually).  I'm not a big fan of mutual funds.  The biggest reason is their larger fees which are not justifiable given most mutual funds under-perform the markets over longer periods of time.  I have owned many, many different mutual funds in the past.  Given the growth in the popularity of ETF’s in recent years, I have long since replaced all of my mutual funds with ETF’s.

Volatility
Periodically I will also trade individual stocks, but with the volatility in the current markets, I find that ETF’s provide me with much more diversification and less volatility than simply owning a few stocks.  Since I'm not a buy-and-hold type of investor, my goal is to own whatever sector is outperforming at any point in time.

Constructing Portfolios
The discussion in the video talks about creating portfolios using ETF’s.  Personally, I think that most portfolios are way, way, way over diversified and that's largely because of the need on the part of the financial services industry to sell more products.  More product, in my experience has never improved returns.  Some would argue it's not about returns, it's about the safety of our portfolio.  By spending only a few minutes a day on my investments, I get both.  I see no reason if we're actively managing our portfolios why we need any more than the top 60 companies in the TSX.  I understand most people don't actively manage their portfolios, but I have to believe they don’t understand the magnitude of the increase in returns they can achieve in only a few minutes a day.

Less Is More
Regardless, there are a couple of portfolios listed in this video.  Some people may want to model their own portfolio on one of those shown, and that's fine for people who are not actively managing their portfolios.  Myself, I tend to largely use ETF's, rather than stocks or mutual funds, but, I hold a very small number of ETF’s at any particular time because I'm only interested in the funds that are performing.  That is why I incorporate Technical Analysis into my methodology.  The non-performers are dropped from my portfolio once they stop outperforming.  Either way, whether  you want to build a portfolio of ETF's, or you simply want to use ETF's to dampen  the volatility in the current markets, the use of ETF's will reduce expenses and, to me, provide a better alternative than mutual funds

Would you care to share your preference(s)?

Click Here To See The Video

Reboot

Spring Break
Hey.  I'm back after being away a long period of time.  I have no one particular reason for not blogging.  I have certainly been busy with family matters.  I also went south for spring break this year for the first time.  I have been busy with different things, but not so much with the blogging.  I suppose if I were more organized  I would have had some guest posts, or I would have had enough posts put together that I could schedule them in advance so they would appear at the right time.  I could also make better use of links to other people's blogs and other items in the media and in the news.

Interest Levels
So here's the thing - I enjoy doing my own thing but I also feel a need to help others and share what I have learned.  We all need purpose in our lives.  Lately, however, I have been feeling that I don't really know how much I am actually helping other people with this blog.  I also run an investing club, and I have to say, I'm getting less than a great response there, also - not a whole lot of interest, of late.

Consistency
When I look at the reasons why that might be the case I think it probably boils down to one thing in particular and that would be a lack of consistent results.  If I could consistently show money coming in from month to month, no matter what, and have a track record to prove it, then, I think, people would be a little more interested in learning the ins and outs of how to do the same.

What To Do?
Why do I even care?  I care on a number of different levels, but mostly I go back to a discussion I had with an old friend at a car dealership, of all places.  I was waiting for my car to be serviced, as was he.  We got talking about the downturn caused by the credit crisis and what is now being called the Great Recession.  He was lamenting the amount of money that his portfolio was losing.  In fact, he said he was pretty much afraid to look at his statements because he didn't really want to know just how much money he had lost.  At one point, he turned and asked me, "What else is a person supposed to do?"

DI4Y?
I felt like I had an answer to his question.  My suggestion would be for him to become more of a do-it-yourself kind of investor.  In my experience, the financial services industry is out to make themselves as much money as possible.  When it comes to making us anything, in return, its really not a concern of theirs.  However, given the lack of a  bullet-proof, step by step approach I could offer, I had to agree with him.

Market Direction
Last year, I started to revisit my methodology and to do some additional research in what I know to work.  Looking back, now, I think the main reason I've found for the inconsistencies which I sometimes experience in my own approach is not paying enough attention to the direction of the market.  While there's different ways of determining the direction of the market, whether it's up, down, or sideways, getting that right is the first step.

Duh!
Having done that, the biggest thing which I've learned from my research over the past several months is that one needs to be investing consistently in that market direction.  To try to make money betting against the market, no matter how good the opportunity seems, creates inconsistent results in my returns.  It may seem to many as a no-brainer, but it is the largest factor which explains the variance in my results, to date.  I'm convinced it is the one change that will allow me to improve going forward.  Whether or not I'm right, I have to say that the results always end up speaking for themselves.

New Start
I am going to reset my monthly stats at this point in time, and we will start all over again at zero from the point that I make my next investment and going forward.  These investments will be the same ones we make with the money in the investing club of which I am a member.  It is a new start/beginning and I would invite you to follow along with me as I put my latest improvements to the test.

Care to share something with others you have learned about the markets during the past year?

The January Effect

Volume?
In this video, Jim Cramer explains the rapid rise in market indexes this January.  He thinks it has largely been caused by fund managers trying to keep up with the market averages.  I would agree.  There has also been much said in the media about the amount of cash on the sidelines, and the return of retail investors to the markets.  Don't be fooled, my research still shows a declining average volume for the major markets, and mostly, less than average trading volumes.

The Coyote Affect
The media has made much of these "historic" advances.  Myself, when I see the markets disregard the drop we saw in U.S. GDP numbers on Wednesday, I begin to watch for the coyote affect (ala the Roadrunner Show, when the coyote suddenly finds himself walking on thin air with nowhere to go but down).

Seasonality
Cramer talks about the potential "buying panic" in technology stocks caused by good earnings reports.  What he doesn't say is the earnings estimates have been set relatively low, and the seasonality clock has already run out for technology stocks for the beginning of this year.  

Caution Required
Me, I use charts to tell me where the market is at, and what I am seeing at every level is a market that is largely over-bought, for all the reasons Cramer mentioned.  Unlike Cramer, I take my cue from the charts, and while the markets may continue higher from here, they are signalling a cautious approach in the short term.  He may think we are in for a brief pause, but only time, and the charts, will tell for sure.

What charts, if any, do you use?

The World Is Not Flat

Jack Be Nimble
Below is an older video from Phil Town's blog http://philtown.typepad.com .  The arrow on the chart beneath it shows us the point in time at which Phil was suggesting people should get out of the market.  When we see the fund managers getting out, we can out-run them because it takes them weeks to adjust their holdings, and us, as little as a day.

"Going Down!"
Being "old school", Manny Schiffres doesn't know how to determine what a bottom looks like, so doesn't want to take the chance of getting back in at the wrong time.  To Manny, quality is "king".  The trouble is, and as the graph shows, everything goes lower in a time of crisis.  Even Maria is convinced taking the long view is the correct approach.  I doubt that today, even after what happened, she will have changed her mind.    The same can be said of most of the people who lost everything in the tech wreck at the beginning of the 2000's.


Phil Town on CNBC's Closing Bell with Maria Bartiromo from Phil Town on Vimeo.

Click To Enlarge

Save Your Money
Yes, the market has come back, but just imagine if you knew how to time the market like Phil, and had practically all of your cash after the market stopped dropping!  Think about how much money got left on the table by riding the market down and not getting out.

Investing and/or Marketing
The surge in world stock markets over the past couple of decades has been caused, primarily, by the spending of the Baby Boomers.  To think that is going to be the case for the next couple of decades is to have your head in the sand.  Demographics are showing us that the Baby Boomer spending peaked (perhaps, not coincidentally) in 2007.  Buy and Hold is, and always has been, a marketing strategy, not an investing strategy.  We need to understand the difference.

"You Trader, You!"
I love how Maria calls Phil a Trader (as opposed to an Investor), as if being a Trader was something bad!  We need to educate people that being a good trader is smart, not bad.  It took a while to get the academics of the day to believe the Earth is not, actually, flat.  There are a few who still believe it, today. I can only hope it doesn't take so long to convince people to learn how to avoid market disasters like the last two we went through because the next one will come soon enough.

If people can learn to be good traders, does that mean they are merely lucky?  How many people do you know who, despite working very hard, others would say they were very lucky in life?  What do you think?

Questions for your Financial Advisor

Think Again 
In this video, David Kaufman says that the vast majority of advisors put their clients first.  Unfortunately, that is irrelevant since most people cannot tell the ones that do from the ones that don't.  He suggests we ask how the advisor is getting compensated, what future penalties we might incur and how changes to our portfolio represent an improvement to what we had before. Notice the last question for Kaufman about why we do not have a stronger standard for care in Canada.  If you believe what we have is good enough, think again.  Take the following as an example.




Be Educated
You would think we should be able to take people at their word, but the reality is we cannot afford to!  Nobody is going to take care of our money if we don't.  Please, learn how, if you don't know enough already, and please learn more even if you do!

Who's Counting?
In my own family, my Aunt switched advisors at one point, and her new advisor replaced everything in her portfolio.  The only reason, in my humble opinion, for doing so would be to have all the fees and commissions go to the new advisor.  I understand they have to get paid, but we are the only ones, currently,  who care enough to actually do anything about any abuse.  Of course there is the legal system, assuming we have any funds left and sufficient time to wait.

Anyone have stories of their own?  What did you learn from your experience?

December Returns

Click To Enlarge

Over, But Not Gone
When it comes to New Year's resolutions, this year's replace last year's.  Too bad we can't say the same for the equity markets.  Although we are turning the page on the calendar, the world economy brings along much unresolved baggage.  The pop in the markets this past week has many cooing about what a good omen it is for the coming year.  Never mind the fact we still haven't solved the problems of 2012 - Europe in general, out-of-control spending in the U.S., large inventories in China, and one that hasn't got much media attention -  Japan's bond bubble.  If we can Ignore all of that, though, 2013 has the potential of being a swell time for investors!?!

Looking Back
More importantly, the end of the year is a good time to reflect on what went right and what went wrong.  I will say I was not active enough and/or spent too much time out of the market, but not making money is better than losing it.  I spent long hours looking for a better methodology in dealing with such a volatile market, and am happy to say I feel I have accomplished just that.  More on that in future posts.

Changed My Thinking
I also changed my thinking on something I had mentioned in an earlier blog.  Previously, I did much careful analysis in timing my entry points with the use of charts.  When I saw an opportunity I was quick to take a full position.  That approach cost me, a couple of times, last year.  I am now of the opinion the right approach is to take half of my position, then wait for a pull-back to fill the rest.  I still like my original approach, but my tendency is to bail too early when larger amounts are involved.  My newer approach causes me less stress! 

Please, and Thank You
If you are a regular reader of my blog, and even if you aren't, please feel free to ask me questions, challenge me, call me out, whatever helps you and, hopefully, others to deal with these markets.  I don't have all the answers, I make my share of mistakes, but love to share insights that come from 20 years with money in the stock market.  I am not a financial advisor, but I do want to challenge the conventional financial advice in order to help anyone interested to increase the returns of their equity portfolio.  

May you enjoy a prosperous New Year.  Hope to hear from you in 2013.       

24 month return for TSX @ December 31, 2012 =     -6.89 percent
Return for Basic Timing Model Using XIU =             13.75 percent
Return for Advanced Timing Model =                       -4.36 percent
Money for charity =                                               $0.00