Author: The INO.com Team

A Bad Trade Is Like A Dead Fish ...

Posted on by The INO.com Team

One of the most important tools that a trader possesses is his or her mind. Attitude can either make or break you as a trader.

To become a successful trader it begins with believing in yourself and having a winning attitude.

Everyone wants to be a winner, at least they think so. Unfortunately, most are not willing to perform the tasks necessary to become a consistent winner.

Winners generally achieve success by being focused on a goal. Being focused allows winners to remain committed to the tasks at hand. Most winners perform a lot of hard work, including a willingness to deal with sometimes mundane duties. Most of all, winners perform with an "I am responsible for both my failures and successes" attitude.

So, where does the would-be trader start to become a success? By focusing on the tasks at hand. Most of all, treat trading as a business. And, as in any business, money management is critical.

Money management, next to trend, is probably the aspect of trading most overlooked by smaller investors. Man, by nature, is an optimistic creature and the amateur trader often acts instinctively. Unfortunately, this instinct or optimism is often the undoing of the smaller trader.

When a person enters a trade, he does so with the hope that it will be a winner. When the position goes against him, he keeps thinking (or hoping) "it will come back." He knows he should have a stop in place, but hope keeps telling him to stay just a little longer since everybody knows, "you always get stopped out the day the market turns." Eventually, hope turns into frustration, desperation and, finally panic which prompts the trader to issue a GMO (get me out) order.

If the trader hasn't learned his lesson by this point, he develops the "I have to get it back" syndrome. He generally rushes into another poorly planned trade, throwing good money after bad.

Winners show several different characteristics. They enter the market knowing they can be wrong and, in fact are wrong as often as they are right. They have learned markets don't run on hope. They understand markets tell them when they are right or wrong. When a trader is losing money and getting worse, the market is telling them to get out.

Bad Trades

A bad trade is like a dead fish:The longer you keep it, the worse it smells.

Good Trades

When a trade is making money, the market is telling them they are right and to let the position ride.

Don't ever do this ...

Winners don't add to, or "average", losing positions. They dump the trade and go looking for a new opportunity. Successful investors may add to the winning trades. When ahead, they press their advantage while remembering that at any time the market can turn on them and prove them wrong.

In trading keep your mind clear and do not get emotional about a trade. Remember you are not married to a stock rather you are in the dating game.

Learn more about common sense trading.

Avoid those dead fish.

Adam Hewison

President, INO.com

Co-creator, MarketClub

How to tell or refer a friend (short video)

Looking back it all makes sense ... your comments are welcome

Posted on by The INO.com Team

First posted on  October 2, 2008

Just because a stock looks cheap doesn't mean it can't go lower.

With General Electric (NYSE_GE) trading around 22 1/4 today it looks cheap, but can it go even lower? The answer is yes. The last time General Electric traded at current levels was back in October of 2002. Now add in inflation and General Electric is even lower today than it was 6 years ago!

Despite the fact that Warren Buffet invested 3 billion dollars in GE preferred stock giving him a 10% yield, I see no reason to buy GE. The deal Mr. Buffet received was a deal that every investor would love to have in their portfolio. The bottom line is the trend for General Electric which is on the downside and it shows no signs of turning around at this point in time. I would rather buy General Electric at let's say 30, knowing that it's going higher than trying to pick a "value bottom."

Watching CNBC this morning, Mark Haines who has been around for a long time in the financial world made a statement that the buy and hold strategy is no longer a successful strategy in the stock market. I have long held the belief that the world has changed and you can no longer just buy a stock and hold it forever hoping that in long-run it will go higher. We only have to look back at a recent blog commentary on General Motors (NYSE_GM) to see that this is a flawed strategy. Looking at General Electric today proves once again that we are in a trading world and not an investment world.

I understand many of you will disagree with that statement but the truth is the markets have changed, not just domestically here in the US, but globally. Now, the US has to contend in a competitive way with China, India and Russia. The US is in a much more competitive world, where fortunes will be made and fortunes will be lost.

At MarketClub, our mission is to help you make money in this ever-changing market. We are still waiting to see what the outcome will be from the rescue package, bailout package, save America package, any name you want on it package.

No one is going to be able to predict what will happen to the market, except the market itself. We've talked about this in the past. The market is the ultimate mechanism for price discovery.

I do not believe that the current global economic slowdown is going to turn around any time soon. I don't expect to see a "V bottom" in the stock market and that "demand destruction" will force a retracement in many markets that were very much in demand just a few months ago.
So here's my advice... the one thing we do know about the markets is that they a reflection of human nature. Having said that we would want to pay attention to our "Trade Triangle" technology. Those of you who are MarketClub members, follow the "Trade Triangles" because they will keep your emotion out of the market and show you which way the market is headed. For those of you who are not MarketClub members, you should be looking at some sort of technical analysis to help you avoid stock meltdowns.

It doesn't matter what markets you trade because there are always opportunities to make money in the trading game. Our mission is to present those opportunities to you in a very easy way to understand.

Every success in what can only be described as an interesting, turbulent and opportunistic time.

Adam Hewison
President, INO.com
Co-creator, MarketClub

How to tell or refer a friend (short video)

A Technical Look At Some Top Hedge Fund Holdings

Posted on by The INO.com Team

Today I've asked the editor from marketfolly.com and give us their expert opinions on how the best and the brightest of the hedge fund managers. Or are they the best and brightest? Are they lucky, or good sales people? Let me know in the comments and take a trip over to marketfolly.com, as they track 35+ prominent hedge funds through 13F filings where they are required to disclose their long equity, options, and note positions to the SEC.  (They aren't required to disclose their shorts or positions in other markets).

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Firstly, we'll look at David Einhorn's Greenlight Capital.  If you're unfamiliar with him, you can read up on him here.  In a recent investor letter, Einhorn mentioned that he was long Gold due to threats of inflation and risks in paper currencies.  He mentioned that the US Dollar was being debased as the Federal Reserve is forced to expand its balance sheet and thus he expects Gold to rise as the dollar declines.  So, let's take a quick look at the technicals through GLD (the Gold Trust ETF).

Let's look at GLD over a yearly timeframe just to get the big picture.  It had seen a period of lower highs and lower lows and then broke out of that trendline (illustrated in green below) here in the new year as investors sought refuge from the brutal markets.  And, some might argue that a re-test of that trendline is in order.

SEE CHART HERE

Turning to a 6 month timeframe, we see that GLD has seen some selling pressure.  However, it still maintains its trend line over the 6 month timeframe (illustrated below in green).  Additionally, the past resistance at $87 has now become support (illustrated with the horizontal purple line) and we would look for GLD to successfully test this support line.  Conveniently, the 50 day moving average (blue line) also acts as support and is hovering around the $87 level.  So, the past resistance, the 50 day moving average, and the trend line have all converged to provide near-term support for GLD.  Should GLD fall beneath these important levels of near-term support, it could really start to move lower as the volume has begun to creep up.  A test of this support is almost imminent and will dictate which way the ETF will swing so make sure you watch it carefully to determine if the trendline holds.  So, should you agree with Einhorn's stance, now you can better gauge the price action to determine a proper entry or exit point.

SEE CHART HERE

Next, let's take a look at Soros Fund Management ran by legendary investor George Soros.  Please click here to continue article.

How to tell or refer a friend (short video)

Buy-And-Hold No Longer Gold?

Posted on by The INO.com Team

When I first contacted Christopher Hill, editor of Investorazzi.com, about doing a guest blog post he jumped at the chance and hit me with his idea for an educational post for our members. Truthfully this post is a LONG time coming. It delves into the Buffett world. Now most people either love his style or think he's just lucky.

Well read the article below and make your comments and thoughts known. Do you think Buffett will survive? Do you think Faber is crazy? Whatever it is let's get the comments rolling as this is a great topic.

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Legendary stock investor Warren Buffett has been in the news a lot lately.  This past weekend, the noise was all about Berkshire Hathaway, Buffett’s investment holding company.  The Bloomberg website reported Saturday:

“Warren Buffett’s Berkshire Hathaway Inc. posted a fifth-straight profit drop, the longest streak of quarterly declines in at least 17 years, on losses from derivative bets tied to stock markets.

Fourth-quarter net income fell 96 percent to $117 million, or $76 a share, from $2.95 billion, or $1,904 a share, in the same period a year earlier, the Omaha, Nebraska-based firm said in its annual report. Book value per share, a measure of assets minus liabilities that Buffett highlights in his yearly letter to shareholders, slipped 9.6 percent for all of 2008, the worst performance since Buffett took control in 1965.”

As if this wasn’t enough bad news, earlier this week it was revealed that Berkshire Hathaway, which lists more than 70 operating businesses in its latest annual report to shareholders, is cutting manufacturing jobs and closing facilities.

Due to all the bad headlines, some are starting to question if the “Oracle of Omaha” is starting to lose his magic touch.  And investors, in particular, wonder if the buy-and-hold investing strategy, which Buffett is known to champion, is ineffective for these volatile times.

One veteran investor who openly questions the buy low, sell high approach to stocks these days is Dr. Marc Faber, otherwise know as “Dr. Doom” by the financial press.  Faber, who publishes the “Gloom Boom & Doom” report, predicted the current financial crisis and is famous for telling his clients to get out of U.S. stocks a week before the October 1987 market crash.  Back on December 1, Faber said the following on CNBC regarding the buy-and-hold strategy:

“We’ve moved into an environment of very high volatility where you will have up and down moves of, like, 20 percent all the time and that is a traders’ market… The Warren Buffett approach is dead and it’s been dead for ten years and it’s going to be dead for another ten years… We can have huge rebounds and then huge downturns again and I think the best for the average investor is to play it relatively in small amounts and not gear up and take big risks.”

Is Dr. Faber correct in his assertion that the stock market is now a traders’ market?  Buffett’s critics might say so, and point to the performance of his investment vehicle as proof.  Yet, I still remember those who dismissed Buffett as being over-the-hill in the late nineties due to his avoidance of technology stocks.  And what ever happened to these individuals?  Recently, Marc Faber has been calling for a rebound in equities.  Just last week, he told investors gathered in Tokyo:

“A countertrend rally could occur soon where stocks would suddenly rise quite substantially.”

If Faber is right and equities rally, then fall again significantly, expect the strategy, and poster boy, of buy-and-hold investing to come under even more fire down the road.

Christopher E. Hill
Editor
Investorazzi.com
“Tracking The World’s Greatest Investors”

We Interview Linda Raschke

Posted on by The INO.com Team


We thought you might enjoy seeing this interview we did with Linda at our Dallas conference a few years back.

You can take one of Linda's seminars on INO TV. It's well worth it in my opinion.

Enjoy,

Adam Hewison
President, INO.com
Co-Creator, MarketClub