I watched in amazement the past couple days as the leaders in our Goverment put the beat-down on a group of bank executives in Washington DC. If you missed it, check out youtube for the highlight reel. I wouldn't call it political drama, I would call it political comedy.
After watching our elected officials do their best to embarrass, demean and ridicule this group of executives all I could think of was, "who elected these people and how can they possibly stay in office after this pathetic performance?" The come across as a bunch of blow hard with little real knowledge or experience in these complex financial issues. There's an old saying that goes something like this, "Better to be thought a fool than to open your mouth and remove all doubt."
Before anyone thinks I've lost all sanity, let me first say that nearly all these executives have made poor decisions that contributed to and helped create the economic mess we're in. They are clearly the most out-of-favor group of business leaders in the entire world right now and the primary target of the populist crowd who blames them for all their personal financial challenges. For anyone in government to do any more to help these men and their companies would likely be political suicide.
But step back for a moment and put your anger on the shelf and consider that these same elected officials are the "executives" of the largest enterprise in the free world, the US Government. The very things they are attacking these men and their companies for they are guilty of themselves by several orders of magnitude.
Where is all the outcry and criticism of our Government for spending far beyond their means and leveraging the future generations of Americans with a burden of debt equally as troublesome as any created by the mortgage or banking industries? This is like the pot calling the kettle black. It's the pinnicle of hypocrisy!
If our Government officials could simply grasp the concept of "living within our means," just like we all must do in our personal households, we likely would have had the resources to stimulate the economy from a rainy-day fund rather than spending over a Trillion dollars of money we don't have. The criticism should cut both ways, but the populist crowd is giving Government a pass on this, or still thinking it's George Bush's fault. Government was broke long before George Bush came along and he just helped get the problems out in the open a lot faster. Government is unable to make the tough decisions and sacrifices needed to turn this crisis around, because they are too sensitive to the minority groups that will be impacted by those sacrifices. They can't make tough decisions.
Every responsible exectuvie at a real business is making the tough decisions of cutting back, laying off and restructuring to keep their businesses viable in the face of the worst economic environment in decades. They don't pass the buck, the make the tough decisions. Sure lives are impacted and dreams are crushed, but these tough choices were necessary to keep the business afloat. The executives in the business world rarely ascend to those key authority positions without first demonstrating they have the education, knowledge, and leadership skills needed to make the tough decisions required of a senior executive. That's simply not the case when it comes to Government.
I've done a fair bit of investing in real estate over the years and I remember talking to a man who had a great deal of experience working with cities and municipalities on development issues like zoning and density and the like. Those are complex issues that take specialize knowledge, training and experience. I watched him deal with city councils and managers that had zero education or experience in development and land planning but who held total decision-making authority over decisions that involved hundreds of millions of dollars of taxpayer money and resources. They were more likey to be be swayed on a critical issue by the opinion of their next door neighbor than a skilled expert from that field.
Just think, even a small rural city may have an annual budget in the tens of millions of dollars, but the people of the city entrust the management of those precious resources to a group of lay people who are elected in a popularity contest. Even a small city budget dwarfs the budgets of many very well-known public companies. Can you ever imagine having a group of lay people making the decisions on how to run IBM, Microsoft or General Motors. (some of you cynics may say that might not be such a bad idea considering how those companies have been run lately)
The point is that we have a group of poweful elected officials that lack the expertise and skill to deal with the serious and very complex issues facing our country, and we're all stake-holders. Given the rank state of national and state politics, it's no surprise to me that the most qualified people have zero interest in running for elected office. Who would want to go through the political gauntlet to get a low paying job with millions of ignorant people taking pot shots at your every decision. Power in Government is granted by seniority rather than qualifications.
It's pretty easy for Maxine Waters to beat down those bank executives and rant and rave like she did on C-span this week, but if you let a person like her make those tough and complex decisions instead, do you really think we'd be better off? Not a chance! To protect her status and authority, she would never even venture to offer a solution that would make sense, but she can take all the pot shots she wants without fear of losing power. Why doesn't the same standard apply to her and every other elected official on the decisions they make as a member of Congress?
The more government gets involved in business, the worst things are going to get. If you can't run a business profitably, it's going to fail. That's capitalism. If government wants to regulate business more than they already do, it's going to add more cost and reduce profits even more, meaning more business will fail and fewer entrepreneurs will even consider starting a business, which means fewer jobs for the populists and more challenges for the country.
There are plenty of strong, well-managed businesses out there that could instantly create new good-paying jobs that will last a long time if we gave them a little bailout money to prime the pump. Having witnessed the inefficiency and ineptness of government many times in the past, I'd rather gamble my financial future (and that of my next couple of generations) on them rather than the buffoons who run our Government.
Just so you don't think I'm just a chronic complainer without any constructive input, let me suggest a good starting point to get real change in Government. I would immediately institute term limits for all elected officials. Eight years is all you can serve in office no matter what position you're in. We do it for the President, why isn't it equally good for the House and Senate. There's enough blame for all the woes in America for everyone to take some. Until we can get past putting so much energy into pointing the fingers of blame and redirect it into creating bipartisan long-term solutions to the very complex problems facing our world, nothing is going to change, and it's likely going to get a whole lot worse.
Thursday, February 12, 2009
Tuesday, February 10, 2009
How to play an emotion driven market
Over the past year I've seen the same scenario play out about half a dozen times. I want to make sure you see what I consider to be one of the best money-making opportunities available in the current market. You've probably heard the old cliche, 'buy the rumor and sell the news." Well it's just as true (maybe more) today than ever before.
Fear is the strongest of the emotions we feel as investors. For most investors, fear is paralyzing. When stocks drop they freeze up and do nothing. This often leads to the catastrophic losses that many investors have experienced this past year. Doing nothing when the market is being driven by fear is the worst possible thing you could do. When things are tough, you can't ignore them because they are likely going to get worse, and in the case of this year, a lot worse.
What few investors realize is that stocks don't always have to go up to make money. I would say less than 5% of investors have ever made a profit on an investment that dropped in value, like almost every stock has in the past 12 months. What they don't understand is that movement is all it takes to create opportunity and it doesn't matter which direction the movement is in. Let's face it, 2008 and 2009 so far have provided lots of movement in both directions with the biggest moves to the downside.
If you look back over the past year and identify the big news stories that affected the market and the economy, you'll notice a common theme. Every market has a catalyst. In the late 90's it was the dot com boom. From 2003-2008 it was the real estate boom. Today, the catalyst for the market is the government. Like it or not, the biggest mover of the market right now is the government, and more specifically the news of any new programs they are coming up with to turn the economy around.
Think about it, the market is starving for any sort of positive news on the economy and jobs, so when the latest plan is starting to brew in Washington, investors get all excited and start buying back into the market to be in position to benefit when the plan is approved. That's the rumor part of the equation.
When the plan is finally revealed, the market tanks as everyone once again realizes that the latest plan isn't going to fix anything quickly and may not fix anything at all. Want a few examples...
How about the first bailout package, the one known as the TARP program. We were told that we needed this plan or a number of major banks were going to go under. There was enough proof in the form of WaMu and Wachovia to make us all believers. As the details of this huge plan were leaked to the press and discussed each night by the Government big shots, there was a swell of optimism that it would fix the problem. The market took off. When the bill came up for the first vote, the market raced higher in anticipation of approval. I was speaking at an investment conference in Spain that week and got on a plane to fly home the day the first vote was scheduled to take place. The news that came out at the end of the day prior was that the plan was going to pass easily. The market raced higher right up to the closing bell.
When I landed in Minneapolis after an entire day of flying, the market was now closed and when I saw a ticker tape in the airport with a steady stream of big name companies that were down for 10% or more that day, I figured something major had happened. When I finally reached a TV in the airport lounge, I saw that the vote had failed. The market immedately responded to the reality of the situation with one of it's worst day's in history, losing almost 1000 points on the Dow in a single session. Buy the rumor, sell the news. That's what it looks like my friends.
How about the election. I don't think anyone was surprised by the outcome of the Presidential election this past November, but in the weeks and days before the election the market took off in anticipation of the expected change in Washington. When the final votes were all counted nobody was surprised by the result, but the market plunged for nearly two weeks after that to it's lowest point of the year. The money was made on the upside the two weeks prior to the election and anyone foolish enough to think the pre-election rally would continue, lost it all and more the next two weeks.
We've seen the same scenario play out for the auto bailout, the inauguration and now with the massive economic bailout plan. The market rallied over the past week in anticipation of the stimulus bill only to have a huge sell off once we find out the details of the bill.
So how can you use this information to make money? Just look for the next plan to come out of Washington and determine the companies most likely to benefit from the plan. You can almost count on them rising from the first day the plan is mentioned and see them tank once again after the plan is approved or fails.
With the anticipation of each new bailout plan, the volatility skyrockets, so if you're an option trader, look to take advantage of that situation by selling spreads that are "out of the way" of the market. Put spreads as the plan is being developed and call spreads after the release. It's been as predictable as anything I've ever seen in 20 years of investing.
Buy the rumor and sell the news. Some things never change.
Fear is the strongest of the emotions we feel as investors. For most investors, fear is paralyzing. When stocks drop they freeze up and do nothing. This often leads to the catastrophic losses that many investors have experienced this past year. Doing nothing when the market is being driven by fear is the worst possible thing you could do. When things are tough, you can't ignore them because they are likely going to get worse, and in the case of this year, a lot worse.
What few investors realize is that stocks don't always have to go up to make money. I would say less than 5% of investors have ever made a profit on an investment that dropped in value, like almost every stock has in the past 12 months. What they don't understand is that movement is all it takes to create opportunity and it doesn't matter which direction the movement is in. Let's face it, 2008 and 2009 so far have provided lots of movement in both directions with the biggest moves to the downside.
If you look back over the past year and identify the big news stories that affected the market and the economy, you'll notice a common theme. Every market has a catalyst. In the late 90's it was the dot com boom. From 2003-2008 it was the real estate boom. Today, the catalyst for the market is the government. Like it or not, the biggest mover of the market right now is the government, and more specifically the news of any new programs they are coming up with to turn the economy around.
Think about it, the market is starving for any sort of positive news on the economy and jobs, so when the latest plan is starting to brew in Washington, investors get all excited and start buying back into the market to be in position to benefit when the plan is approved. That's the rumor part of the equation.
When the plan is finally revealed, the market tanks as everyone once again realizes that the latest plan isn't going to fix anything quickly and may not fix anything at all. Want a few examples...
How about the first bailout package, the one known as the TARP program. We were told that we needed this plan or a number of major banks were going to go under. There was enough proof in the form of WaMu and Wachovia to make us all believers. As the details of this huge plan were leaked to the press and discussed each night by the Government big shots, there was a swell of optimism that it would fix the problem. The market took off. When the bill came up for the first vote, the market raced higher in anticipation of approval. I was speaking at an investment conference in Spain that week and got on a plane to fly home the day the first vote was scheduled to take place. The news that came out at the end of the day prior was that the plan was going to pass easily. The market raced higher right up to the closing bell.
When I landed in Minneapolis after an entire day of flying, the market was now closed and when I saw a ticker tape in the airport with a steady stream of big name companies that were down for 10% or more that day, I figured something major had happened. When I finally reached a TV in the airport lounge, I saw that the vote had failed. The market immedately responded to the reality of the situation with one of it's worst day's in history, losing almost 1000 points on the Dow in a single session. Buy the rumor, sell the news. That's what it looks like my friends.
How about the election. I don't think anyone was surprised by the outcome of the Presidential election this past November, but in the weeks and days before the election the market took off in anticipation of the expected change in Washington. When the final votes were all counted nobody was surprised by the result, but the market plunged for nearly two weeks after that to it's lowest point of the year. The money was made on the upside the two weeks prior to the election and anyone foolish enough to think the pre-election rally would continue, lost it all and more the next two weeks.
We've seen the same scenario play out for the auto bailout, the inauguration and now with the massive economic bailout plan. The market rallied over the past week in anticipation of the stimulus bill only to have a huge sell off once we find out the details of the bill.
So how can you use this information to make money? Just look for the next plan to come out of Washington and determine the companies most likely to benefit from the plan. You can almost count on them rising from the first day the plan is mentioned and see them tank once again after the plan is approved or fails.
With the anticipation of each new bailout plan, the volatility skyrockets, so if you're an option trader, look to take advantage of that situation by selling spreads that are "out of the way" of the market. Put spreads as the plan is being developed and call spreads after the release. It's been as predictable as anything I've ever seen in 20 years of investing.
Buy the rumor and sell the news. Some things never change.
Friday, February 6, 2009
You MUST learn to trade options if you want to survive and prosper in 2009
Millions of people around the world have seen their retirement dreams crushed as a result of the bear market. Most of those people trusted a broker or financial advisor to help them build a diversified portfolio that would help them weather any market condition and still see their money grow over time. They did everything right, following the textbook of the traditional investment community.
Those people are now looking back at the past 10-12 years and seeing that they have made nothing! That's right, nothing. Call it the decade of nothing. I don't care how well diversified you were over the past 10 years, if you owned stocks and did nothing, you've lost 10 years of potential compounding of your investments. Most people I talk to would have done better had they stuck their money in long-term CD's or even their passbook savings account at the local bank.
Now as they near retirement, they are coming to grips with the fact that they don't have enough money in their nest egg to send to work to generate the income they need to sustain the current lifestyle they live now in retirement. Retirement just got pushed way back for most, or eliminated altogether.
Buy and hold works if you've got enough years to make up for the bad ones you're most certainly going to experience over your lifetime of investing, but if the bad years come right before you're ready to retire, you're hosed.
It's my opinion that 95% of investors fall into this category. They ALWAYS lose money when the market is flat or down. Very few investors make money when stocks are not going up. Which group are you in? What are you going to do about it? Doing nothing may be the biggest mistake of all.
It's also my opinion that the majority of investors in the 5% group that actually made some money in the past year used options to protect themselves and profit when stocks were flat and down. The biggest weakness most investors have, and ALL traditioinal brokers and financial advisors have, is that they are afraid to sell anything. So they hold on to everything and watch it decline substatially and deal with the anxiety and stress that comes with watching your life savings go up in smoke.
There are two things that every investor needs to do immediately if they want to survive and prosper in 2009 and beyond. Things are tough right now and I expect them to get much worse before they get better.
First, you've got to stop losing money when the market tanks. If you've ever had a catstrophic investment, one that lost 40, 50, 60, 80 or even 100% of it's value, I've got three words for you, "Shame on you!" Make it your New Years resolution to never have a catastrophic investment again. It's simple to do, just use stop loss orders and make sure you put in them the moment you make any new investment. My rule is never lose more than 10% of the money I put into any new stock investment and 50% of any new option investment.
Use automated orders to eliminate emotions and stick to your stop loss levels. NEVER lower a stop loss. If you get stopped out of an investment and it begins to come back, just buy it back. Commissions are cheap, staying on the wrong side of a stock or the market is expensive.
The second thing is learn a few strategies that actually can make a profit if a stock is flat or down. Other than shorting stock, the majority of these strategies involve the use of options. The benefits of options trading has never been more apparent.
You can use options to create a limited risk and unlimited reward trade on virtually any stock. Using this basic strategy, you can create trades to profit in both rising and falling markets. Millions of investors are discovering the power and benefit of options trading as evidenced by the explosion of option trading volumes in recent years. There is a reason options trading is exploding, because they can give you an edge to profit in any type of market conditions.
Options are given a bad name by many as being too risky, but in reality there are a number of option strategies that are less risky than owning a stock or mutual fund. Those false rumor are simply used by financial professionals who don't understand options and don't want to accept the liabilty of having their customers trade an instrument they don't understand.
Most investors I meet have NEVER made money on a stock that dropped in value after they invested in it. They simply don't know a single strategy that will make money in a falling market, so they are resigned to hoping their losses are small, rather than planning to eliminate their losses and potentially replace them with profits. That's like taking off for a drive in your car and only being able to turn left. That may work in the world of Nascar, but that won't get you to your destination in real life. The secret to making money in a bear market or even a flat market is knowledge. If you don't take the time to learn how to use options to protect yourself and profit when stocks are not going up, you'll continue to lose every time the market drops.
I've spent the past 12 years of my life teaching investors around the world how to use options to profit in any market condition. Last year I published a book titled, "Build Wealth in any Market" that outlines the specific strategies and tools you need to stop losing money and start making money when the market tanks. You can get a copy at www.traderslibrary.com for the best price online.
There is nothing more heartbreaking and devastating than losing money we worked so hard for. So stop it! Learn to trade options today and give yourself a chance to get into that 5% group that actually makes money when stocks are flat or down. Every day you wait is literally costing you money. A little investment in education will pay a lifetime of returns in the form or fewer catastrophic losses and more profits when stocks drop.
Visit my website at www.rossjardine.com to get my latest books and courses on money and investing. Make an investment in education in 2009 and I promise you'll enjoy the returns over the rest of your investing life.
Those people are now looking back at the past 10-12 years and seeing that they have made nothing! That's right, nothing. Call it the decade of nothing. I don't care how well diversified you were over the past 10 years, if you owned stocks and did nothing, you've lost 10 years of potential compounding of your investments. Most people I talk to would have done better had they stuck their money in long-term CD's or even their passbook savings account at the local bank.
Now as they near retirement, they are coming to grips with the fact that they don't have enough money in their nest egg to send to work to generate the income they need to sustain the current lifestyle they live now in retirement. Retirement just got pushed way back for most, or eliminated altogether.
Buy and hold works if you've got enough years to make up for the bad ones you're most certainly going to experience over your lifetime of investing, but if the bad years come right before you're ready to retire, you're hosed.
It's my opinion that 95% of investors fall into this category. They ALWAYS lose money when the market is flat or down. Very few investors make money when stocks are not going up. Which group are you in? What are you going to do about it? Doing nothing may be the biggest mistake of all.
It's also my opinion that the majority of investors in the 5% group that actually made some money in the past year used options to protect themselves and profit when stocks were flat and down. The biggest weakness most investors have, and ALL traditioinal brokers and financial advisors have, is that they are afraid to sell anything. So they hold on to everything and watch it decline substatially and deal with the anxiety and stress that comes with watching your life savings go up in smoke.
There are two things that every investor needs to do immediately if they want to survive and prosper in 2009 and beyond. Things are tough right now and I expect them to get much worse before they get better.
First, you've got to stop losing money when the market tanks. If you've ever had a catstrophic investment, one that lost 40, 50, 60, 80 or even 100% of it's value, I've got three words for you, "Shame on you!" Make it your New Years resolution to never have a catastrophic investment again. It's simple to do, just use stop loss orders and make sure you put in them the moment you make any new investment. My rule is never lose more than 10% of the money I put into any new stock investment and 50% of any new option investment.
Use automated orders to eliminate emotions and stick to your stop loss levels. NEVER lower a stop loss. If you get stopped out of an investment and it begins to come back, just buy it back. Commissions are cheap, staying on the wrong side of a stock or the market is expensive.
The second thing is learn a few strategies that actually can make a profit if a stock is flat or down. Other than shorting stock, the majority of these strategies involve the use of options. The benefits of options trading has never been more apparent.
You can use options to create a limited risk and unlimited reward trade on virtually any stock. Using this basic strategy, you can create trades to profit in both rising and falling markets. Millions of investors are discovering the power and benefit of options trading as evidenced by the explosion of option trading volumes in recent years. There is a reason options trading is exploding, because they can give you an edge to profit in any type of market conditions.
Options are given a bad name by many as being too risky, but in reality there are a number of option strategies that are less risky than owning a stock or mutual fund. Those false rumor are simply used by financial professionals who don't understand options and don't want to accept the liabilty of having their customers trade an instrument they don't understand.
Most investors I meet have NEVER made money on a stock that dropped in value after they invested in it. They simply don't know a single strategy that will make money in a falling market, so they are resigned to hoping their losses are small, rather than planning to eliminate their losses and potentially replace them with profits. That's like taking off for a drive in your car and only being able to turn left. That may work in the world of Nascar, but that won't get you to your destination in real life. The secret to making money in a bear market or even a flat market is knowledge. If you don't take the time to learn how to use options to protect yourself and profit when stocks are not going up, you'll continue to lose every time the market drops.
I've spent the past 12 years of my life teaching investors around the world how to use options to profit in any market condition. Last year I published a book titled, "Build Wealth in any Market" that outlines the specific strategies and tools you need to stop losing money and start making money when the market tanks. You can get a copy at www.traderslibrary.com for the best price online.
There is nothing more heartbreaking and devastating than losing money we worked so hard for. So stop it! Learn to trade options today and give yourself a chance to get into that 5% group that actually makes money when stocks are flat or down. Every day you wait is literally costing you money. A little investment in education will pay a lifetime of returns in the form or fewer catastrophic losses and more profits when stocks drop.
Visit my website at www.rossjardine.com to get my latest books and courses on money and investing. Make an investment in education in 2009 and I promise you'll enjoy the returns over the rest of your investing life.
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