Tuesday, November 14, 2006
Stock Investing: Buy-and-Hold vs. Timing By David Van Knapp
The most important factor in stock market success is controlling risk. Risk, of course, includes not only the possibility that you will lose money, but also the possibility that you will miss out on a chance to make money.
The Sensible Stock Investor uses a variety of methods for managing risk. One of these is timing. Timing means selecting the optimum point in time to make a transaction—to buy or to sell.
Much stock investment literature derides timing as a risk-control measure. Most advisers focus solely on asset allocation and diversification. For example, whenever you see statistics about how much of your money you ''should'' have in large-cap stocks, small-cap stocks, bonds, cash, etc., the recommendations are based on long-term performance statistics for those asset types. In other words, the advice is always based on the presumption that you will Buy and Hold each asset. That underlying premise is almost always unstated. The use of timing as an additional way to control risk is ignored or criticized as impossible.
However, to the Sensible Stock Investor, timing—that is, not Buying and Holding everything—is a valid risk-control technique. It turns out statistically that not being invested in stocks when they are going down contributes much more to positive returns than being fully invested all of the time.
Timing can be used in both buy and sell decisions. It helps determine when to purchase a stock (thus reducing the risk that you will miss out on a chance to make money on the stock), and it also helps determine when to sell it (thus reducing the risk that you will lose money on the stock). Even Warren Buffett—who is reflexively associated with Buy-and-Hold—practices timing. There are many times when he holds a great deal of his assets in cash—waiting for the right time to buy.
Therefore, timing is a tool in the toolkit of the Sensible Stock Investor to practice risk management. It does not fully control buy, hold, and sell decisions, but it does influence them. The idea is to have more of your money in the market when there is a greater chance for gain, and to have less invested when there is a greater chance for loss. The whole idea is to stack the odds in your favor as much as you can. Timing helps you do that.
Timing is based on ''indicators.'' Indicators are simply pieces of information that may be predictive of future performance. Thus, they are signals whether to buy, hold, or sell. We’d like to be more fully invested when the market is going up, and less fully invested—or entirely in cash—when the market is going down. Indicators can help us toward that goal.
Because individual investors cannot spend all day studying the market, the best indicators for the individual must be (1) readily available, (2) free, and (3) easily understood. It turns out that we can find such indicators without too much trouble.
For example, we can employ indicators such as broad market trends, broad market valuation, individual stock trends and valuations, economic trends, and interest rates. It turns out that a straightforward set of such indicators can be obtained for free, put together in a logical fashion, and kept up to date with relatively little expenditure of time and no expenditure of money. The result is called a ''Timing Outlook.''
The Sensible Stock Investor then uses the Timing Outlook to influence—but not totally determine—his or her decisions about when and whether to buy, hold, or sell particular stocks. The Timing Outlook is used in conjunction with the other tools of Sensible Stock Investing. The whole toolkit—selecting excellent companies, valuing their stocks, maintaining a well-rounded portfolio, using sell-stops, and so on—creates a sound latticework of complementary techniques. These techniques lead to superior results, principally because they help you to manage investment risk.
A word about psychology: The Sensible Stock Investor creates all his or her tools as objectively as possible—when he or she is thinking most clearly, not in the heat of a fast-moving market. Psychologically, it can be hard to follow any system which is giving a seemingly non-intuitive signal. But that’s why you have a system in the first place: So you can follow it when objective thinking is most difficult. The Timing Outlook helps take emotions out of the equation. That’s a good thing, because in finance and investing, emotions often point in the wrong direction. Level-headedness usually wins out.
If you would like to learn about a comprehensive stock investment approach that that uses the same strategies reflected in this article, including how to construct the Timing Outlook mentioned in the article, please consider purchasing ''Sensible Stock Investing: How to Pick, Value, and Manage Stocks.'' For more information about the book and the Sensible Stock Investing system, including purchasing information, please visit www.SensibleStocks.com . Feel free to reproduce this article or any portion of it. If you do so, please include the author's name and the wesite address www.SensibleStocks.com .
Article Source: http://EzineArticles.com/?expert=David_Van_Knapp
The most important factor in stock market success is controlling risk. Risk, of course, includes not only the possibility that you will lose money, but also the possibility that you will miss out on a chance to make money.
The Sensible Stock Investor uses a variety of methods for managing risk. One of these is timing. Timing means selecting the optimum point in time to make a transaction—to buy or to sell.
Much stock investment literature derides timing as a risk-control measure. Most advisers focus solely on asset allocation and diversification. For example, whenever you see statistics about how much of your money you ''should'' have in large-cap stocks, small-cap stocks, bonds, cash, etc., the recommendations are based on long-term performance statistics for those asset types. In other words, the advice is always based on the presumption that you will Buy and Hold each asset. That underlying premise is almost always unstated. The use of timing as an additional way to control risk is ignored or criticized as impossible.
However, to the Sensible Stock Investor, timing—that is, not Buying and Holding everything—is a valid risk-control technique. It turns out statistically that not being invested in stocks when they are going down contributes much more to positive returns than being fully invested all of the time.
Timing can be used in both buy and sell decisions. It helps determine when to purchase a stock (thus reducing the risk that you will miss out on a chance to make money on the stock), and it also helps determine when to sell it (thus reducing the risk that you will lose money on the stock). Even Warren Buffett—who is reflexively associated with Buy-and-Hold—practices timing. There are many times when he holds a great deal of his assets in cash—waiting for the right time to buy.
Therefore, timing is a tool in the toolkit of the Sensible Stock Investor to practice risk management. It does not fully control buy, hold, and sell decisions, but it does influence them. The idea is to have more of your money in the market when there is a greater chance for gain, and to have less invested when there is a greater chance for loss. The whole idea is to stack the odds in your favor as much as you can. Timing helps you do that.
Timing is based on ''indicators.'' Indicators are simply pieces of information that may be predictive of future performance. Thus, they are signals whether to buy, hold, or sell. We’d like to be more fully invested when the market is going up, and less fully invested—or entirely in cash—when the market is going down. Indicators can help us toward that goal.
Because individual investors cannot spend all day studying the market, the best indicators for the individual must be (1) readily available, (2) free, and (3) easily understood. It turns out that we can find such indicators without too much trouble.
For example, we can employ indicators such as broad market trends, broad market valuation, individual stock trends and valuations, economic trends, and interest rates. It turns out that a straightforward set of such indicators can be obtained for free, put together in a logical fashion, and kept up to date with relatively little expenditure of time and no expenditure of money. The result is called a ''Timing Outlook.''
The Sensible Stock Investor then uses the Timing Outlook to influence—but not totally determine—his or her decisions about when and whether to buy, hold, or sell particular stocks. The Timing Outlook is used in conjunction with the other tools of Sensible Stock Investing. The whole toolkit—selecting excellent companies, valuing their stocks, maintaining a well-rounded portfolio, using sell-stops, and so on—creates a sound latticework of complementary techniques. These techniques lead to superior results, principally because they help you to manage investment risk.
A word about psychology: The Sensible Stock Investor creates all his or her tools as objectively as possible—when he or she is thinking most clearly, not in the heat of a fast-moving market. Psychologically, it can be hard to follow any system which is giving a seemingly non-intuitive signal. But that’s why you have a system in the first place: So you can follow it when objective thinking is most difficult. The Timing Outlook helps take emotions out of the equation. That’s a good thing, because in finance and investing, emotions often point in the wrong direction. Level-headedness usually wins out.
If you would like to learn about a comprehensive stock investment approach that that uses the same strategies reflected in this article, including how to construct the Timing Outlook mentioned in the article, please consider purchasing ''Sensible Stock Investing: How to Pick, Value, and Manage Stocks.'' For more information about the book and the Sensible Stock Investing system, including purchasing information, please visit www.SensibleStocks.com . Feel free to reproduce this article or any portion of it. If you do so, please include the author's name and the wesite address www.SensibleStocks.com .
Article Source: http://EzineArticles.com/?expert=David_Van_Knapp
Saturday, November 11, 2006
12 Basic Stock Investing Rules Every Successful Investor Sho
There are many important things you need to know to trade and invest successfully in the stock market or any other market. 12 of the most important things that I can share with you based on many years of trading experience are enumerated below.
1. Buy low-sell high. As simple as this concept appears to be, the vast majority of investors do the exact opposite. Your ability to consistently buy low and sell high, will determine the success, or failure, of your investments. Your rate of return is determined 100% by when you enter the stock market.
2. The stock market is always right and price is the only reality in trading. If you want to make money in any market, you need to mirror what the market is doing. If the market is going down and you are long, the market is right and you are wrong. If the stock market is going up and you are short, the market is right and you are wrong.
Other things being equal, the longer you stay right with the stock market, the more money you will make. The longer you stay wrong with the stock market, the more money you will lose.
3. Every market or stock that goes up will go down and most markets or stocks that have gone down, will go up. The more extreme the move up or down, the more extreme the movement in the opposite direction once the trend changes. This is also known as "the trend always changes rule."
4. If you are looking for "reasons" that stocks or markets make large directional moves, you will probably never know for certain. Since we are dealing with perception of markets-not necessarily reality, you are wasting your time looking for the many reasons markets move.
A huge mistake most investors make is assuming that stock markets are rational or that they are capable of ascertaining why markets do anything. To make a profit trading, it is only necessary to know that markets are moving - not why they are moving. Stock market winners only care about direction and duration, while market losers are obsessed with the whys.
5. Stock markets generally move in advance of news or supportive fundamentals - sometimes months in advance. If you wait to invest until it is totally clear to you why a stock or a market is moving, you have to assume that others have done the same thing and you may be too late.
You need to get positioned before the largest directional trend move takes place. The market reaction to good or bad news in a bull market will be positive more often than not. The market reaction to good or bad news in a bear market will be negative more often than not.
6. The trend is your friend. Since the trend is the basis of all profit, we need long term trends to make sizeable money. The key is to know when to get aboard a trend and stick with it for a long period of time to maximize profits. Contrary to the short term perspective of most investors today, all the big money is made by catching large market moves - not by day trading or short term stock investing.
7. You must let your profits run and cut your losses quickly if you are to have any chance of being successful. Trading discipline is not a sufficient condition to make money in the markets, but it is a necessary condition. If you do not practice highly disciplined trading, you will not make money over the long term. This is a stock trading “system” in itself.
8. The Efficient Market Hypothesis is fallacious and is actually a derivative of the perfect competition model of capitalism. The Efficient Market Hypothesis at root shares many of the same false premises as the perfect competition paradigm as described by a well known economist.
The perfect competition model is not based on anything that exists on this earth. Consistently profitable professional traders simply have better information - and they act on it. Most non-professionals trade strictly on emotion, and lose much more money than they earn.
The combination of superior information for some investors and the usual panic as losses mount caused by buying high and selling low for others, creates inefficient markets.
9. Traditional technical and fundamental analysis alone may not enable you to consistently make money in the markets. Successful market timing is possible but not with the tools of analysis that most people employ.
If you eliminate optimization, data mining, subjectivism, and other such statistical tricks and data manipulation, most trading ideas are losers.
10. Never trust the advice and/or ideas of trading software vendors, stock trading system sellers, market commentators, financial analysts, brokers, newsletter publishers, trading authors, etc., unless they trade their own money and have traded successfully for years.
Note those that have traded successfully over very long periods of time are very few in number. Keep in mind that Wall Street and other financial firms make money by selling you something - not instilling wisdom in you. You should make your own trading decisions based on a rational analysis of all the facts.
11. The worst thing an investor can do is take a large loss on their position or portfolio. Market timing can help avert this much too common experience.
You can avoid making that huge mistake by avoiding buying things when they are high. It should be obvious that you should only buy when stocks are low and only sell when stocks are high.
Since your starting point is critical in determining your total return, if you buy low, your long term investment results are irrefutably better than someone that bought high.
12. The most successful investing methods should take most individuals no more than four or five hours per week and, for the majority of us, only one or two hours per week with little to no stress involved.
There are many important things you need to know to trade and invest successfully in the stock market or any other market. 12 of the most important things that I can share with you based on many years of trading experience are enumerated below.
1. Buy low-sell high. As simple as this concept appears to be, the vast majority of investors do the exact opposite. Your ability to consistently buy low and sell high, will determine the success, or failure, of your investments. Your rate of return is determined 100% by when you enter the stock market.
2. The stock market is always right and price is the only reality in trading. If you want to make money in any market, you need to mirror what the market is doing. If the market is going down and you are long, the market is right and you are wrong. If the stock market is going up and you are short, the market is right and you are wrong.
Other things being equal, the longer you stay right with the stock market, the more money you will make. The longer you stay wrong with the stock market, the more money you will lose.
3. Every market or stock that goes up will go down and most markets or stocks that have gone down, will go up. The more extreme the move up or down, the more extreme the movement in the opposite direction once the trend changes. This is also known as "the trend always changes rule."
4. If you are looking for "reasons" that stocks or markets make large directional moves, you will probably never know for certain. Since we are dealing with perception of markets-not necessarily reality, you are wasting your time looking for the many reasons markets move.
A huge mistake most investors make is assuming that stock markets are rational or that they are capable of ascertaining why markets do anything. To make a profit trading, it is only necessary to know that markets are moving - not why they are moving. Stock market winners only care about direction and duration, while market losers are obsessed with the whys.
5. Stock markets generally move in advance of news or supportive fundamentals - sometimes months in advance. If you wait to invest until it is totally clear to you why a stock or a market is moving, you have to assume that others have done the same thing and you may be too late.
You need to get positioned before the largest directional trend move takes place. The market reaction to good or bad news in a bull market will be positive more often than not. The market reaction to good or bad news in a bear market will be negative more often than not.
6. The trend is your friend. Since the trend is the basis of all profit, we need long term trends to make sizeable money. The key is to know when to get aboard a trend and stick with it for a long period of time to maximize profits. Contrary to the short term perspective of most investors today, all the big money is made by catching large market moves - not by day trading or short term stock investing.
7. You must let your profits run and cut your losses quickly if you are to have any chance of being successful. Trading discipline is not a sufficient condition to make money in the markets, but it is a necessary condition. If you do not practice highly disciplined trading, you will not make money over the long term. This is a stock trading “system” in itself.
8. The Efficient Market Hypothesis is fallacious and is actually a derivative of the perfect competition model of capitalism. The Efficient Market Hypothesis at root shares many of the same false premises as the perfect competition paradigm as described by a well known economist.
The perfect competition model is not based on anything that exists on this earth. Consistently profitable professional traders simply have better information - and they act on it. Most non-professionals trade strictly on emotion, and lose much more money than they earn.
The combination of superior information for some investors and the usual panic as losses mount caused by buying high and selling low for others, creates inefficient markets.
9. Traditional technical and fundamental analysis alone may not enable you to consistently make money in the markets. Successful market timing is possible but not with the tools of analysis that most people employ.
If you eliminate optimization, data mining, subjectivism, and other such statistical tricks and data manipulation, most trading ideas are losers.
10. Never trust the advice and/or ideas of trading software vendors, stock trading system sellers, market commentators, financial analysts, brokers, newsletter publishers, trading authors, etc., unless they trade their own money and have traded successfully for years.
Note those that have traded successfully over very long periods of time are very few in number. Keep in mind that Wall Street and other financial firms make money by selling you something - not instilling wisdom in you. You should make your own trading decisions based on a rational analysis of all the facts.
11. The worst thing an investor can do is take a large loss on their position or portfolio. Market timing can help avert this much too common experience.
You can avoid making that huge mistake by avoiding buying things when they are high. It should be obvious that you should only buy when stocks are low and only sell when stocks are high.
Since your starting point is critical in determining your total return, if you buy low, your long term investment results are irrefutably better than someone that bought high.
12. The most successful investing methods should take most individuals no more than four or five hours per week and, for the majority of us, only one or two hours per week with little to no stress involved.
About the Author
C.C. Collins is a Financial Planning Advisor and Author of “Scientific Wealth Strategies” at http://www.wealthscientist.com/ Find more information at
Thursday, November 09, 2006
Online HYIP Investment Tips By Reuben D'Souza
Investing online carries with not only the possibility of yielding profit as well as losing your shirt. When you start getting serious about investing, there are some things you need to consider.
Always do your homework. It helps knowing which HYIP’s are good, which are scams, and which are just wasting your time. That difference between them can make or break your investment portfolio. Of especial importance is the ability to determine scams from HYIP’s that are just performing badly, as there is the tendency to figure that a poorly performing HYIP will turnaround (which does happen on occasion); a scam just costs you hard-earned money. At the same time, it helps to know if a good performing HYIP is about to go south. By doing your homework, you can get a better feel for what’s going on and what’s about to happen.
Look for trends. Trends can be good and bad; noting good trends help you make money, and bad trends stop you from losing money. A good trend is pretty obvious and should be blessed, as long as it doesn’t last too long; a good trend that goes on for too long is like a stale green light, and if the HYIP keeps an upward swing for too long it generally crashes when it starts downward, mostly due to investors thinking that it is going to crash. On the other, a bad trend that suddenly reverses itself will be exaggerated by investors seeing its stock rise and thinking that it is popular.
Listen to your environment. This is two-pronged advice: Different people have different superstitions, and they use them to determine what they will do in certain situations. This is because those methods have worked before, and hopefully will work again. Or, failure wears the same clothes, and you’ve learned to avoid whatever circumstances that are generally bad for you. I know it’s weird to depend on superstition, but it does work for a lot of people.
At the same time by paying attention to what is going on, you’ll notice trends that aren’t listed on the Wall Street Journal. By noting what people are wearing, doing and eating, and noting that you are seeing less or more of something, you can better predict how a particular stock will do. Observation can be your friend.
A last bit of advice: Don’t be afraid to take risks. HYIP’s can do well, but you need to be willing to invest in them. Also, the most profitable HYIP’s are usually the riskiest. If you aren’t willing to take risks you shouldn’t be investing in the first place. This isn’t to say that you should ignore safer HYIP’s; a good portfolio should have a range of performance, and the safer stocks usually help pay the riskier.
Just remember that investing in HYIP’s can be harrowing, but that’s the nature of the beast; the more nerve-wracking the better.
The best way to make money from HYIPs is to use a HYIP Monitor. Visit on of the fastest growing ones at http://hyip-status.com!
Article Source: http://EzineArticles.com/?expert=Reuben_D'Souza
Investing online carries with not only the possibility of yielding profit as well as losing your shirt. When you start getting serious about investing, there are some things you need to consider.
Always do your homework. It helps knowing which HYIP’s are good, which are scams, and which are just wasting your time. That difference between them can make or break your investment portfolio. Of especial importance is the ability to determine scams from HYIP’s that are just performing badly, as there is the tendency to figure that a poorly performing HYIP will turnaround (which does happen on occasion); a scam just costs you hard-earned money. At the same time, it helps to know if a good performing HYIP is about to go south. By doing your homework, you can get a better feel for what’s going on and what’s about to happen.
Look for trends. Trends can be good and bad; noting good trends help you make money, and bad trends stop you from losing money. A good trend is pretty obvious and should be blessed, as long as it doesn’t last too long; a good trend that goes on for too long is like a stale green light, and if the HYIP keeps an upward swing for too long it generally crashes when it starts downward, mostly due to investors thinking that it is going to crash. On the other, a bad trend that suddenly reverses itself will be exaggerated by investors seeing its stock rise and thinking that it is popular.
Listen to your environment. This is two-pronged advice: Different people have different superstitions, and they use them to determine what they will do in certain situations. This is because those methods have worked before, and hopefully will work again. Or, failure wears the same clothes, and you’ve learned to avoid whatever circumstances that are generally bad for you. I know it’s weird to depend on superstition, but it does work for a lot of people.
At the same time by paying attention to what is going on, you’ll notice trends that aren’t listed on the Wall Street Journal. By noting what people are wearing, doing and eating, and noting that you are seeing less or more of something, you can better predict how a particular stock will do. Observation can be your friend.
A last bit of advice: Don’t be afraid to take risks. HYIP’s can do well, but you need to be willing to invest in them. Also, the most profitable HYIP’s are usually the riskiest. If you aren’t willing to take risks you shouldn’t be investing in the first place. This isn’t to say that you should ignore safer HYIP’s; a good portfolio should have a range of performance, and the safer stocks usually help pay the riskier.
Just remember that investing in HYIP’s can be harrowing, but that’s the nature of the beast; the more nerve-wracking the better.
The best way to make money from HYIPs is to use a HYIP Monitor. Visit on of the fastest growing ones at http://hyip-status.com!
Article Source: http://EzineArticles.com/?expert=Reuben_D'Souza
