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Friday, October 31, 2008

The Low Funded Challenge Account Project: November 2008

Todays Challenge Account Balances:

Investing Account Balance: $354.17 (RBB Dividend Payment will be added)
Stock / Futures Trading Balance: $964.62
Online Savings Balance: $52.63 (Interest Payment added)

The original video explanation of the Challenge Project is to be found here.

A video summary of my decisions for this month is to be found at the end of this entry.

Back in October of 2007, I created sub-accounts from my main brokerages; as a main feature to this blog, and in November of 2007, I began the Challenge Project. Their purpose, as well as the purpose of many of the articles in this blog, is to assist the low-funded trader understand what principles he needs to consider when trying to get started in the markets, or if starting up again because his or her account account has been wiped out. These are actual sub-accounts at my brokerages that I own, and I will look to for growth. I will announce actual trades and investments that I perform in them, and the money management rationals and reasons for my decisions as a means to educate others. That as long as one enters this business with the proper principles, strategy, education and emotional discipline in hand, you can 'make it' in this business.

In the beginning of this experiment, I placed $130.00 with Sharebuilder as a long-term investment account, and I placed $370.00 in the account for trading Futures options. I later added a small ING Savings account that has been built up to a balance of $52.63. Due to the initial investment, I once termed this the "$500 Challenge". Since we now have much more in these accounts than $500 at the end of September, I will term this the "Low-Funded Challenge Project" instead of the "$500 Challenge". At times I will refer to them simply as the "Challenge Project" accounts.

I also had three rules for the "Challenge Project" accounts. At the beginning of each month, I review and consider where we stand, and how those three rules impact the current months decisions. So let's do that for November.

Rules for the Challenge Account:

1) The initial investment is $500.00, to be split amongst the accounts. After creating the accounts in October of 2007, we had our initial deposited transferred in November of 2007. $130 went to Sharebuilder for longer term investments, and $370 went to the Xpresstrade brokerage for futures options purchases. Xpresstrade was later bought out by "optionsXpress", therefore this is now the optionsXpress account. This account is the 'trading' account, for stocks, ETF's, and futures options. Therefore, rule #1 is always complete.

2) Each month, I can contribute $100.00, that can be split amongst the accounts however I choose. In other words, I can send $30.00 to Sharebuilder, $70.00 to optionsXpress; or $100.00 to optionsXpress, and nothing to Sharebuilder, etc. Last month, we deposited the entire $100 to the Sharebuilder Investing account.

The main reason we deposited the money in that manner? Was to start building up the investing accounts available cash to take advantage of the post-October weakness that the market usually has; so that we could purchase another DRIP / Dividend stock in the Challenge Investing Account. We have already purchased 7 shares of Bank of America (BAC) in the Investing account already, with the DRIP turned on. We spent about $225 on our Bank of America (BAC) Purchase. Since the DRIP was on, we have received a dividend that accumulated 0.1303 more shares in September. This gives us a total of 7.1303 BAC shares. We then purchased 4 shares of Coca-Cola (KO), and we spent about $223 on that purchase; again, with the DRIP turned on. The remainder in this account is cash. So any future purchases? Must be around $229 to correctly size my position.

For the present time, due to market conditions? I am not investing, nor am I trading at the moment. I will need a few factors come to pass before I begin investing or trading again. I'll discuss those factors tomorrow. That works out well. Why?

Well, look again to the growth strategy we've had all along. If you note my project strategy video (located here), for a long time, we were looking to get past the first step in this phase of the project. Thus, we were looking for the trading account to have an equity greater than $900.00. We've accomplished this, as we now have a balance of $964.62 at the end of October. The next goal is to get the account past $1,100.00. But what have I said all along?

That the goal right is not to actively trade that account. It's to get the account equity balance bumped up. I want to say that again. The goal right now, isn't to primarily trade that account. It's to get the account equity balance bumped up. So this works out well.

We have arrived in a new month; November, 2008. I had a lot of decisions to make. The market conditions that are ongoing are unlike anything most traders or investors alive have ever encountered.

For November, 2008, I decided to send $40.00 to the ING Account, $60.00 to the Investment Account, and nothing to the Trading Account.

3) I'll be using regular investment and trade vehicles. Bonds. Stocks. ETF's. Futures Options. I want to wait and bump up the equity, so I probably (probably) will not trade anything in the Challenge Trading account in November. There isn't enough to purchase another stock in the Investing account for November. So it's going to be a 'quiet' month.

We'll get there.

(Here's the video recap. If you're seeing this from Email subscription? Click on the Title Link in the Email to View the Video ...)



November Balances after Deposit from Rule #2 (before trades)

Investing Account Balance: $420.00 (This will fluctuate with the BAC and KO stock)
Stock / Futures Trading Balance: $964.62
Online Savings Balance: $92.63 (Not counting today's Interest Deposit)

* * *

Current Challenge Project Account Balances and
Money Management Numbers:

Investing Account Balance: $354.17
Stock / Futures Trading Balance: $964.62
Online Savings Balance: $52.63

Total Trades: 7
Largest Inter-trade Drawdown: $86.51
Consecutive Losing Trades (Drawdown): 2
Average Drawdown: $55.18
Average Loss: $74.27
Accuracy Rate: 28.57%
Average Reward: $175.34
Risk : Reward Ratio: 1 : 2.1
Trading Money Gain / (Loss): Up + $7.33

This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Thursday, October 30, 2008

Would I Trade Other Peoples Money? (VIDEO)

"No legacy is so rich as honesty." - William Shakespeare

This is a question I am asked from time to time.

"Hey Dan, if I gave you some money? Would you trade or invest it for me?"

That question sort of puts me in a funny spot.

Is there profit in my taking such a move? Of course there is. Usually, the profits for trading other peoples money is what's called the classic 2/20. 2 percent of assets under management and 20 percent of profits above a predetermined benchmark.

But there is more to making money, than the profits that I could make in such an endevour 'today'. I discuss my thoughts in the following vlog entry ...

(Video Included. If you're seeing this from Email subscription? Click on the Title Link in the Email to View the Video ...)



Here is the blip.tv version of this video.

Tomorrow is the "The Challenge Project: November 2008", and then we'll have a week in Review ...

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Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Tuesday, October 28, 2008

Beware of Prophets in Analysts Clothing ...

"Absurdity, n.: A statement or belief manifestly inconsistent with one's own opinion." - Ambrose Bierce

It's still dark out as I sit here, drinking my coffee this morning. And today is sort of a 'switched day'. Today my wife doesn't have to go to her bank, but I will be gone ... well, pretty much all day. So I do not have time to put together a proper vlog and upload it before I have to leave the house.

But I thought that I would leave you with a little nugget today.

Every once in a while? I will run across an analysts opinion. An analyst in the hire of a large bank or brokerage. And I will bookmark them, to see how events later turn out. I do this for a very specific reason.

Look at this article, published on August 11th, 2008 regarding U.S. Dollar strength, and especially take note of the analysts in the hire of banks recommendations.

And now, pull up a chart of DXZ8 (The U.S. Dollar Index) since that recommendation was made.

Then look at the LIBOR, and the TED spread in the intervening months. Look at the banks, basically hoard every injection of liquidity they are given.

Is it any wonder that professional traders pay those guys little mind?

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Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Monday, October 27, 2008

But We are "Todays" Psychohistorians ...

"Most economic decisions are forward looking. To know whether today is a day for work or for leisure, we need to decide whether tomorrow will be more or less productive than today; in short, we must have an expectation of the future." - Kevin D. Hoover


With my last blog entry I stressed the fact, that when it comes to investing and trading? Absolutely no one can predict the future.

Well ...

Sort of ...

There is always a benefit to examining the 'other side of the coin', or 'the other side of the argument.

(Video Included. If you're seeing this from Email subscription? Click on the Title Link in the Email to View the Video ...)



When it comes to my own view? I would say that if you had to peg me to any particular school? I am probably closer to the 'New Classical Economics' than any other. Although there are still tenants of 'New Classical Economics' that I strongly disagree with. And my opposing thoughts on 'prediction', is probably the easiest way that I can explain the "Lucas Critique".

Neutrality has a wonderful way of seeking out truth ...

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Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Tuesday, October 21, 2008

We Are Not Psychohistorians

"PSYCHOHISTORY–...Gaal Dornick, using nonmathematical concepts, has defined psychohistory to be that branch of mathematics which deals with the reactions of human conglomerates to fixed social and economic stimuli....

Implicit in all these definitions is the assumption that the human conglomerate being dealt with is sufficiently large for valid statistical treatment. The necessary size of such a conglomerate my be determined by Seldon's First Theorem" - Forward the Foundation, Isaac Asimov



I recently discovered that I actually have something in common with Paul Krugman, the Nobel Award winning economist. Sort of blew me away when I discovered this.

We both have a love of the Isaac Asmiov "Foundation" series. And both of us love economics, because it bears some similarities to a fictional branch of science called Psychohistory within those books. If you have not read the series yet? It is a piece of classical literature, and was one of the best selling trilogies within the 20th century. I highly recommend them. You can start with the book "Foundation", which you can find to the right in the section called: "From My Personal Library"

Regardless, in the "Foundation" novels, there is a fictional branch of social mathematics called: "Psychohistory". It is a fictional branch of mathematics, that directly and very specifically predicts what will occur centuries into the future future when the psychohistory scientist observes the social, political and economic flow of at least 9 or 10 billion humans. Now, of course, there is no such thing as psychohistory. As Paul Krugman notes, the closest we can come? Is the science of economics. The social study of how goods, services and information flows within a given area.

But in the midst of real, day to day economic 'flow'? You have people like myself. Traders. People who are looking to profit from the exchange of goods. And at times? Traders believe that they are psychohistorians. Whether it be in the short term, or the long term, traders tend to believe that they can absolutely predict the future. The best of traders and investors try to eliminate this from their psyche; and this predicliction is found in almost every trader, including myself. As much as I try to eliminate this delusional inclination? It still pops up. The worst of traders? Truly believe they can predict the future. That they are psychohistorians. Visit any stock forum. Or visit "Google Finance" discussion threads. It's replete with people who believe they know exactly what is going to happen in the future.

And this gives rise to a bias. A bias, when discussing trading or investing? Is a preference, a tendency towards a particular type of position. I discuss this, and how to actually use your bias profitably, in the following vlog entry. How to exploit your bias, instead of allowing your bias to exploit you ...

(Video Included. If you're seeing this from Email subscription? Click on the Title Link in the Email to View the Video ...)



I did mention in the vlog, that I wouldn't be surprised to see a relief rally form. Now mind you, I have no money down on that thought. It's just an opinion. In order for me to believe that a relief rally is truly forming? I think the market would need to close above 9450 on the DOW Jones Index.

I hope to see everyone on Monday. Stay safe.

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Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Monday, October 20, 2008

Analyze Your Surrounding Environment, and Control That Risk ...

"This art of resting the mind and the power of dismissing from it all care and worry is probably one of the secrets of energy in our great men." - Captain J. A. Hadfield


On Friday, my wife had a tire blow out on our car, and I spent all day trying to track down a 205/45 R16 tire. In addition, I had to worry about getting her to and from her work.

Also on Friday? I had my BlogTV show. Which was something new. There was a small bit of ... well, not what I would call 'stress' ... but more like 'elevated concern' that the show would remain engaging for everyone that came to watch. I ended up having a great time. But before that show? There was still those moments of 'elevated concern'.

Also on Friday? My wife left the house for a 'girls weekend' away with some of her girlfriends. Now ... not to sound sappy? But I've been married for going on 13 years. And when you've been married for that long? The Bible says that you begin to become "one person". "One flesh". And that's really true. So with the wife away? There's just this ... I don't know. Feeling. The best way I know to describe it? You know when you walk from one room to the next, and you when you arrive in the new room you forgot why you went to that room? Something is just 'buzzing' inside your head, trying to remember what's 'off'? Yeah ... it's something like that perception. Without my wife around? Things just seem .... off.

Then, again ... on Friday, I had two house guests. Takes a bit of getting used to a change in schedule with two new people living in the house. I love them, but there was a change in schedule.

On Saturday, I had the two house guests and then, I had a party that I threw for about 10 or 12 close friends of mine. That lasted until 3:00 am.

And on top of everything else? I have to check out what's going on in the markets at all times, and keep abreast of anything that may cause me to change my strategy.

The net result? Is that you end up feeling 'frazzled'. So what do you do when you feel frazzled, and then you turn to trade, or invest in the markets? Well, I talk about that, as well as suggest a new YouTube channel I found in the following video ...

(Video Included. If you're seeing this from Email subscription? Click on the Title Link in the Email to View the Video ...)



Here is the link to Affluence8's YouTube Video Channel.

Here is the link to my BlogTV Channel.

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Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Did You Miss the Live BlogTV Show?

"There are no boring subjects. Only boring teachers." - Dan Shy


On Friday at 4:30 pm EST, I had a live, BlogTV show. Did you miss it? Here are links to four conversations that we had, that I've recorded onto my BlogTV channel page ...

(Videos Included. If you're seeing this from Email subscription? Click on the Title Link in the Email to View the Video ...)

Inflation, Recession, and "What Is":


Inflation, Recession, "Is - Broadcast your self LIVE

As Blooze stated in the text? It makes the case for 'induced inflation'.

Then we moved onto what I'm looking for in the future? Where do I see the economic outlook in the United States in the future ...


We're Going Japan Route - Broadcast your self LIVE

Then we got onto the subject of China, Iran and the United States ...


China, the U.S. and Iran - Broadcast your self LIVE

After that, we got into a conversation about the TED spread, and are my plans looking forward ...


What I'm Doing Right Now - Broadcast your self LIVE

I had a lot of fun guys, and I'm looking forward to the fun to be had at the next show. As long as I have talking points that I believe can keep everyone entertained and 'engaged'? I will continue to schedule BlogTV shows in the future. Unfortunately, this Friday I will be out of town. But look for scheduled shows in the future.

As well, don't forget to subscribe to my BlogTV channel, so that you can be alerted to any upcoming shows ...

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Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Friday, October 17, 2008

Wealth ... is Wealth (As well as Economic Fiction)

"I am the man who loves his life ... Choose to learn, that the anti-mind, is the anti-life. Man has to be, man. By choice. He has to hold his life as a value. He has to discover the values it requires, and practice those virtues, by choice. Centuries ago the man who was the greatest of your philosophers, stated the formula defining knowledge and the concept of existence and the rules of all knowledge. A is A. (A=A) ... Why then, do you shrink in horror from the sight of the world around you? It is your moral ideal brought into reality." - John Galt, Character from Atlas Shrugged by Ayn Rand


On more than one occasion, I have stated that I will never dump my whole DRIP portfolio for profits of cash. We have experienced one, week-long protracted crash in October of 2008? And I still hold that portfolio.

Why? Why, when I am staring at so many shares that can represent the so many dollars? Would I not do what some call "taking my profits", when I have so many accumulated shares? Why would I not just sell of the DRIP'd shares? And have even more cash, that I could buy more stocks?

Because, as John Galt stated? A = A.

In the case of investing and my DRIP portfolio? I substitute the variables of this formula in the following manner: Wealth = wealth.

What do I mean? I discuss that in the following video, as well as other fictional works that have led me to the ideas regarding economics that I hold to ...

(Video Included. If you're seeing this from Email subscription? Click on the Title Link in the Email to View the Video ...)



Remember. This afternoon, October 17th at about 4:30 pm eastern standard time. BlogTV. I may be a minute or two late, or you may see my wife in the background getting ready to leave for her trip. But I'll be there.

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Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Thursday, October 16, 2008

Why Can't We Just Have Stock Market Bottom?

"My dog is worried about the economy because Alpo is up to 99 cents a can. That's almost $7.00 in dog money." - Joe Weinstein


Wouldn't you just love to go back to buying and holding stocks? Remember 2004? Remember 2005, and 2006? Wouldn't you just like to 'know', that you could go out and buy stake in a large, dividend paying company, and that in 3 years, you'd make fantastic returns on your money? Wouldn't you like this all, to just go away?

In that sort of environment? It's very easy to get a job. Employers are begging people to come to work for them. In that sort of environment? You know that buying stocks in a well run company will give you a good return on your money. In that sort of environment? You know that banks and institutions have a ready supply of cash to invest in new projects, research and development.

So why aren't we there? The derivatives need to be on an exchange. They need to be regulated so we can properly value and see them. So as "Karl the Ticker Guy" says? We need to be able to take out our calculators? Look at the CDO's? And value them. This would engender trust.

We need producers who are not trying to reel from inflation to deflation in the matter of months.

But why can't those conditions come about? Well, we need a healthy marketplace. What is a healthy marketplace? I discuss that in the following video ...

(Video Included. If you're seeing this from Email subscription? Click on the Title Link in the Email to View the Video ...)



But until that all happens? We're going to see further losses. We're going to reel from inflation, clear to deflation in the matter of months.

Remember. Friday, October 17th at about 4:30 pm eastern standard time. BlogTV.

* * *

Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Wednesday, October 15, 2008

Don't Let The Market Make a Monkey Out of You (Know How to Take a Loss)

"It's not because things are difficult that we dare not venture. It's because we dare not venture that they are difficult." - Seneca


Interesting to say the least.

I recorded the video below? And the market was down 568 points as I recorded it. I was finishing it up? And down it tanks another 200 points.

Listen. This isn't about the stock market. This is about the credit markets. This is about the lack of trust in the markets. This is about the fact that none of us can see over the counter derivatives, know what they are worth, because they are not on an exchange where they are regulated and transparent. And everyone knows that what is out there? Is over-leveraged to the hilt.

So since they are not transparent? Since no one knows what is really out there? No one, and I do mean ... no one ... trusts one another. Banks do not trust one another. Therefore no one trusts anyone elses line of credit. And investors know that without credit? Every thing grinds to a halt. It's a self-feeding circle.

But what if you have that 'one stock that you just know will turn around'? What if you're banking on faith? You can change your 401k, so what would I do with it? Well, I talk about that in the following video ...

(Video Included. If you're seeing this from Email subscription? Click on the Title Link in the Email to View the Video ...)



Remember. Friday at 4:30 pm eastern standard time. BlogTV.

* * *

Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Tuesday, October 14, 2008

Gotta Keep Up ...

"There are two types of minds - the mathematical, and what might be called the intuitive. The former arrives at its views slowly, but they are firm and rigid; the latter is endowed with greater flexibility and applies itself simultaneously to the dive" - Blaise Pascal


Following Pascal's thought? I firmly believe that being intuitively flexible is one of greatest assets an investor and a trader can have. It truly is.

Investing and trading? Is very much like playing chess. You may have a great open? You may start out strong? But you have to be watching what could develop five moves from where you are standing. Of course, in chess? That eventuality that you form a defense for may not come to pass. So you have to protect yourself from other dangers? While at the same time pressing your advantage.

Investing and trading works the same way. You have to control the 'center of the board' as it were. And to do that? You have to be flexible.

But that also means that simply because your pawn and knight have not been used in the last 6 moves? That they are not valuable pieces. Keep your eyes on everything. Know all of the parts. Know what you have to defend, and what can be sacrificed. And be flexible ...

(Video Included. If you're seeing this from Email subscription? Click on the Title Link in the Email to View the Video ...)



Remember. Friday at 4:30 pm eastern standard time. BlogTV.

* * *

Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Monday, October 13, 2008

Stock Market Rally: DOW Jones Rises nearly 1,000 points ...

"Whoever claims the right to redistribute the wealth produced by others is claiming the right to treat human beings as chattel." - Ayn Rand




My BlogTV channel can be found here. Subscribe!

So we go from a stock market crash? To a nearly 1,000 point rally in the span of a few days. This is why people call the stock market? The manic depressive market.

Do people truly believe that the economy has now turned around? That earnings are going to be fantastic? Johnson and Johnson reports tomorrow. And this is the start of the new bull market? Because they've done the exact same thing they've done all along? Just pour liquidity into the markets?

Did that work out so hot for Japan in the 1990's?

(Video Included. If you're seeing this from Email subscription? Click on the Title Link in the Email to View the Video ...)



It goes back to what I said before. Just ... wait ...

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Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

You Should Have Been To Cash 4 Months Ago ... (For Today? Get to Cash)

"Stock market bottoms are a process. They are not an event." - Brian Shannon


So. A huge cash infusion is coming along. Stock market rally right?

Or, is this a huge sucker play?

But don't the markets need liquidity? Yes. They do.

But what are they doing with that liquidity? That's the question everyone needs to be asking themselves.

Sometimes I say things like: "De-leveraging to the dollar". Perhaps, I'm not describing the situation as 'plainly' as I need to. Which I will attempt to do in the following video ... (Video Included)



Please. I'm not saying always stay cash. I'm saying, stay flexible. Know the pieces so you know when to make your move, and use money management principles.

* * *

Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Saturday, October 11, 2008

Week in Review: Stop Looking at the DOW Jones ... Look at the Credit Markets ...

"There is more to value investing, than a low dollar sign" - Dan Shy


More and more? Everywhere I look? I hear people talking about 'retracements', and 'great value' and 'fire-sale prices' in the stock market. I hear them talking about the 'last time we saw these levels of the DOW Jones index'.

But I hear precious little from those same people about the TED spread and recent LIBOR jump on that spread. About the impact of the Bond Markets. About the falling prices of Gold and every other Commodity on Friday. About the flight to the dollar, at the same time we see the increasing TED spread. Well ... that's what I'm going to talk about in today's 'Week in Review' video. And please, for the love of god ... listen ...

(Video Included. If you're seeing this from Email subscription? Click on the Title Link in the Email to View the Video ...)



Get to cash. Hard, cash ... today. And get out of debt. Yesterday. We'll see where we stand on Monday. Two banks here in Michigan just failed (They will always announce Bank Failures on Friday), and one of the banks in the County in which I live? Received their assets.

It seems on Sundays? We receive the 'governments plan of attack' for the next week. For all the good it's doing ...

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Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Friday, October 10, 2008

Nab Those Profits!

"The self-anointed media elite among us believe, somewhat self-servingly, that not only the act, or process of making a profit is positively sinister, but also that the very desire to do so is." - Lachlan Murdoch


Ok, recorded this some time ago on BlogTV

When I mentioned CRBC trade? I also talked about picking up some e-mini S&P 500 Puts as a hedge ... (Video Included)



I'm wondering if I should have said to let those puts ride. But profit is profit eh?

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Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

But Dan? What Do I DO NOW?

"Stock market bottoms are a process. They are not an event." - Brian Shannon


Ok. The stock market is crashing, and has crashed.

I've gotten a LOT of emails, telephone calls from friends, you name it. "What do I do today?"

Well, I don't like to recommend a plan of action for anyone else. As I say every single day on these blog entries? I have no adviser licenses. I don't. This is, as Thom363 would say? Just one fellows opinion. The next two videos discuss what I would personally do, if it were me.

Number one rule at this point? Wait. But what about 401k's? What about losses? What about inflation? What about deflation? I discuss this in the following two videos ... (Video Included)



and then Part II



You don't have to catch the exact bottom. You don't. Just watch and wait. One days rally does not a bottom make.

* * *

Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Thursday, October 9, 2008

I'm Calling Time! It's a Stock Market Crash

"You make most of your money in a bear market. You just don't realize it at the time." - Shelby Cullom Davis


We've danced around it. We've called it an 'economic crisis'. We've talked about 'worsening market conditions'. But face it, with a break below 8,999? It looks like a crash. It acts like a crash? It's a crash.



For some reason, some of the video got skipped out when I discussed my strategy. Part of my strategy is to wait for the momentum to stop, especially as we approach 50%, evaluate one of the aristocrat stocks (PG, JNJ, PEP, or GIS), and buy in. But I'm just waiting at this point. Whether the DOW hits 8,000, 7,000, or 3,000. Regardless, I'm just waiting for a good break in momentum, and then will go after one of the 'aristocrat' stocks.

This is how millions are made. It's the opportunity, literally, of a lifetime ...

* * *

Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Airelon's Thoughts Regarding the Gold Standard

"You cannot tie the infinite to the finite, and not expect problems." - Myself

Sometimes, when we run into various problems throughout our lives, we indulge in a bit of nostalgic remembrances. We think about happier times in our lives. We think about the way things 'used to be'. We reminisce over 'the good old days'. And nostalgia has a wonderful way of glossing over very real problems.

At times, I think folks may do the same thing when it comes to the money supply. They find the very real problems that a fiat currency brings? And they forget about the problems that a hard asset currency brings.

So what are my problems with the Gold Standard? ...(Video Included)



As well, at times, you'll hear the phrase "Every country that has ever used a fiat currency fails."

That is simply incorrect. Nations rise and fall. The currency it uses is merely a side note. In addition, England has existed as a country for over 1,000 years. They use two different fiat currencies.

As well, at times, you'll hear the charge "Fiat currencies have nothing behind them but paper". This, technically ... is not true. They are backed, not only by faith and credit of the issuing government? But also by that governments assets. What they actually have, in the way of wealth. It can become an accurate charge, if too much money is printed. But it is not necessarily true, simply because one has a fiat currency.

Now, that being said, I do believe that during times of inflation? Gold is a great investment. It hedges yourself, against inflation. But remember, during periods of low inflation? Gold can sink in value tremendously.

* * *

Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Wednesday, October 8, 2008

Central Banks move to Cut Rate by 1/2 Point

"Insanity: Doing the same thing over and over again, and expecting different results" - Albert Einstein


Do you hear that sound? Do you?

That's the sound of a completely wasted rate cut. In an unprecedented move (there are a lot of those lately aren't there?), a few Central Banks went ahead and cut their rates in a coordinated manner.

The market rallied. For a while. And as I type this, the DOW Futures sank again over 100 points. Why? What's going on?

What's going on, is that the market forces at work are more powerful than what the Central Banks can provide. I wouldn't be surprised to see the DOW hit 8,700 ...(Video Included)



I would say we're getting close to what I'd look for in a bottom. But we're not there yet.

I'll try to get to that video on my thoughts in regards to why going back to the Gold Standard will not work, soon enough ...

* * *

Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Tuesday, October 7, 2008

Bank of America (BAC) cuts it's Dividend ... Import of the DOW Jones Transportation Index ...

"Life is about timing." - Carl Lewis


Despite being what I would call a 'favored bank', Bank of America (BAC) can't seem to catch a break lately. First, the decision is handed down that Bank of America must pay $8 Billion to settle suits over bad mortgages. Believe it or not, there is a bit of good news in this decision. This $8 Billion ($8,000,000,000.00) is being paid to keep people from losing their homes, and restructure their terms. Now, I could lecture on how people should not get involved in home purchases that they cannot afford. But I think I've preached that sermon quite enough lately.

At this point, the added bonus is that this means that the housing market will not become glutted with yet more inventory. At this point? That is a good thing. But that incurs cost. Therefore, Bank of America (BAC) then announced that they will be halving their dividend payment; from $0.64 a share, to $0.32 a share.

At the same time, the DOW Jones Transportation Index has fallen off of a cliff.

So what is my plan for my Bank of America (BAC) holdings? What is the significance of the dividend cut? What does this drop in the DOW Jones Transportation Index mean? I discuss that in the following video ...(Video Included)



Tomorrow, I think I'll discuss what some folks have stated is needed to restore financial security. The Gold Standard. Of course, being the contrarian that I am, I disagree ...

* * *

Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Monday, October 6, 2008

That Dirty, Dirty LIBOR. (Uh, what's the LIBOR again?)

"Assumption, is the mother of the screw up." - Angelo Donghia


As the economic crisis unfolds, it is amazing how many parts of the current financial system we take for granted. How many parts contribute to the whole, and we simply assume will always work and function in the manner that they have functioned in the past.

The LIBOR (London Interbank Offered Rate) is a perfect example of this. It's a necessary component of the financial system. And some time ago, I had a Twitter update, in which I discussed the horrendous moves in the LIBOR, in which I stated:

"Oh dear lord. Look at the LIBOR. This is like a nightmare you can't wake up from, but you know you're in"

But what exactly is, the LIBOR? I discuss that in the follow video ...(Video Included)



Tomorrow, I discuss the importance of the DOW Jones Transportation Index ...

* * *

Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

The US Dollar Index Soars to 82

"If a bullfrog had wings, it wouldn't have to bump it's butt on the ground ..." - My Father


My channel over at BlogTV can be found here.

How long have I said to be very, very careful of anyone who is a Dollar bear? How long have I been telling people to educate themselves, and not follow anyone who just 'sounds' like he knows what he is talking about, and the danger of adopting ideas when you're not even sure what the opposing viewpoint is?

I discuss the SOARING U.S. Dollar on BlogTV, as it hit new highs.

Feel free to subscribe to my BlogTV channel, as you will be updated as to any future live shows that I may schedule ...(Video Included)



Later on today, I'll have that entry and video regarding the LIBOR, and it's importance with Eurodollars and the US Economy...

* * *

Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Airelon is now on BlogTV and the DOW 9,999

"Advice is what we ask for when we already know the answer but wish we didn't." - Erica Jong


Yeup. I've gone and done it. My channel is created over at BlogTV, and you can find it here. For now, I'll be using it for various thoughts I have during the trading day, as a sort of 'live' feed. It will update my YouTube channel, and I'll also post such entries here ...

Feel free to subscribe to my BlogTV channel, as you will be updated as to any future live shows that I may schedule ...(Video Included)



Later on today, I'll have that entry and video regarding the LIBOR, and it's importance with Eurodollars ...

* * *

Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Saturday, October 4, 2008

Week In Review: Living Through Historical Times on Wall Street

"While civilization has been improving our houses, it has not equally improved the men who are to inhabit them. It has created palaces, but it was not so easy to create noblemen and kings. " - Henry David Thoreau

* * *

Challenge Project Accounts:

Investing Account Balance:
$475.75 (Bought 4 shares of KO, with DRIP turned on)
Stock / Futures Trading Balance: $964.62
Online Savings Balance: $52.63


First of all, I need to say that I've updated the "DRIP Portfolio Investment Watchlist" to be found on this blog, further down the page. So feel free to check it out.

Welcome to the week in review. And what a week it has been. We are in the midst of the worst financial crisis to hit the United States since the time of the Great Depression.

As I've already mentioned, the "Rescue Plan" will 'rescue' nothing. I personally believe that the depth of this financial crater is at least two trillion dollars. That's $20,000,000,000,000.00. Why? Leverage! I've said it over and over and over again. And I'm not alone. Anyone who trades the markets understands that this is all about leverage! So spending $700,000,000,000.00 on a $20,000,000,000,000.00 hole? That's akin to spending $700 on a $20,000.00 debt. It's nothing. After that $700.00 is gone? It's nothing more than a monthly installment payment. You're still staring at $19,300 worth of debt.

Now mind you? The leverage rules were deliberately relaxed some time ago. Which again, led to this crisis. Those rules were in place for a reason. So, if the leverage was only 12 to 1? Then instead of this $700,000,000,000.00 paying down 3% of the drawdown possible with these obligations? It would pay towards nearly 10% of the drawdown possible. Still not great. But at least it was manageable. Which is why leverage at one time, was legally restricted to 12 to 1. To prevent situations just like this one.

Adding to the problem of over-leverage; the holders of these bad debt obligation packages? Will now simply be able to legally, fudge the numbers as to the net worth. Which will only delay, and exacerbate the possibility of a disaster. The market as an entity, will discover what the truth is. One way or another. The market is a wonderful truth seeker.

As far as trading, my second CRBC trade didn't turn out nearly as profitable as my last one. Which is infuriating since my profit target was hit. Well ... I discuss the reasons for that, Warren Buffett's latest purchase into General Electric (GE), as well as what I believe we face in the future when looking at the fundamentals, in the following video ...(Video Included)



Have a safe weekend. Since it is Autumn, it is turning cool here in Michigan. I'm going to go over a friend of mine's home this evening, enjoy a fire and have a few cold beers.

On Monday? I'm going to discuss the significance of the DOW Jones Transport Index.

* * *


Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Friday, October 3, 2008

How is "Main Street" affected by the "Rescue" Plan?

"Neither a borrower nor a lender be; For loan oft loses both itself and friend, and borrowing dulls the edge of husbandry". - Hamlet (Act I, Scene III).


Everyone is, and will be affected by the events in the financial markets. It doesn't matter if you are 18 years old, if your 36, or you are 70. I've said this for a while now. It's the ultimate Catch 22. And it's a Catch 22 that will affect everyone.

If the "Rescue Plan" does not go through? I forsee another day of capitulation. Massive selling on the stock market. The credit markets will continue to freeze. Which will put more pressure on the banks. Which is where everyone has their 401k's. Their savings accounts. Their retirements. Which will exacerbate the unemployment problems. Which will exacerbate the problems in the housing market. Rinse. Repeat.

If the "Rescue Plan" does go through? Then you may see a short term rally. And in a week or less, we'll be right back where we are now, and nothing will have been solved. The markets will have eaten this capital like a midnight snack.

How do I know this? Because I'm a trader. And I see the situation from a trading mindset. Which is a very accurate mindset to have right now.

I was telling Daryl Montgomery of "New York Investing Meetup" recently? That this entire process is like watching a losing trader who gets margin call, after margin call, after margin call - and is finally facing a forced liquidation. He's trying to bribe people from liquidating his positions - so that his uncle can come bail him out. Only we're all the 'uncle'.

Instead of just realizing it was a losing trade all along.

Instead of fixing the leverage on these contracts. Instead of moving the contracts to an exchange. Instead of creating transparency so that anyone and everyone can properly evaluate the situation? They're doing what they've done since March ...

Throw money at it, and hope the problem goes away.

So what about your 401k? Warren Buffett is buying into GE, so is it now time to buy? I talk about that in the following video ... (Video Included)



Tomorrow is the the "Week in Review" ...

* * *

Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Thursday, October 2, 2008

Airelon's Thoughts: October 2008

"There is more to 'Value Investing', than a low dollar sign." - Dan Shy

Challenge Accounts:

Investing Account Balance: $514.81 (RBB Dividend Payment added)
Stock / Futures Trading Balance: $1,010.13
Online Savings Balance: $52.63 (Interest Payment added)


We arrive at a new month ... October 2008. It's sort of been a habit of mine, that I put together some things that I'll be watching for the next month. So here it is ... Airelon's thoughts for October , 2008.

We discuss the underlying problems that the market has. We also discuss seasonality, and I sort of 'revert' in terms of strategy. I also discuss the Bailout, and the short sellers ...
(Video Included)



Tomorrow ... well ... let's get through today shall we?

* * *


Current Challenge Project Account Balances and
Money Management Numbers:

Investing Account Balance: $514.81
Stock / Futures Trading Balance: $1,010.13
Online Savings Balance: $52.63

Total Trades: 6
Largest Inter-trade Drawdown: $86.51
Consecutive Losing Trades (Drawdown): 2
Average Drawdown: $56.63
Average Loss: $74.27
Accuracy Rate: 33%
Average Reward: $175.34
Risk : Reward Ratio: 1 : 2.1
Trading Money Gain / (Loss): Up + $53.84

This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

Wednesday, October 1, 2008

The Low Funded Challenge Account Project: October 2008

Challenge Accounts:

Investing Account Balance: $448.72 (RBB Dividend Payment will be added)
Stock / Futures Trading Balance: $954.13
Online Savings Balance: $47.51 (Interest Payment added)


The original video explanation of the Challenge Project is to be found here.

A video summary of my decisions for this month is to be found at the end of this entry.

Back in October of 2007, I created sub-accounts from my main brokerages; as a main feature to this blog, and in November, I began the Challenge Project. Their purpose, as well as the purpose of many of the articles in this blog, is to assist the low-funded trader understand what principles he needs to consider when trying to get started in the markets, or if starting up again because his or her account account has been wiped out. That as long as one enters this business with the proper principles, strategy, education and emotional discipline in hand, you can 'make it' in this business. These are actual sub-accounts at my brokerages that I own, and I will look to for growth. I will announce actual trades and investments that I perform in them, and the money management rationals and reasons for my decisions as a means to educate others.

In the beginning of this experiment, I placed $130.00 with Sharebuilder as a long-term investment account, and I placed $370.00 in the account for trading Futures options. I later added a small ING Savings account that has been built up to a balance of $47.51. Due to the initial investment, I once termed this the "$500 Challenge". Since we now have much more in these accounts than $500 at the end of September, I will term this the "Low-Funded Challenge Project" instead of the "$500 Challenge". At times I will refer to them simply as the "Challenge Project" accounts.

I also had three rules for the "Challenge Project" accounts. At the beginning of each month, I review and consider where we stand, and how those three rules impact the current months decisions. So let's do that for October.

Rules for the Challenge Account:

1) The initial investment is $500.00, to be split amongst the accounts. After creating the accounts in October of 2007, we had our initial deposited transferred in November of 2007. $130 went to Sharebuilder for longer term investments, and $370 went to the Xpresstrade brokerage for futures options purchases. Xpresstrade was later bought out by "optionsXpress", therefore this is now the optionsXpress account. This account is the 'trading' account, for stocks, ETF's, and futures options. Therefore, rule #1 is always complete.

2) Each month, I can contribute $100.00, that can be split amongst the accounts however I choose. In other words, I can send $30.00 to Sharebuilder, $70.00 to optionsXpress; or $100.00 to optionsXpress, and nothing to Sharebuilder, etc. Last month, we deposited the entire $100 to the Sharebuilder Investing account.

The main reason we deposited the money in that manner? Was to start building up the investing accounts available cash to take advantage of the post-October weakness that the market usually has; so that we could purchase another DRIP / Dividend stock in the Challenge Investing Account. We have already purchased 7 shares of Bank of America (BAC) in the Investing account already, with the DRIP turned on. Since the DRIP was on, last months dividend accumulated 0.1303 more shares in September. This gives us a total of 7.1303 BAC shares. The remainder in this account is cash. We spent about $225 on our Bank of America (BAC) Purchase. So any future purchases? Must be around $229 to correctly size my position.

For the present time, due to market conditions? I am not investing, nor am I trading at the moment. I will need a few factors come to pass before I begin investing or trading again. I'll discuss those factors tomorrow. That works out well. Why?

Well, look again to the growth strategy we've had all along. If you note my project strategy video (located here), for a long time, we were looking to get past the first step in this phase of the project. Thus, we were looking for the trading account to have an equity greater than $900.00. We've accomplished this, as we now have a balance of $954.13 at the end of September. The next goal is to get the account past $1,100.00. But what have I said all along?

That the goal right is not to actively trade that account. It's to get the account equity balance bumped up. I want to say that again. The goal right now, isn't to primarily trade that account. It's to get the account equity balance bumped up. So this works out well.

We have arrived in a new month; October, 2008. I had a lot of decisions to make. The market conditions that are ongoing are unlike anything most traders or investors alive have ever encountered.

For October, 2008, I decided to send $5.00 to the ING Account, $39.00 to the Investment Account, and $56.00 to the Trading Account.

And unless market conditions change? I will not be trading, nor will I be investing in October. Again, I will discuss this in more detail tomorrow. But this works out, since I'm not looking to actively trade or invest with these accounts anyways.

3) I'll be using regular investment and trade vehicles. Bonds. Stocks. ETF's. Futures Options. But as I've said? Not this month.

We'll get there.

(Here's the video recap)



October Balances after Deposit from Rule #2 (before trades)

Investing Account Balance: $487.72 (This will fluctuate with the BAC stock)
Stock / Futures Trading Balance: $1,010.13
Online Savings Balance: $52.51 (Not counting today's Interest Deposit)

* * *

Current Challenge Project Account Balances and
Money Management Numbers:

Investing Account Balance:
$448.72
Stock / Futures Trading Balance: $954.13
Online Savings Balance: $47.51

Total Trades: 6
Largest Inter-trade Drawdown: $86.51
Consecutive Losing Trades (Drawdown): 2
Average Drawdown: $56.63
Average Loss: $74.27
Accuracy Rate: 33%
Average Reward: $175.34
Risk : Reward Ratio: 1 : 2.1
Trading Money Gain / (Loss): Up + $53.84

This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

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