"Who Cares?"

Recently, a financial pundit, when asked about the fragility of the computer systems on Wall Street, and the disturbing pattern of the option exchanges being unable to execute trades in a timely manner, and in fact closing down at key moments of high volume...said that in effect "Who Cares?"...."Stuff Happens"...and that basically the systems are so old on Wall Street that a breakdown is to be expected as "Normal." When one considers that probably 90% of all the volume on Wall Street is computer driven trading by institutions, it is quite reasonable to assume that the failure of these systems could trigger a collapse that could not be controlled by the "august authorities" that would respond with their mantra: "Who Cares?" As an investor---make a note of it.

Serenity; Delta Neutral; on Choosing a new Target for Education

I woke up this morn totally serene...and it has been a while since this happened, and I wondered what was wrong...seems that whenever I embark on a new learning project, whether in finance or elsewhere, during the learning phase I have lots of stress and anxiety....for a time now I have associated this with excellence..just kidding..but in an effort to get the finest result, I have not been prone to learn too much from the mistakes along the way...anyway, back to this morning...I have been experimenting with the concept of "delta neutral" or hedging and shorting positions so I can win whatever which way the market goes..and the system seems to be affecting my frame of mind....for the better.. but just in case, I have stepped up the game to learn the next level of hedging, or spreads...and just as soon as I picked the new, I felt a need for a stiff cappachino to get a little caffeine buzz...but this time, I know the source of the stress I am creating...and that seems to help...in the past it was just generalized with everything causing stress, but now it is "defined risk"...which seems pretty easy when compared to life....stay tuned.

A classic video from Tastytrade

On Bruce Springsteen, the dark side of town, on how to trade when you are on a downtown train: a true story

One of the lessons I learned early on, as a salesman on the road, returning from a long trip of selling computer software...driving in the winter...in a black hearse...just for the advertising attention...is that one should never listen to Bruce Stringsteen for more than two hours...ya those were the old days when I just placed the boom box on the front seat, with the cassette player positioned just so....and listened to those old mournful songs about the death of his hometown in Pennsylvania... The moral I took from this for stock traders...on Friday...is that on a long downhill train...when all the ticks are down...buy on the close....

The Barbell Strategy of Investment

In the book "The Black Swan" there is a long discussion of the traditional investment theory of "portfolio management"----in a time of crisis, traditional theories of "portfolio management" are not effective because...in a moment of raw panic, such as in 1987 or recently in 2007....everything goes down....and mutual funds provide NO hedge.... The only thing that works was shown pretty dramatically in the Wisconsin Pension Fund during the crisis of 2007-2013...even when participants that 50-50 split between fixed and variable, they took large reductions in pension income reduction.... The "Barbell theory" as described in "The Black Swan" proposes 90% in fixed or very conservative and 10% in very agressive speculation such as options and very high growth stocks. That is the theory...we will see....stay tuned.

Reduce Your Basis---Monetize the Math

For very conservative investors, reducing the basis by covered call writing can be a way to increase profits...So..whether it is by dollar cost averaging, or call writing...getting that basis lower increases the probability of profit.

"The Future is Wide Open" and other funny stories

Whenever my family leaves town, or at least in the old days when the kids were in the back of the Ford Aerostar...we used to insert a cd of Tom Petty's greatest hits, and the first number or so was the song with the line "The Future is wide open." It was kind of a soothing ritual...and during times of stress...like leaving for college...leaving for a job...etc, etc,,,well to summarize...we wore out the cd...I am not sure statistically whether we did indeed reduce the amount of stress...we did not have a proper test group...but still....here is my review of the concept. Whenever we listened to the song, as the older guy in the group, I just wondered whether anyone had really tested just how wide open the future was....and then last week, I heard a presentation in which a guru said that the stock market pundits who say that one should "never limit your upside" are simply full of "xxxt"....The truth that the money pros all know is that one "ALWAYS" limits the upside, and takes the other side of the transaction, making oneself the banker, not the river gambler....writing calls, shorting...anything but gambling on the eternal upside.... So there it is,,,about the "Future is Wide Open"....and now I think of Tom Petty as a financial guru...I do need to get another cd so I can never forget the message....

Charts Describe the Past; Options Speculate on the Future: Do not confuse the two

Whenever one reads a written piece of promotion from a Wall street firm, one usually finds the disclaimer, "Past results to not imply future performance." And one might wonder why this is so...because it is required to tell investors that the past is gone...done...and yesterday does not matter... Someone needs to tell those chart guys the above paragraph....all the chart guys seems to think that they seem to know....trust me..they don't...and legally cannot....make a note of it.

"You Don't Know the Future---Trust me": a classic from www.tastytrade.com:

In a quick overview of financial education by Trader Bob last week on Tasty Trade, which broadcasts at www.tastytrade.com he mentioned that in traditional instruction, as limited as it is for our high school and college graduates...there is the learned behavior of having a "belief" about the future...as in ,,,after analysis I believe that...a) the market is going down, or b) or going up or c) going sidewise.....ditto for individual stocks. In reality, when listening to the pundits on tv, they mostly just recite the data points from the past and point to "interesting" and "foreboding" signs,,,maybe giving them a "double top" or such magical name to impart some meaning to the lines and formations....and in the end, making you believe that because they have shown you this funny little diagram, they know something very deep and profound about the future----and to which, Trader Bob says----"Trust me--you do not know the Future". As a test for me of his instruction, I have begun placing both bullish and bearish option positions on a "paper" trading platform called "Think or Swim". Immediately after placing the positions, I have been carefully noting that one of the positions is profitable, and one unprofitable literally seconds after putting the trade on...and mostly, it does not go as I presume...and I think...and as I believe...merging my belief and my knowledge....and well...it all has added up to squat...and in the end...it is best that I get "agnostic" or "sanguine" or in Trader Bob's favorite term---"Delta Neutral."

The Inverse Barron's Front Page Pic Rule

On the Saturday before the Stock Market Crash of 1986 was the picture of a HUGH BULL... Right before the Market began the Bull Market, there was a picture of a huge BEAR...Market pros know and plan accordingly. On April 20, 2013, the picture on the front of Barrons said "Dow 16000".. On CNBC one of the commentators correctly said, "Market traders down here consider that bearish"----This Inverse Barron's front Page Rule has gone on for a long time. Make a note of it.

Gold: :Point and Counterpoint: Bear Trader Writes

"Bear Trader Writes: SPX has held at support so far, both the 50 Day EMA and the Charles Dow style rising trend line, at 1541. Slow Stochastic reads "sell". Momentum indicators are very weak. Myself, I would wait until Halloween. Turbulence ahead, the options boys will do well. I mean, you and I hold overnight which makes us "buy and hold" people nowadays. Trends are hard to spot. NEM and ABX are up yesterday and today on considerably lower volume after being down on much higher volume. Two days does not make a trend. More like five. NEM - my best guess is sell at 36 stop at 32 until technicals become clearer. My guess is 75% you wouldn't lose money (not including commissions). Currently very oversold. ABX - my guess is sell at 22 stop at 17 until technicals become clearer. 75% confidence as above. Very, very oversold. Wall Street Journal recent article said stay away from miners. There is recent bad press about Barrick. I think this is bullish. On Fri, Apr 19, 2013 at 11:56 AM, Richard Woulfe wrote: Bear Trader--- All the reasons I have heard why gold has plunged are looney...at these levels, such as NEM, and ABX it seems like a little bit would be ok... what do you think? We are in a little SPX bounce today---if holds above 1541, then there could be the argument that it still is in the "up" channel. However, from years of summer trading on Wall Street, I have a bent to be away....and stay away till the weather cools, ----how do you see it? wolfman

If there is not "Fear" in the markets--it is NOT a time to buy

Recenly as the S&P approached new highs, and there was a feeling of euphoria in the markets, at one options trading site, the host opened the program by saying that because there was not a speck of fear in the market for the opening---he was planning nothing...I was stunned....I just wished I had known him earlier.

Transports are the early warning signal

The direction and strength of the transports index is an early indicator of where the S&P could be headed....and at the end of March 2013, the transports seemed going off the roof...like as in UAL going to the moon, and even BA, Boeing, with all its new planes on the tarmac because of the battery problem....this optimism in the face of adversity was...just a little overdone,,and the airlines turned down, and the S and P followed and now the big debate is whether and how much the market will fall....

"Genius Stays Small"

Heard this bit on a stock traders show today---that the major downfall of stocktraders in times of volatility, is that they trade in too much size in their trades....With high volatility you can make plenty of money by avoiding being wiped out in the first place, and then by ordering smaller size of stock, and holding rather than folding. So...it seems that small is ridiculed by some folks in the street, but not by those who are making money..Make a note of it.

The Case of the falling Wedge

http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patterns:falling_wedge This is said to be bullish, but for the investor it is chinese water tourture...

Investors celebrate getting back to where they were in 2007

Also in running news, I celebrated running this morning as fast for a mile as I did five years ago---AND i MADE QUITE A RUCKUS ABOUT IT.

The new digital Bucket Shop on Wall Street

In the roaring twenties, in the midst of all the excesses of Wall Street, there were groups of traders that gathered together to pump their favorite stocks---whether one calls them the bucket shops or syndicates or whatever, they were the "pumpers" of their pet stocks---and if one just thinks about what that looks like today---it is the same...and the guys and gals are on the tv morning stock shows pumping their favorite stocks all the way up....until they go down...I call these guys the "Masters of the Pump and Dump"---it does sound like a filling station..I know...

"Clowns" with horns on Wall Street;

As a youngster, I vaguely remember a show on tv in the afternoon, with a clown who was silent, but had a horn that she or he honked in response to questions. On one of the stock market shows on television these days there is one host who has a host of various horns that he honks as side effects....with brings back another wisdom that I learned as a boy---never take your advise from clowns.

Pipeline stocks in focus--they win whatever the price of oil or gas

Today, in 2013, there is a huge push to make the US energy independent, and much of that drive is in natural gas produced by fracking, and when the gas is produced, it needs to be transported, and that is the rub, the bottleneck....there is not enough pipeline to get the job done. While investors in oil stocks or natural gas stocks have to worry always about the price fluctuation of the commodity, with a pipeline stock, which usually yields less, say from 4-5%, they win either way...no matter what the price of oil or gas, it still needs to be transported...Thus, I classify this type of stock, such as EPD, Enterprise Products, or PAA, Plains All American, as grandmother stocks..they have a little less risk and volatility than oil or gas stocks..you will see the beta as usually .50 or so. If you drive from Evansville to Janesville, on the right side, right after you pass the stage coach station of old, or Leydon Station, you will see the pipeline hub of PAA...Stay tuned.

Do You Want Income Now...or Later?

Bring back memories? That was the classic question that was on the top of the list for every young college graduate that turned Whole Life salesman after college graduation....and I remember the moment well...which is saying something since it has been over 45 years....I replied: "BOTH". In review...it was a good answer. As a young grad entering the world of work, and in retrospect, knowing very little, it was very appropriate to need income THEN when starting a family, and then LATER, when retiring....only a life insurance salesman could suggest, as they indeed did, that one had to make a choice...if ya eat tunafish now...you could be worth millions....nice....

A culture of stocks

When I was about ten yrs old, I began cutting grass to earn extra money..and yes i kept the change in several old piggy banks...but when I got about 13, my dad took the hundred dollars I had saved, and asked if I wanted to buy some stock in a new company called Control Data..It cost about $5 per share, and he said that he would add $25 to my savings and get 25 shares for me. So for the next 7 years or so, you can guess which section of the paper i began reading diligently. Control Data stock rose, split, rose and split over and over...and finally in 1967 in a time of financial distress, he sold it for me, and i took the check, for $3600 down to Minnesota Federal in St. Paul to cash. The cashier told me that it was too large a check for them to cash, and to cash something that large, I needed to call them in advance...I asked to speak to the manager...and got the cash.. From that moment on, it was stocks for me...it was a key moment...

A Bit on the "January Effect"

Well it used to be that in January, after all the tax selling of the previous December, the month was a "bounce" and...everybody looked forward to it. It seems though, that this year, 2013, the "bounce" lasted all of 48 hours. I guess I understand..with the sale of the NYSE, and the layoffs of the investment pros on Wall Street, probably caused by lower earnings due to errors of judgement of the higher ups...it certainly might be a lean year...and also, it was not pretty dealing with the aftermath of Hurricane Sandy, which has tested the old rule never to rebuild in a flood plain, or at least never rebuild with your own money...asking for full federal help is the exception...and of course it is OK to borrow for foreign wars, but that is verboten for any social need.... It has also gotten ugly for the Wall Street pundits, who are trying to make sense of it all...and in reviewing the retail sales numbers last week. trashed higher end TIF, Tiffanys, for selling too high end, and not realizing that the rich do not have the money any more...and trashing JCP, J.C. Penney and the middle class market... for their efforts to the forget the constant sales, and go with the "Straight Deal" which is a transformation that takes time..which Wall Street pundits do not have...and then of course the lower end, "Dollar Store" which was trashed because even they did not have the traffic Wall Street Pundits wanted...so the question remains where all the traffic and sales went...and ya...retail theft was up...so some were doin the best they could to move some merchandise.... The first quarter of 2013 could be pretty ugly...stay tuned.

The Hockey Stick

One of the patterns that is noticable at the opening each morning of Wall Street is the "Hockey Stick" Pattern...where news pundits will dramatically announce some news that is negative, and the stock plunges on the opening of trade, but...upon further review and thoughtful analysis, there really is no or little reason for panic, and the stock recovers over the course of the day---I call this the "Hockey Stick"---but the question is each morning on the plunges that happen due to news stories....Is this a hockey stick or not? You make the call.

Make a Wish

Remember the Make a Wish Foundation? This was a foundation that provided a dream come true for a deserving person who faced a terrible disease etc....There is a difference between "Make a Wish" and investment....And that difference is important it seems to me. When one is young, one thinks as a child, but then later, when one is an adult, one learns. And a child relies on "Daddy" or "Mommy" to make the decisions, or in business matters, an "investment professional." One assumes that the professional knows best, as in the tv show "Father Knows Best." However...the current ethical requirements for investment professionals requires that they not be guilty of negligence, and not that they in fact have followed the objectives specifically or have acted in the best interest of the client...Thus...eventually, the investor comes to the realization that knowledge is important, and that each person, man and woman, young and old investor alike, must become knowledgeable about investing. Objectives must be thrashed out, and the investments must be made that match these goals, and when a firm is used to make the investments, one must make sure that each transaction is done correctly. As a young man, my mom and dad were bond investors, and I remember on the kitchen refrig was a list of the bonds, and when the dividends paid, and what the amount was. My mom used to check off the dividend checks as they were received..and I also remember the effort that she made when a check was not received..letters etc...she made sure..Nobody made sure for her. And so, some fifty years later, i also am checking off the dividend checks, even if they are electronically deposited...and I think of how my mom's checklist showed me the way..thanks, mom.

Who do you blame for your losses---that is the question:

Let's imagine that you have created a product...and after the first introduction of the product, the first consumers are able to give feedback on how the product worked for them....imagine that the original designers and creators of the product can observe...through a glass viewing area...i think you can imagine the result...any feedback on any little improvement of the product seems very similar to what would happen if a mother presented her child to her relatives and they had a few corrections as to how to make the child better...in short.... If you buy a stock, and it does not go up...cut your losses quickly...whatever you thought must have been wrong...and those who do not recognize this fact quickly face huge losses..in stock selection and life...the ability to recognize when a wave is not going to be the best to ride...but the wise course is to quickly cut off the ride and find another wave...be a surfer..not stubborn and fighting to be right...but being flexible...and ready..for the new...

Are you a Transaction or a Relationship Investor? Knowing counts

Back in the 1980's when I was in training to be a broker for E.F. Hutton, ah yes the days when everybody listened to what E.F. Hutton said, in the very last hour of instruction a psychologist came into the lecture hall, and had us answer 20 questions, and then scored our answers. On the basis of our answers, a total score indicated whether we were the type of person that loved "transactions" or loved "relationship investing better." As he strolled up and down the isle...he stopped by me and smiled: "Yup he said, you are a transaction guy". A transaction guy loves interacting with the public, selling things, and whether it is a large sale for small sale, loves the thrill of closing the sale. I remember Phil Laut, the author of "Money is My Friend" asking the small business owners to try just selling a pencil or pen to someone...just anything small...just to get practice in the process...the total dollar amount of the sale was not important.. You might wonder why it mattered...yes I did love stocks and trading....and on some wild and crazy days, four hours was long term....I just got impatient to take profits.... On the other hand, one of my friends in the class, when asked what his marketing plan was, he responded that he planned to sit on a beach near his home, and just chat with the millionaires that lived nearby...I was stunned. No analysis, No detail or anything...and then he mentioned that one of his neighbors had already penciled in two million for him to start his book with...nice... The reason that half hour of instruction mattered for me, ---- I now knew what my button was, and knew that I needed to work on my relationship skills since they were a weakness...and now when I am looking for a full service broker, when I do look for one, I look for somebody to trust, and also for someone who has the ability to and capacity to develop a relationship long term...with a firm that likewise is interested in more than "churn and burn." Make a note of it.