Mar

Trading Stocks In An Uncertain Environment – To Say The Least

Hello again to our loyal followers and long-time good friends. Many readers may not be familiar with Investing Systems so let’s bring you up to speed. We have been in the Stock Market business for just over 10 years. Our focus has always been to create unconventional tools that would empower the individual investor and help traders make better decisions.

We started near the ascent of the .com mania in spring of 1998. Wow, interesting times. Remember the Super Bowl pets.com commercial? Remember CMGI? Remember QCOM at $400? Remember trading via touch-tone phone? Rember Datek?

I’m coming to realize that smart traders endure and persevere over long periods of time and if you possess the inner aptitude for trading, you are still here and the market is still your mistress as she is ours.

Certain concepts and rules have been our mantra for all these years and we haven’t been afraid to mention them over and over.

Being involved with the stock market is pure "speculation". Never have money in stocks that you can’t afford to lose.

The stuffy arrogant Wall Street types that have taken themselves too serious over all these years are the ones that led the uninformed investor over the cliff. The buy and hold, put your retirement in equities, accumulate blue-chip stock guys. It is a travesty that the conventional wisdom of saving and investing for retirement turned out to be a disaster for a large group of baby-boomers who find themselves at a particular age in their life-cycle where that isn’t going to work out.

We always took a different approach. We suggested trading stocks rather than investing was the way to go. We suggested using technical analysis for the most part because the fundamentals are just a story (which may or may not be true) and the chart tells all. Where geometry meets price data and where numbers and indicators can be analyzed, that’s where we have always advocated focusing attention.

Our long-time followers are very familiar with some of our immutable rules and hopefully over all these years our constant ranting and raving have at least reinforced them subconsciously. For instance the golden rule, buy some gold and think of gold as the base of any investing pyramid. I became a gold bug in 1990 when I bought that first ounce at $365. That’s the law of gold. It maintains fairly constant purchasing power across geography and time. We have been pounding the table to accumulate gold seriously for about 9 years now, for a number of reasons which I won’t go into, but the main one being the gold is the only real money on the planet. It is the only guaranteed way to preserve excess capital that is guaranteed. Have you ever seen this – REAL MONEY. In 1905 you could exchange that $20 for an ounce of gold. How’s that ratio holding up for us now? Any time you exchange some FRN’s for gold or silver you are converting it to the real money of Planet Earth. We have suggested for many years that the bedrock of any investment plan starts with physical gold and silver. One day I will devote an entire tyrade to my 20 year relationship with investing in gold. I know a few of our close friends reading this will be smiling.

Besides being debt-free and having a year’s pay in the bank, we suggest at that point one might consider creating a BANKROLL allocated specifically for speculating in stocks. Trading stocks for fun and profit is the best business in the world as far as I’m concerned. It is a very personal endeavor and those with aptitude and perseverance can turn it into a worthy profession. Once acquired, the skill to be able to consistently take profits out of the market is the pinnacle of achievement. As we have all seen the ability to adapt to changing market environments is a must. We did things different when stocks traded in fractions. Good traders know they always must change with the times and adjust strategies to keep the edge.

Here’s my favorite article for anyone new to this game: Stock Trading 101.

Moving on. Hey, remember how we have been saying for a long time how you can bet either way? You can easily bet on the market to go up OR down. You can bet on stocks to go up OR down. The stuffed shirts that told everyone that you only buy stocks let them down the wrong path. True speculators know that you can make money either way. It is much easier these days with the inverse ETF’s than it ever was. We introduced a lot of people to the concept when the inverse ETF’s were first launched.

One other rule I should mention here that we have always advocated is using STOP-LOSSES. It goes without saying but just in case someone is not as informed on these matters as they should be you have to always use stops. With all the turmoil out there these days, the one simple rule of investing that would have saved a lot of misery would have be to use stop-losses. Are you kidding me? People actually HELD some of these stocks all the way down? I can’t believe that all these gurus and talking heads and Wall Street types didn’t first and foremost mention setting a stop-loss on every stock they recommended in case the stock went down. When they ecommended GS at $175, and GOOG at $650 all they had to do was say, "but if it goes down 10%, sell it all and ask questions later". Our good friends at IBD have been teaching this as long as we remember. Seven to eight percent is their rule. Never lose more than that. You can always buy it back. I can’t tell you how many times I have been stopped out as a trader and in a bear market you have to expect to get stopped out because that is how it works. Once you are ok with getting stopped out and get your head around the concept the fog is lifted and you see clearly how good money-management can get you through any market cycle.

If you have not seen the segment of John Stewart making fun of CNBC here it is: