Re: Question for investors, traders...and investment types (and for Michael Ross too!)

Hi,

There's a better way to do it. Look at a bar chart that shows the price movement of a stock, a commodity item, a futures contract, whatever. If the chart shows upward price movement, go long. If the chart shows downward price movement, sell short.

You're trying to do is to predict the future by gathering information, which isn't possible to do with sufficient accuracy unless you're a person with the connections of someone like Henry Kissinger or the like. For normal people who don't have the kind of info Kissinger gets, it's not possible to make accurate trading decisions based on fundamentals.

The chart tells you everything you need to know to make a trading decision, especially because all that Henry Kissinger-insider-fundamental information *can be seen/inferred by its actual effect on the price*.

Let me now throw in an analogy.

Picture two Trains. One train is moving. The other train is sitting stationary on the tracks.

What you're doing is like studying to try to predict when the stationary train will begin to move--habits of the engineers, fuel availability, customer traveling needs, etc. What I'm talking about is hopping on a northward-moving train if I want to go north, or hopping on a southbound train if I want to go south.

Lemme show you some charts, I'll show you what I mean.

BTW, a chart is a chart is a chart. If I show you a well-formed bar chart, I could use it to make accurate predictions about it's future movements irrespective of what it was charting (as long as what it was charting was a non-random event). Show me a chart of the birthrate of Mongolian Buddhists, and I'll tell you whether there will be more Mongolian Buddhists in the future or fewer Mongolian Buddhists. A chart is a chart is a chart. Temperature, birthrates, price action, any non-random event can be predicted if you chart it and apply chart-reading techniques.

Respectfully,

-Boyd "The Hobo" Stone
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| | Chart!!!

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Hi Boyd,

> There's a better way to do it. Look at a bar
> chart that shows the price movement of a
> stock, a commodity item, a futures contract,
> whatever. If the chart shows upward price
> movement, go long. If the chart shows
> downward price movement, sell short.

> You're trying to do is to predict the future
> by gathering information, which isn't
> possible to do with sufficient accuracy
> unless you're a person with the connections
> of someone like Henry Kissinger or the like.
> For normal people who don't have the kind of
> info Kissinger gets, it's not possible to
> make accurate trading decisions based on
> fundamentals.

Boyd, I think your caveats are true for short-term price movements of stock (which is what you're looking for in day-trading), but not necessarily for long-term movements....

Fundamental analysis CAN and does work for long-term investors, and Warren Buffett may be the most famous example of someone who uses this technique....

A very successful fund manager who also successfully uses a more fundamental approach is Peter Lynch.... (The approach Gordon talks about reminds me mostly of Peter Lynch's approach....)

The main approach is two-fold....

1. Find companies that you think have very good reasons for strong profit growth in the future.

2. Make sure that these companies are not over-valued already....

(Of course, there are a lot of details hidden in those two statements....)

So, essentially, you want to find fast-growth companies (where I mean growth in profits) and put your money in them before they are "discovered" by the mass market....

I've done this successfully myself -- for example, two companies I invested in about 3 years ago are now worth around 4 and 5 times what they were worth back then.... One of them more than tripled in price in the last 2 years....

I know you can do that with day-trading, but there you make both gains and losses. I see the long-term approach as more like betting on a sure thing (I don't like losses).... But you have to be patient.... :)

I've had NO losses yet, EXCEPT for the one time I tried day-trading as an experiment! (There I lost about 3% in 2 days, so I didn't lose too much.... but soon after I got out, the stock plunged by about 30% over the next couple weeks....)

I did have one "failure" using the long-term approach I use, but I didn't lose money on that one.... That stock just did nothing for the year I held it, then I sold it for no loss or profit....

I believe you CAN make money day-trading, but the risk is definitely higher than the more cautious approach I take....

I must admit, it's not as exciting as day-trading.... Kind of boring, really. But I like being able to ignore the stock market if I want.... I do all my work in deciding what to buy, then after I've bought I don't bother looking at the stock market again and do other things for a while.... If I've done my work well, the stock should reach it's "real" value (which is something I calculate) over the long run.... :)

Dien Rice

I agree with Dien,

Long term is all I play and I have stocks that have grown ten fold in jsut 2 years.

My method is research.

1 - The company
2 - their history
3 - the people running the comany
4 - the history of the people running the company
5 - the market.

I never listen to market predictions - I research and make my own judgement call!

I like to look at investing in companies that are undergoing change - like a new CEO at the helm.

I have had a lot of success finding a company that was vastly underdeveloped, and in need of leadership change. By following company movement closely you can predict upcoming management changes.

In underdeveloped investment opportunities, often a change in leadership (not always at the top level) can create growth and investor confidence - driving up prices.

Oh, when I mean research, I mean RESEARCH!!!!

I like to know what the CEO's of the companies I invest in have for breakfast.

I've even followed people from one company to another becuase of their management style and the fact I could almost predict their movements as to how the develop a business.

Just my Ideas?!@#$%

Jason van Hooft




This link will only take you to another boring website that will infect your brain with ...

Hi,

Why couldn't you find the companies you're interested in investing in, and then watch their charts for entry signals?

Additionally, why hold onto a losing position? That's what the founder of the company does--there's no reason you have to act like owners. Why not just take a small loss and then re-enter if the stock turns around and starts moving up? (All it'll cost you is one commission or whatever.) While holding onto a losing position means your money is tied up and not doing you any good.

The owner of daytrader.com (I used to own that domain name, and gave it away three years ago because I didn't realize the value of good domain names) runs a great stock daytrading site. (I'm not affiliated with this site in any way.)

Hope this helps,

-Boyd

I think that's an excellent investment approach.

What do you think of Pre-Paid Legal Services Inc (NYSE: PPD)?

Take a look, give me your opinion. :)

- Thomas.

> I agree with Dien,

> Long term is all I play and I have stocks
> that have grown ten fold in jsut 2 years.

> My method is research.

> 1 - The company
> 2 - their history
> 3 - the people running the comany
> 4 - the history of the people running the
> company
> 5 - the market.

> I never listen to market predictions - I
> research and make my own judgement call!

> I like to look at investing in companies
> that are undergoing change - like a new CEO
> at the helm.

> I have had a lot of success finding a
> company that was vastly underdeveloped, and
> in need of leadership change. By following
> company movement closely you can predict
> upcoming management changes.

> In underdeveloped investment opportunities,
> often a change in leadership (not always at
> the top level) can create growth and
> investor confidence - driving up prices.

> Oh, when I mean research, I mean
> RESEARCH!!!!

> I like to know what the CEO's of the
> companies I invest in have for breakfast.

> I've even followed people from one company
> to another becuase of their management style
> and the fact I could almost predict their
> movements as to how the develop a business.

> Just my Ideas?!@#$%

> Jason van Hooft

Hi,

The PPD chart shows it was in a trading range since July 17. If I'd been interested in this company, and trading by what the chart told me, I would have been watching for a Joe Ross-style trading range breakout. This breakout happened on Friday, and a good buy would have been at 34 1/2. If I'd bought at 34 1/2 I'd have my stoploss at 32 1/2, and I'd be planning to move my stoploss up as new support was established.

Now, what was wrong or not-doable about what I just wrote? I paper-traded PPD purely as a chart-reader would, by looking at what it was actually doing rather than by trying to predict what it would do. I placed my stoploss by looking at the previous support areas, as shown on the chart.

What do ye think?

Best,

-Boyd

One reason you might favour long-term investing over trading is the tax treatment of the two, an area often overlooked by investors.

As I'm unfamiliar with US Tax, I will illustrate with an Australian example. No doubt this will need to modified for US investors.

Let's suppose you're going to invest $10,000. You're going to use this for retirement, so we're looking at a long investment horizon of 45 years.

Let's say you have two options -- one is to invest for 45 years, and one is to trade in and out of the position every year.

Let's suppose also that the investment earns 10% per year before tax, whether you invest long term or trade (after costs). We'll relax this assumption later.

Your tax rate is 43% (highest marginal tax rate in Australia).

Now, if you're a long-term investor, you get taxed when you sell the shares, and in Australia you get taxed on HALF the capital gain at your marginal tax rate.

If you're a trader, you get taxed each year at your marginal tax rate.

So how does this effect you in the long-run?

Well, if you trade every year, and pay your tax every year, in the 45th year your $10,000 would grow to $121,164 after taxes.

If you invest-long term and pay your capital gains tax at the end, your after tax investment is $522,323, a huge $401,158 more than if you had traded each year!

If you're a trader, no doubt you're thinking that your trading would give you higher returns than the long-term investor.

Even if you managed to boost your returns from 10% to 15% by active trading, whereas the long-term investor only received 10%, the long-term investor would still be better off to the tune of $121,140.

Naturally this is an extreme example, as many of the forum participants might not be looking towards a 45 year investment horizon, but I think it is useful to illustrate the point of the benefits of looking at the tax treatment of your investments.

Cheers :)

- Thomas.

> Additionally, why hold onto a losing
> position? That's what the founder of the
> company does--there's no reason you have to
> act like owners. Why not just take a small
> loss and then re-enter if the stock turns
> around and starts moving up? (All it'll cost
> you is one commission or whatever.) While
> holding onto a losing position means your
> money is tied up and not doing you any good.

dno

Using Taylor's quotes from an earlier post:

>As in trading, your position must be right in the beginning.

Entry point is key to making a decision in investing. And when you're buying options, in our case Leaps, this is even more important. We've
learnt from past mistakes and wait for what we read as 'bottom' or close to before entering a position.

So using this relatively simple approach, we don't need to lose sleep when we're experiencing a bear market. We know the stock has a history of good P/E, so we wait. It's when the outside influences take over, like the financial analysts beating down the stock for no apparent good reason, or the experts giving their forecasts, these are the kinds of irresponsible messages that can often instill a lot of panic into the market.

And I guess like many who get in excess of 100 junk emails and ezines every day, I've given up on reading and listening to the financial experts. I don't even bother reading what the Motley Fool or the Bull Market Report or even Kramer has to say. Even the Options Investor newsletter that I subscribe to, they'll suggest a new call, long after we've bought it (at a lower price) or converseley, they'll suggest you sell, and we'll hold, because we've been watching the stock and feel it's a keeper. They really are no wiser than
you or me. The 'experts' are all speculating. CNBC and CNN have to announce something, and the analysts have to do their job, but there is
absolutely no responsible reporting nowadays. The 'experts' were talking about a summer rally. Summer is almost over, and where's the
rally? Noone really knows. This is an election year and election years have always been strong for investors. Wrong again. What else can someone pull out of his bag of tricks to tell me that I haven't already heard.

Boyd and I share very similar feelings on investing.

>Why couldn't you find the companies you're interested in investing in, and then watch their charts for entry
>signals?

This is essentially our approach, which really has worked for us in the majority of cases.

>Additionally, why hold onto a losing position? >That's what the founder of the company >does--there's no reason >you have to act like >owners. Why not just take a small loss and then >re-enter if the stock turns around and >starts >moving up? (All it'll cost you is one commission >or whatever.) While holding onto a losing >position >means your money is tied up and not >doing you any good.

Again, I agree 100% here. When we first started trading, we held on to many losing stocks. Now, we just bail out, cut our losses and get into
something that looks like a winner. And we've tracked all those losses. Conclusion: we were far better to sell at a loss than hold them. And
overall, we're still very profitable, including the losses. I think this is a difficult thing for many to execute. Again, most of our portfolio is options, but even with stocks, we've still bailed out when the losses seemed like a waste of time to hold on, especially when your money is tied up with a loser and you've been watching other good stocks beaten down, and really want in. Again, this comes back to watching and knowing those select 10-20 stocks whose trading patterns you know and are following on an almost daily basis.

There's a philosophy that both my husband and I used to disagree on, that he's adopted in recent months. E.g. he would buy an option, in a
few days/weeks, he would see a 20-30% increase. But because we're human and many of us are greedy, he'll rationalize it by saying "well, I've
got another 16 months, that sucker could double or triple." And I would nag him to take his profits, put it in cash, and get back in later. We
know from experience that after 1-2 strong days, there'll be a lot of sellinng, and the stock will come down. Well, he's now saying "I'm glad
I sold all those gainers a couple months ago, because all the gainers are now so beaten down, it's a perfect time to get back in. I have
about four favourite options that I've traded this way, and these 4 have more than made up for all those losers that were just wasting space on
my PC Quotes screen.

Another strategy we've used, which has worked is trying to average down to minimize your losses. This has been successful most of the time, but
again, this is often throwing good money after bad. So again, you have to know your stock and determine whether it's worth the risk and whether
you can risk it when e.g. you've only got 3 months to recover, break even or much preferable, be profitable.

Regards,

Eliz.

Hi Thomas, very good reasons you give for long term investing. But, here are some of my arguments which might not apply to the majority of
investors.

> One reason you might favour long-term
> investing over trading is the tax treatment
> of the two, an area often overlooked by
> investors.

> As I'm unfamiliar with US Tax, I will
> illustrate with an Australian example. No
> doubt this will need to modified for US
> investors.

I too am unfamiliar with US tax. I know a bit about Canada, although I should be more knowledgeable.

In Canada, I know many 'home' traders don't do this. But I'm sure the heavy hitters do, which we only recently discovered. We can trade both stocks or options (no puts or shorts) within
our RRSP (Registered Retirement Savings Plan), equivalent to the 401K in the US. So, as long as we don't withdraw any of our profits, and just
keep reinvesting them, we won't be taxed until we retire or withdraw funds. And hopefully, when we retire, we'll need a lot less to live on
and will just be taxed in the lowest tax bracket at that stage. So, this is one downside to our gains. In our case, it would be a shame to just let the money sit there for 25 years and do nothing.

We also have another account for trading, which we use for our operating/living expenses. But, if you're operating as a Corporation, and depending on the kind of 'other' income streams you have, we end up paying very little tax on our gains, as we offset this by all the deductions and tax advantages we get by operating as a corporation. So, this scenario that you're describing, while it might be applicable for some, does not apply across the board, as you so rightly mention.

>If you're a trader, you get taxed each year at your marginal tax rate.

If you're set up as a corporation, and this is your only income, you can choose to leave a large chunk of your profits in the company, pay the
directors dividends, etc. etc. We have a CA who does our taxes and I really don't pay attention to this end of things. Enough other things to worry about. But I know a lot of traders who pay very little tax on their capital gains. But you can only achieve this by being set up as a corp. Perhaps they also use some creative accounting?? I don't know.

I have a friend who is an IT contractor, set up as a corp. She has 3 kids, and several nieces and nephews. Through her corporation she is able to pay herself and hire her family to do several jobs to run her business. Last year she earned $150K, plus $10K in capital gains. She 'told me' that she paid $8,000 in taxes. I believe her because she is a good friend. Oh, I forgot to mention. In Canada, if we max out on our RRSP contributions, this further reduces our taxable income. So, with all these combined tax deductions, some of us can significantly reduce our taxes. But the tax system does appear to favour the middle income to wealthy.

Regards,

Eliz.