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BASICS FUNDAMENTALS TECHNICALS ROLLING TC-2000 OPTIONS |
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What does a reasonably intelligent individual need to invest profitably in today’s stock market? Where to begin? A beginner may be someone caught up in the toils of life, too busy earning a living to make any money, unable to find a little risk-capital to invest. Time is the culprit, too little to do so much - to learn the language of the market, to understand market forces that cause prices to change.
Beginners may also be someone told that “buy & hold” is the only way to invest, but who is dissatisfied with the 5 to 15% return each year and who wants to diversify a little on their own. Other beginners include seasoned veterans who recognize the changes that have taken place in the market with the baby-boomer investors and the increased influence of the internet. And the classic beginner is the student, serious about what the future offers and how to increase the likelihood of a reasonable piece of the pie.
As potential investors, we are faced with monumental questions: what should we invest in, how much, when and guided by what strategies. As with any effort, knowledge is the key to success. Understanding the risks as we learn how to invest becomes paramount in our quest for a profitable experience. In this manner, we can find the strategy that will let us sleep “when the wind blows.”
There are many educational resources for this purpose, helping the novice and/or seasoned investor focus on what is meaningful. Above-average returns with minimized risk can follow diligent training if we stay clear of high-risk ideas and juicy promises. Rather, find and learn the tools necessary to wheel around the investor’s work-place, understanding relevant issues. Don’t look for quick schemes to open the money windows in the sky. Understand how the market works, the inherent risks and those self-imposed, that can be minimized by careful and decisive action on our part.
Your own reasonable intelligence is sufficient to understand these principles. Understanding, you can make profitable choices on your own. Many different investing/trading strategies are available to meet these objectives. While there are success-stories in every strategy, the consistent theme with all successes lie in the discipline traders devote to their own version of the game. That means it is important for each investor to find the one strategy that fits their own personality. It is a rare case for anyone to become truly successful by riding in on someone else’s coat tails.
Market success comes not from finding the silver bullet, the perfect system, the Holy Grail of investing. Rather, we each bring our own risk tolerance, expectations, intuition, training and a host of other issues to the table. All these, taken together, make us each very unique and different. What works for one will not work for all. As we struggle to find the system that works best for us, we need to experience different alternatives. That is, gain experience in the good, the bad, and the ugly of as many choices as possible. In this quest for understanding, several strategies, trading styles, and investment methodologies must be considered. This way the prospective investor can get a glimpse of their role in formulating a success-strategy that belongs to them. The difference between success and failure in the market is razor thin. That balance is tipped predominantly to those who learn as much about themselves as the market.
Whatever approach we take for our beginning education, a simple procedure call “Paper Trading” should be used liberally. This can provide a vicarious experience in the strategy being studied, without the expense and potential loss with real money. Since success lies not in making perfect decisions every time, paper trading can help us learn to make more good choices than bad. When we do take the leap and invest real money, we will have had some experience in the challenge and excitement the market can offer.
You'll read below how important the computer is in this activity. However, our trading approach does not require an all-day fixed-stare at computer screens. We use the computer in the evening, after market close, to consider steps for tomorrows trading activity or if any activity is warranted.
We're not "day-traders" nor "never-sell buy-and-holders." We take advantage of market volatility to position ourselves for higher returns. We learn the importance of market fundamentals to know what to buy and the importance of technical analysis to know when to buy and sell. Most importantly, we wade through the maze of market emotion, risk/reward, greed/fear issues that torpedo many well-meaning efforts. So, jump on board with us, take control of your own financial destiny, and have a little fun in the process.
The Computer
With all the information and potent tools at our disposal, a boring 12% growth stock can return five times that value.
Point: Delta Airlines rose from $21 to over $70 in 20 years. That's a return of almost 12% each year.
Because of the inherent volatility of the market, Delta didn't make this rise smoothly, but rose and fell on its way up. Had we bought Delta each time near the bottom of its channel and sold each time near the top, the annualized return would have been near 60%.Peter Lynch, former manager of the gigantic Fidelity Magellan mutual fund, averaging over 26% a year for 15 years, has suggested that the amateur investor has built-in advantages, that should result in outperforming the experts and the market in general.
Why?
- When institutional investors find a stock they like, they buy huge blocks of shares, not the few hundred shares we might buy in an average trade. They must acquire those shares patiently and slowly to avoid driving up the price before they reach their goal. The same is true when they want to sell. They must dispose of their shares gradually to keep the price up before they unload their fund's shares of the stock. You and I can sell our few hundred shares the minute we smell a change.
- Professional money managers look for value in their stock picks. A company that is undervalued is a good candidate since its value is likely to go up. Over valued companies represent the opposite, with odds that its stock price is more likely to go down. Identifying such prime candidates is as easy as a click of the mouse with today's sophisticated investment software.
- Another advantage the computer provides lies in patterns created as the institutions favor specific industries. Since institutional investors account for 70% of all trading, their impact has created the concept of industrial group rotation. As large amounts of institutional money flows into segments of the market, those market sectors respond with rising prices. Similarly, falling prices result as these same institutions move out of an industry group. Computer tools highlight this ebb and flow which if taken advantage of can turn an ordinary group of stocks into an exciting portfolio.
- Insider trading has always signaled movements in stock prices. When insiders buy their own stock it means one thing; those close to the action think the price will eventually go up. This type of trading is a matter of public record today, and is another ready bit of information off the computer links to strengthen our position as investors.
- The ability to scan thousands of stocks and sort by hundreds of different criteria has made many stogy investment strategies come alive. An example is the Rolling Stock strategy (called channeling or simply Buy Low/Sell High). This most basic of all strategies is the main message of this Web Page
- On-line brokers have given us the opportunity to invest and deal from the comfort of our home. There are currently around 70 different on-line brokers we can chose from with a variety of services available and transaction costs. The Investor's Business Daily (July 8, 1998) rated the three top sites in terms of market share as 1) Charles Schwab & Co., handling 60,200 trades a day, 2) E-Trade, with 23,200, and 3) WebBroker, a part of Waterhouse Securities Inc., with 16,700 trades a day. These three make up over 52% of the market. Schwab charges $29.95 a trade, E-Trade $14.95, and WebBroker $12.00. These discount trading prices make computer investing even more attractive.
- There are three fundamental reasons to invest: 1) Cash Flow, 2) Tax Protection, 3) Growth. Each reason has its place in an investor's portfolio. However, the intent of this Web page is limited to one; Cash Flow. Investments in the market should be treated as a business, a way to conduct the affairs of our own personal business life. Cash flow is what we need to do this, to buy a home and pay the mortgage, to get the kids through college, to build a portfolio of strong growth stocks for retirement, and all the rest of the needs we face in today's market place. This web page, Pro-Fundity.com, is devoted to that purpose, providing the tools we need for financial success!
Peter Lynch:
"What the academics are saying is that people have done a bad job at investing, therefore they shouldn't invest. As a result, people become convinced by the academics and the media that the large investors all have the edge with their large computers and their MBA degrees, and that the small investor - I don't know what that means except maybe all people under five foot two - the small investor doesn't have a chance." Stockmarket Guru's, Peter Tanous, New York Financial Institute, 1997.
John Ballen:
"It has gotten easier to beat the market, not harder, over the last
five years. The reason is that, in some sense, the market has gotten more
irrational and random. There are a lot of new players out there, especially
on the momentum side, who create great disparities and huge volatility
in the market. You can notice that, with stocks up 50% or down 50% in one
day. Those become opportunities. From volatility emerges opportunity."
Quotations from INVESTMENT GURUS by Peter Tanous. Copyright (c) 1996. Reprinted with permission of Prentice Hall Press, a Division of Prentice Hall Direct. Available in bookstores.
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