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Archive for November, 2015

no exuses

no excuses

You’ve worked hard to build up your savings account.  There’s no reason why you can’t put that capital to work for you.  The stock market is an incredibly powerful and convenient tool that allows you to do just that.

But how do you actually go about using this tool to grow your savings?

The Standard Advice

  • Hire a professional to do it for you.  Unfortunately, when you account for fees and commissions, most money managers fail to beat the returns of a passive index fund.
  • Buy and hold a low cost index fund or ETF.  The downside here is that you would be vulnerable in the event of a major stock market crash.  Depending on the timing and severity, you may have to wait DECADES to be made whole.  It took over 15 years for the Nasdaq Composite Index to reclaim dot-com era highs and 26 years on, Japan’s Nikkei index still sits at BARELY HALF the level it was at the end of 1989.
  • Dollar cost average into a low cost index fund or ETF.  This is better, but it still relies on the assumption that the market WILL bounce back in the timeframe you need it to.  If you have A LOT of time, that has generally been a good bet.  However, I’m not convinced that it will be ALWAYS be a good bet.

Personally, I’m not willing to settle for mediocre returns from an expensive money manager.  I’m also not interested in patiently waiting for my account to recover from a market crash.  Been there, done that.  No thanks.  There is another way.

My Advice:

  • Buy stocks that are going up
  • Sell stocks that are going down
  • and DO-IT-YOURSELF!

It really is that simple.  So why don’t more people do it?  There are a lot of reasons, but for now, let me just address the two excuses I hear most often.

Excuse 1: “It’s too hard”

Repeating this statement is like holding up a white flag.  I mean sure, you have to apply yourself and do some work.  You do have to learn about managing risk and your emotions.  It shouldn’t be a surprise that something worthwhile will take some effort.

But let’s be honest: this isn’t brain surgery.  Hell, I can do it!  My background is computers and music, not Wall Street.  Seven years ago I didn’t know the first thing about stocks.  If I can figure this out, there’s no reason why you can’t as well.

Learn the rules of a trend following system like the 821x and then study charts.  See how a big winner looks at it’s buy point and vice-versa for big losers.  It’s not hard, it just takes practice and repetition to identify the best setups.

 

buy signal

buy signal

 

sell signal

sell signal

 

Excuse 2: “I don’t have time”

Do you have time to watch TV?  Do you have time to play video games?  Do you have time to surf the web?  I could go on but I won’t.  Just answer the following questions and be completely honest with yourself.

Is it worth investing the time it takes to develop a valuable skill that will ultimately lead to increased personal freedom? 

Is the short-term sacrifice worth the long-term benefit? 

If your actions are not congruent with your answers, perhaps you need to spend some more time on this to figure out the truth.  For example, if you continually engorge on junk food, one would have to seriously question the veracity of any claim you make about wanting to lose weight.

Another thing to keep in mind is that the first step is always the hardest and most time intensive.  Once you get past the learning curve of a system like 821x, it really should only take a few minutes a night to look through charts and enter orders if any.  The cost in time spent is miniscule in comparison to the potential benefits.

So get busy.  Don’t be afraid to make some mistakes.  Lose the excuses.  You can do it!

stoicism

focus on the process

Some things are within our control.  This category is the internal realm which includes our actions, perceptions and attitudes.

Then there is everything else; things we only have limited influence over at best.  This is the world external to us which includes the actions of others and nature for example.

Stoic philosophy contends that confusing these categories is the primary source of our unhappiness.  How many people fret over things which they cannot control, resulting in unnecessary stress and frustration?  There is no reason to allow external events to hold our happiness hostage.  We hold the power to avoid this self-imposed trap by simply changing our attitude and focus.

Again, obsessing or stressing about things outside of our control is counterproductive. 

Instead, we should focus our effort and energy on those things we actually do control.  

I make it a point to live by these principles.  Not because I’m such a great guy, but because I’m allergic to stress.  Seriously, I detest stress.  Stress ages youStress makes you fatStress weakens the immune system.  Stress just plain sucks.

Also, I don’t want to pointlessly spin my wheels.  Life’s too short.  I only want to invest my limited time and energy on action that counts.

One example of how this principle looks applied is process vs. outcome.  We control the processes we develop and follow.  However, we do NOT control the outcome of those processes.

Let me give you a real life example.  When we were trying to sell our house in San Antonio, it took much longer than expected or hoped.  As the summer started to draw to a close, I could feel the stress level my wife and I experienced start to elevate.  After every showing, we were consumed with self-doubt, second guessing ourselves with questions: “Are they going to make an offer?”  “Why aren’t they calling?”  “What’s wrong with this house?” etc.

Eventually I started to remind my wife (and myself) that we don’t control the whether the person viewing the house will buy it or not (outcome) so there is no point in worrying about that.  Let’s just focus on cleaning the house and making it appear inviting before each showing (process) and be content with doing our best.

If we focus on improving and following our process, the outcome will generally take care of itself.

Of course, we eventually did sell that house and importantly, we did it while also saving ourselves a lot of unnecessary stress when we changed our focus and mindset.

This principle can be helpful in many areas of our lives, such as if we are trying to lose weight or learn a new skill.

It also happens to be especially useful when trading.

We have absolutely no control whether a stock goes up or down.  The only thing we control is when we buy and when we sell.

It’s critical to remember this, especially when we inevitably hit a string of losing trades.  It’s easy to lose our confidence which can paralyze us from taking further action.  Worse, we may lose our discipline and try to “make it all back” by taking on too much risk and then end up blowing up our trading account.

We must remember to focus on what WE control.

Develop and follow a proven trading system.  If you need help, start with my 821x system.

Don’t obsess on whether a trade was profitable or not.  Again, you have no control over that.  It’s pointless to beat yourself up over a losing trade.

Instead, evaluate how well you followed your trading system.  Did you chase a stock that was spiking higher?  Did you panic and sell early or get stubborn and hold on too long?  Did you break your own rules?

Over time your decision making skills will become congruent with your system.  It will become habit.  It will become second nature.

Only after you reach this level can you start to gain enough experience to know when a market environment dictates that you deviate from your system.  This is the level of the elite performer and is obviously not something a beginner should attempt.  It’s just like any other competency.  You must start with the fundamentals and internalize them before you can begin to attempt to understand when it may be appropriate to override them.

So learn your trading system.  Internalize the rules.  Consistently follow your process.

Your trading system should be designed to identify and cut losing trades quickly and let your winning trades run.

Trust that over time you WILL achieve the outcome you desire, an overall increase in wealth.

If you are distressed by anything external, the pain is not due to the thing itself, but to your estimate of it; and this you have the power to 
revoke at any moment. - Marcus Aurelius

821x buy: CSFL (11/2/15)

(watch video for details)

Official portfolio addition:

CSFL – buy with a limit price of $14.85.

 

Other ideas:

OPB – buy with a limit price of $38.20.

PENN – buy with a limit price of 18.