Personal Economics 101

My proposed 5G portfolio is up nearly 62 percent since January 2019, not including any dividends paid in the last two years.  The original portfolio called for an equal weight investment of $75,000 in 15 stocks, recommended as potential winners in the 5G race.  The portfolio is currently valued at $121,263, and increase of $46,263 or 61.7%. While this may seem like a great investment, investing in QQQ (the NASDAQ index ETF) would have returned about 100% over the last two years. However, you'd have to know that the NASDAQ would be on a tear, especially this year.  A investment into an equal weight portfolio of the four major indexes (Dow Jones Industrial Average, Russell 2000, NASDAQ and S&P 500) would have resulted in a return of 59%, if dividends are included.   This was an exercise in a portfolio of telecommunications and technical companies. I will not be following it any further. I would have never -- in reality -- invested in 15 stocks. I'm not interes...

 From a Jeff Clark newsletter, where he talks about FOMO (Fear of Missing Out) and what risks it entails to investors.  Why FOMO could ruin you By Jeff Clark In 1999, the various conservative mutual funds I recommended they invest in earned 58%. It was far more than we had projected. It was far more than they needed to maintain their standard of living. But, the Munder NetNet Fund their neighbor invested in – which only bought internet-related stocks – earned three times that amount. The couple told me they wanted to sell the funds I recommended and put everything into the Munder NetNet Fund. I reminded them of their long-term goals. I told them that 1999 was an “outlier” year. Just about everything made money. They had made far more money in their conservative funds than we had projected. It wasn’t likely to happen again anytime soon. And even though I would have profited handsomely on the commission earned by selling their existing funds and buying the Munder NetNet Fund, I ...

Update, Jun 11: As I noted below, a danger in stop orders is that if the prices gaps below your indicated sell price, the order will be executed lower than you anticipated. This was the case today for SCHD, the example used below. The stop price was $54.45. However, the market gapped down at opening, and SCHD sold at 53.63. (See chart below). I still kept a profit of $840, but this was slightly lower than I had planned. But if the market continues to sell off, I will have protected at least most of my profit in the position. I have the option of buying back in, if I think the market will reverse. Have you ever sold a profitable position only to see it advance once again, leaving you in the dust? For example, you buy AMD at $19, then sell it at $32. That's a nice profit, and I'd be happy. But, shortly after you sell, over the next few weeks, it takes off like a rocket and advances to $55. One method to manage this situation is through the use of sell stop orders. A sell stop or...

Improve your trading with these 20 Golden Rules. But treat these rules as guides; with markets, there is no sure thing. But these will enhance your odds. Forget the news, remember the chart. You're not smart enough to know how news will affect price. The chart already knows the news is coming. Buy the first pullback from a new high. Sell the first pullback from a new low. There's always a crowd that missed the first boat. Buy at support, sell at resistance. Everyone sees the same thing and they're all just waiting to jump in the pool. Short rallies not selloffs. When markets drop, shorts finally turn a profit and get ready to cover. Don't buy up into a major moving average or sell down into one. See #3. Don't chase momentum if you can't find the exit. Assume the market will reverse the minute you get in. If it's a long way to the door, you're in big trouble. Exhaustion gaps get filled. Breakaway and continuation gaps don't. The old...

By Dominik Stone I learned about trading but I also learned a lot about myself and what I was good at, what I was horrible at, and what I was psychotic at — things that had nothing to do with day trading. Day trading is the best job in the world on the days you make money. You make a trade, then maybe 20 minutes later you are out of the trade with a profit, and for the rest of the day you think about how much money you made. It’s the worst job in the world on a bad day. I would make a trade, it would go against me, and then I wanted my heart to stop so my blood would stop thumping so loudly. I am now unemployable in every other way. Here’s what I learned. All of these lessons I will certainly use today, and many years after will stop trading. You can’t predict the future. Everyone thinks they can. But they can’t. This applies not just to trading but everything. You could be in relationship or married for 11 years and the next thing you know — you are splitting or divorced ...

  ‘The Art of War / The Art of Trading’ by Dominik Stone Rule Number 1: Always wait for the setup: No Setup-No Trade Easy, follow strictly designed plan of rules for entering any markets Rule Number 2: THE BEST trades work almost right away Best placed trades, at correct prices, will simply accelerate in right direction Rule Number 3: Never take a big loss. If it doesn’t ‘feel’ right. Remove it! Never allow losses to grow, cut them short if trade goes against you Rule Number 4: Always perfect your craft and sharpen your skills Study, learn, search, practice — always Rule Number 5: Be patient with winning trades: Impatient with sketchy trades Run winners and cut losers quick Rule Number 6: DISCIPLINE to follow your plan is the key to winning in trading Follow your plan, always, never deviate Rule Number 7: Never get emotionally attached to trades Emotions are in every trade, plan sizes correctly and stay detached Rule Number 8: Always tr...

By Dominik Stone , former JPMorgan trader I will give you one simple rule: When a stock doesn’t do what you expect it to do, sell it. Here's some more: 1. Trade to trade well; not to make money. The money will follow if you trade well. 2. Fiercely protect capital. Keep losses small. Remember Buffet's rule: Don't lose money. 3. Act immediately without hesitation on qualified setups. 4. The only thing worse than being wrong is staying wrong. 5. If confused, see step #2. No hesitating, no questions or doubts raised, no conjectures of the way it should have turned out, or might still turn out, no dreams of how it will do, what it was supposed to do‚ tomorrow. The pro never says, "I’ll watch it one more day." He doesn’t phone an analyst who’s been following the company and ask, "What’s happening? Is there any news?" All too often, the delay in searching for the "bullshit why?" is costly! The desire to be perfect is one of ...

So, how did the markets do on Friday (Dec 27, 2019)? Well, the Dow was up about 23.87 points (0.08%) to 28,645.26. The S&P 500 was unchanged at 3,240.02, but it still managed to lock down a fifth straight week of gains. The Nasdaq slipped 0.17% to 9,006.62. All three averages hit new intraday highs in yesterday's session. The S&P 500 is set to break a historic record. Right now, it's gained 29.3% this year. If it can achieve the 29.6% (or better) mark, it will be the best year - ever. The last time it hit that benchmark was in 1997. So now what? If you're invested in equities, do you sell? Or do you continue to hold? Or if you're not invested, do you buy? If you think the answer is to just buy and hold, you're in the wrong place. My philosophy is buy, hold, and sell. See my article Beware Your Broker to get started. The last bear market was a 57% decline and took 6 years to break even. I can't handle that for my retirement, can you? So we will...

Fundamentals tell you what to buy. Technicals tell you when to buy. Stick to your system of entry and stops religiously. Use stops and stick to them. When euphoria kicks in, that’s usually a local top. Much of the trading-related news & social media troll boxes are noise. Ignore them. Trades should end in 3 ways: Big Win, Small Win, Small Loss Repeat after me. “The trend is my friend.” Don’t scalp the counter-trend. Keep a trading journal. Determine flaws. Eliminate them. If you open a trade based on a high time-frame signal, don’t self-sabotage and close that trade based on a much lower time-frame signal. Good sleep, proper diet & exercise are just as important for trading as they are for most things in life. Don’t get chopped up trying to trade/scalp sideways price. Expect consolidation after large price movements, not continued volatility. All indicators are using the left side of the chart to try and predict the right side of the chart. Chart the exchange wit...

The great majority of ETFs are not designed for day-trading. I like to use them for longer-term trades (months to years), especially ones that pay monthly distributions. There are some leveraged ETFs that I’ve used for shorter term trades (hours to days). I still don’t view these as specific day trades, which I define as trades that are never held from session to session; for example, the NYSE closes at 3 pm CDT, so all positions must be closed before that time. For example, you could use SPXL and SPXS to trade the S&P 500. These ETFs are leveraged 3X the overall market. For example, if the S&P 500 increases by 1 point, SPXL should increase by 3 points. Generally, these two ETFs track the market very well. There are other leveraged ETFs for almost any asset class; for example, OILU for a bullish 3X Crude Oil trade. If I’m going to actually day-trade an asset, I’ll trade the futures market, which is highly leveraged and highly volatile. I would not suggest you trade in ...

Continued from Part 1 . Trading is different than investing. Simply put, trading is short-term, investing long-term.  The goal of investing is to gradually build wealth over an extended period of time through the buying and holding (and selling at a appropriate time) of a portfolio of stocks, ETFs, bonds, and other investment instruments. Trading involves more frequent transactions, such as the buying and selling of stocks, commodities,  currency pairs , or other instruments. The goal is to generate returns that outperform buy-and-hold investing. While investors may be content with  annual returns  of 10 percent to 15 percent, traders might seek a 10 percent return each month.  Trading is hard work. Don't let anyone fool you. But if you're interested in this, it can be rewarding. However, you must have discipline and be able to follow rules. Most traders blow up their accounts. But the good ones follow certain habits.  These habits can work well for inve...

(Part 2 is here .) Trading is different than investing. Simply put, trading is short-term, investing long-term.  The goal of investing is to gradually build wealth over an extended period of time through the buying and holding (and selling at a appropriate time) of a portfolio of stocks, ETFs, bonds, and other investment instruments. Trading involves more frequent transactions, such as the buying and selling of stocks, commodities,  currency pairs , or other instruments. The goal is to generate returns that outperform buy-and-hold investing. While investors may be content with  annual returns  of 10 percent to 15 percent, traders might seek a 10 percent return each month.  Trading is hard work. Don't let anyone fool you. But if you're interested in this, it can be rewarding. However, you must have discipline and be able to follow rules. Most traders blow up their accounts. But the good ones follow certain habits. These habits can work well for investors al...