Wednesday, August 19, 2009
Wednesday, July 22, 2009
Investing For The Long Term
Tuesday, 03 March 2009 at 19:27
The "Bear" took us to 1997 Levels
It seems like the bottom had fallen out for stock markets across the globe.
By that measure this looked like it is awful times for investor portfolios, but on the other hand it's like winding back the clock 10 years and saying to most retail investors out there "Ok you should have been investing, but you haven't so here you go have another chance!"
// History
Yes many economies are in crisis and jobs are being lost, but this is all part of a cycle which repeats every 14 years or so albeit this time we are witnessing an economic downturn on a scale not seen since the Great Depression. Unfortunately pension fund managers and banks are quick to forget the lessons learnt in the past. All too often the markets are driven not by rational thought and sound investment practices, but by two simple emotions called Greed & Fear. I guess you know which emotion is driving the current "Bear Market" conditions... yes you guessed it - it's fear.
// Greed & Fear
And us being emotional beings we tend to overreact and panic which I dare say is great news for those who have the nerve to ride out the storm and reap the benefits later. The ^DJI (Dow Jones - Wall Street) index which comprises of the 30 top companies in the USA is down about 50% from it's 14,000 peak and it's now trading at about 6,850!! And whilst the gloom and doom news about the recession and the state of the economy keep coming thick and fast I do believe that we are now close to reaching the current bottom. Whilst no one can predict the bottom, not even Warren Buffet it's fair to say that the markets have probably been sold of enough to find some genuine stock or ETF bargains out there. Why do I think that?
// Reason
A portfolio of let say £150,000 invested back in the summer of 2007 across the financial sector, Dow Jones ETF, Crude Oil ETF and let say some emerging markets ETFs is now worth about £5,000!! Yes that's right! This is largely due to the value of investment and retail banks plummeting by as much as 90% in some cases. Whilst many of those banks have heavily invested in bad assets and deserve to be where they're at now, there are many sound financial institutions who will survive and rise again. Lets face it we all need bank accounts and banks in order to conduct all those day to day transactions from shopping for food to buying a house and needing a mortgage. What that means for the average investor today is that £5000 invested carefully today has the potential to be worth £150,000-200,000 in years to come. By years I mean 10-15 years from now maybe even longer. Once greed takes over again and we're at the peak of another 14 year cycle property prices will be sky high and the stock market would have led the way.
// Investing for the long term
Many of the so called losses in the stock market today are unrealized losses i.e. you don't make a loss until you sell the shares of your investments. And short of the company you invested going bust (many have gone bust) chances are you will live to see those gains again if you can stomach the see-saw ride we're currently in. So if you are gonna pick the stocks yourself go for the big blue chips who are dominant players in the global markets and are sitting on billions of cash enabling them to weather the storms and pay you a nice dividend too.
// Protect your capital
A good way of protecting your investment from a badly run company going bust is to invest in an Exchange Traded Fund (ETF) which is basically a basket for selling a single share for a whole sector (i.e. finance) or giving you a chance to invest in Crude Oil, Chinese stock market etc. and because an ETF tracks a whole sector, country's index, commodities such as Crude Oil or Gold, the risk of a whole country or a sector going bust is minimal.
// Prepare for $300 a barrel oil
We all painfully remember the not too distant past when oil was trading at $147 dollars a barrel and at the petrol/gasoline station consumers we're paying $4 per gallon or in metric measures well over £1 per liter. In those days there was much talk of renewable energy, nuclear stations, new refineries, new drilling offshore platforms etc. in other words all cards were on the table and no option was off limits. Fast forward to today and oil is trading at $40 per barrel a level which we thought we'd never see agin in our lifetime. So the steep decline in oil prices reflects the even steeper decline in rhetoric about renewables and oil independence, yet the fundamentals of supply and demand remain the same. Yes demand has fallen off but OPEC has already begun implementing cuts in production and supply is beginning to decrease and once the global recession is over those resource hungry countries such as China, India, Brasil and others to the east will emerge as huge consumers of the black gold and other commodities. Some analysts are predicting $200-300 oil in the next few years.
The least you can do is prepare for it by investing in an USO ETF to hedge yourself against it.
// What about gold?
Gold has long been a safe haven for investors in times of crisis. Does that warrant the current price of $910 it's hard to say. Gold can just as easily turn into the next bubble ready to burst, but at least you still have something tangible to keep hold of as an insurance. And having an insurance is not a bad thing. The same goes for silver.
// What about property?
Bricks and mortar have always been an attractive form of investment and for many of us it's the biggest investment of our lives yet we often fail to realize that unless we buy it outright without any bank loans (mortgage) you are just as exposed to market fluctuations as if you were to invest in stocks. Add to that the fact of variable rates from 3.5-12% and very quickly you can get in trouble and have your house repossessed as we are witnessing right now across the USA & UK housing markets. Property moves in 14 year cycles with a mid 7 year leveling off. We just came off one such 14 year high peak and it won't be for another year at least before prices bottom out and stabilize and perhaps another 2-3 years before we see sings of meaningful gains again. So if you bought at the peak buckle up and make sure you can continue pay your mortgage back until the next up swing!
// Why you should care about the Baltic Dry Index?
Baltic Dry isn't a Latvian deodorant or an Estonian cocktail. Rather, it's a number issued daily by the London-based Baltic Exchange, which traces its roots to the Virginia and Baltick coffeehouse in London's financial district in 1744.
Every working day, the Baltic canvasses brokers around the world and asks how much it would cost to book various cargoes of raw materials on various routes—150,000 tons of iron ore going from Australia to China or 150,000 tons of coal from South Africa to Taiwan. Brokers are also asked to consider variables such as the type and speed of the ship and the length of the voyage.
The answers are melded into the BDI, which appears in shipping publications such as Lloyd's List and on the screens of information vendors such as Reuters and Bloomberg. Because it provides "an assessment of the price of moving the major raw materials by sea," as the Baltic puts it, it provides both a rare window into the highly opaque and diffuse shipping market and an accurate barometer of the volume of global trade.
The BDI is a good leading indicator for economic growth and production. After all, it doesn't deal with container ships carrying finished goods. It deals with the precursors to production: bulk carriers carrying building materials, cement, grain, coal, and iron. Unlike stock and bond markets, the BDI "is totally devoid of speculative content," says Howard Simons, an economist and columnist at TheStreet.com. People don't book freighters unless they have cargo to move.
Because the supply of cargo ships is generally both tight and inelastic—it takes two years to build a new ship, and ships are too expensive to take out of circulation the way airlines park unneeded jets in the Arizona desert—marginal increases in demand can push the index higher quickly. And significant increases in demand can push the index sharply higher. That's precisely what happened earlier this fall. As it's charts show, the Baltic Index doubled in September and October—an unprecedented jump.
The real force behind the BDI's rise may be China. "To put it in extremely simplistic terms, China is importing huge amounts of raw materials and exporting manufactured goods, and that's drawing ships into the Pacific," says Jim Buckley, chief executive of the Baltic Exchange. The Wall Street Journal led today's "Money and Investing" section with an article on China's insatiable demand for raw materials. The Baltic index divined this trend several weeks ago.
As they say on CNBC, what does this mean for you? In an article from late last year, Howard Simons charted the index against the Dow Jones World Equity Stock Market Index and U.S. Treasury 10-year notes. His conclusion: "It's a very good leading indicator." Movements in the Baltic Index tend to precede movements in global stock markets. But the index also tends to presage higher interest rates. When more stuff is being shipped around the world, it needs to be financed. And that creates a greater demand for credit.
// Recovery?
So whilst the mess is big and the bottom may seem to have fallen out, recovery may indeed be underway starting in the far east first and then to the west. It's time to separate the gold from the chaff in order for the financial credit markets to unfreeze and whilst this will create some more short term pain it will put a floor under the systems feet once it's clear where all the bad assets are.
// Conclusion
There has never been a better time to begin investing in your financial future. Pension funds are largely overpriced and under performing so dump them and open your own self invested pension account (ISA) or other equivalent and start putting some money away into it on monthly basis. We've just wound the clock back a dozen of years back so don't miss the opportunity!
By that measure this looked like it is awful times for investor portfolios, but on the other hand it's like winding back the clock 10 years and saying to most retail investors out there "Ok you should have been investing, but you haven't so here you go have another chance!"
// History
Yes many economies are in crisis and jobs are being lost, but this is all part of a cycle which repeats every 14 years or so albeit this time we are witnessing an economic downturn on a scale not seen since the Great Depression. Unfortunately pension fund managers and banks are quick to forget the lessons learnt in the past. All too often the markets are driven not by rational thought and sound investment practices, but by two simple emotions called Greed & Fear. I guess you know which emotion is driving the current "Bear Market" conditions... yes you guessed it - it's fear.
// Greed & Fear
And us being emotional beings we tend to overreact and panic which I dare say is great news for those who have the nerve to ride out the storm and reap the benefits later. The ^DJI (Dow Jones - Wall Street) index which comprises of the 30 top companies in the USA is down about 50% from it's 14,000 peak and it's now trading at about 6,850!! And whilst the gloom and doom news about the recession and the state of the economy keep coming thick and fast I do believe that we are now close to reaching the current bottom. Whilst no one can predict the bottom, not even Warren Buffet it's fair to say that the markets have probably been sold of enough to find some genuine stock or ETF bargains out there. Why do I think that?
// Reason
A portfolio of let say £150,000 invested back in the summer of 2007 across the financial sector, Dow Jones ETF, Crude Oil ETF and let say some emerging markets ETFs is now worth about £5,000!! Yes that's right! This is largely due to the value of investment and retail banks plummeting by as much as 90% in some cases. Whilst many of those banks have heavily invested in bad assets and deserve to be where they're at now, there are many sound financial institutions who will survive and rise again. Lets face it we all need bank accounts and banks in order to conduct all those day to day transactions from shopping for food to buying a house and needing a mortgage. What that means for the average investor today is that £5000 invested carefully today has the potential to be worth £150,000-200,000 in years to come. By years I mean 10-15 years from now maybe even longer. Once greed takes over again and we're at the peak of another 14 year cycle property prices will be sky high and the stock market would have led the way.
// Investing for the long term
Many of the so called losses in the stock market today are unrealized losses i.e. you don't make a loss until you sell the shares of your investments. And short of the company you invested going bust (many have gone bust) chances are you will live to see those gains again if you can stomach the see-saw ride we're currently in. So if you are gonna pick the stocks yourself go for the big blue chips who are dominant players in the global markets and are sitting on billions of cash enabling them to weather the storms and pay you a nice dividend too.
// Protect your capital
A good way of protecting your investment from a badly run company going bust is to invest in an Exchange Traded Fund (ETF) which is basically a basket for selling a single share for a whole sector (i.e. finance) or giving you a chance to invest in Crude Oil, Chinese stock market etc. and because an ETF tracks a whole sector, country's index, commodities such as Crude Oil or Gold, the risk of a whole country or a sector going bust is minimal.
// Prepare for $300 a barrel oil
We all painfully remember the not too distant past when oil was trading at $147 dollars a barrel and at the petrol/gasoline station consumers we're paying $4 per gallon or in metric measures well over £1 per liter. In those days there was much talk of renewable energy, nuclear stations, new refineries, new drilling offshore platforms etc. in other words all cards were on the table and no option was off limits. Fast forward to today and oil is trading at $40 per barrel a level which we thought we'd never see agin in our lifetime. So the steep decline in oil prices reflects the even steeper decline in rhetoric about renewables and oil independence, yet the fundamentals of supply and demand remain the same. Yes demand has fallen off but OPEC has already begun implementing cuts in production and supply is beginning to decrease and once the global recession is over those resource hungry countries such as China, India, Brasil and others to the east will emerge as huge consumers of the black gold and other commodities. Some analysts are predicting $200-300 oil in the next few years.
The least you can do is prepare for it by investing in an USO ETF to hedge yourself against it.
// What about gold?
Gold has long been a safe haven for investors in times of crisis. Does that warrant the current price of $910 it's hard to say. Gold can just as easily turn into the next bubble ready to burst, but at least you still have something tangible to keep hold of as an insurance. And having an insurance is not a bad thing. The same goes for silver.
// What about property?
Bricks and mortar have always been an attractive form of investment and for many of us it's the biggest investment of our lives yet we often fail to realize that unless we buy it outright without any bank loans (mortgage) you are just as exposed to market fluctuations as if you were to invest in stocks. Add to that the fact of variable rates from 3.5-12% and very quickly you can get in trouble and have your house repossessed as we are witnessing right now across the USA & UK housing markets. Property moves in 14 year cycles with a mid 7 year leveling off. We just came off one such 14 year high peak and it won't be for another year at least before prices bottom out and stabilize and perhaps another 2-3 years before we see sings of meaningful gains again. So if you bought at the peak buckle up and make sure you can continue pay your mortgage back until the next up swing!
// Why you should care about the Baltic Dry Index?
Baltic Dry isn't a Latvian deodorant or an Estonian cocktail. Rather, it's a number issued daily by the London-based Baltic Exchange, which traces its roots to the Virginia and Baltick coffeehouse in London's financial district in 1744.
Every working day, the Baltic canvasses brokers around the world and asks how much it would cost to book various cargoes of raw materials on various routes—150,000 tons of iron ore going from Australia to China or 150,000 tons of coal from South Africa to Taiwan. Brokers are also asked to consider variables such as the type and speed of the ship and the length of the voyage.
The answers are melded into the BDI, which appears in shipping publications such as Lloyd's List and on the screens of information vendors such as Reuters and Bloomberg. Because it provides "an assessment of the price of moving the major raw materials by sea," as the Baltic puts it, it provides both a rare window into the highly opaque and diffuse shipping market and an accurate barometer of the volume of global trade.
The BDI is a good leading indicator for economic growth and production. After all, it doesn't deal with container ships carrying finished goods. It deals with the precursors to production: bulk carriers carrying building materials, cement, grain, coal, and iron. Unlike stock and bond markets, the BDI "is totally devoid of speculative content," says Howard Simons, an economist and columnist at TheStreet.com. People don't book freighters unless they have cargo to move.
Because the supply of cargo ships is generally both tight and inelastic—it takes two years to build a new ship, and ships are too expensive to take out of circulation the way airlines park unneeded jets in the Arizona desert—marginal increases in demand can push the index higher quickly. And significant increases in demand can push the index sharply higher. That's precisely what happened earlier this fall. As it's charts show, the Baltic Index doubled in September and October—an unprecedented jump.
The real force behind the BDI's rise may be China. "To put it in extremely simplistic terms, China is importing huge amounts of raw materials and exporting manufactured goods, and that's drawing ships into the Pacific," says Jim Buckley, chief executive of the Baltic Exchange. The Wall Street Journal led today's "Money and Investing" section with an article on China's insatiable demand for raw materials. The Baltic index divined this trend several weeks ago.
As they say on CNBC, what does this mean for you? In an article from late last year, Howard Simons charted the index against the Dow Jones World Equity Stock Market Index and U.S. Treasury 10-year notes. His conclusion: "It's a very good leading indicator." Movements in the Baltic Index tend to precede movements in global stock markets. But the index also tends to presage higher interest rates. When more stuff is being shipped around the world, it needs to be financed. And that creates a greater demand for credit.
// Recovery?
So whilst the mess is big and the bottom may seem to have fallen out, recovery may indeed be underway starting in the far east first and then to the west. It's time to separate the gold from the chaff in order for the financial credit markets to unfreeze and whilst this will create some more short term pain it will put a floor under the systems feet once it's clear where all the bad assets are.
// Conclusion
There has never been a better time to begin investing in your financial future. Pension funds are largely overpriced and under performing so dump them and open your own self invested pension account (ISA) or other equivalent and start putting some money away into it on monthly basis. We've just wound the clock back a dozen of years back so don't miss the opportunity!
**Disclaimer: This note only represents my personal thoughts and opinions and it does not constitute investment advice. If you are new to investing please seek the help of your financial advisor.
Saturday, July 11, 2009
38 Steps To Becoming A Trader
1. We accumulate information - buying books, going to seminars and researching.
2. We begin to trade with our 'new' knowledge.
3. We consistently 'donate' and then realise we may need more knowledge or information.
4. We accumulate more information.
5. We switch the commodities we are currently following.
6. We go back into the market and trade with our 'updated' knowledge.
7. We get 'beat up' again and begin to lose some of our confidence. Fear starts setting in.
8. We start to listen to 'outside news' and to other traders.
9. We go back into the market and continue to 'donate'.
10. We switch commodities again.
11. We search for more information.
12. We go back into the market and start to see a little progress.
13. We get 'over-confident' and the market humbles us.
14. We start to understand that trading successfully is going to take more time and more knowledge than we anticipated.
MOST PEOPLE WILL GIVE UP AT THIS POINT, AS THEY REALISE WORK IS INVOLVED.
15. We get serious and start concentrating on learning a 'real' methodology.
16. We trade our methodology with some success, but realise that something is missing.
17. We begin to understand the need for having rules to apply our methodology.
18. We take a sabbatical from trading to develop and research our trading rules.
19. We start trading again, this time with rules and find some success, but over all we still hesitate when we execute.
20. We add, subtract and modify rules as we see a need to be more proficient with our rules.
21. We feel we are very close to crossing that threshold of successful trading.
22. We start to take responsibility for our trading results as we understand that our success is in us, not the methodology.
23. We continue to trade and become more proficient with our methodology and our rules.
24. As we trade we still have a tendency to violate our rules and our results are still erratic.
25. We know we are close.
26. We go back and research our rules.
27. We build the confidence in our rules and go back into the market and trade.
28. Our trading results are getting better, but we are still hesitating in executing our rules.
29. We now see the importance of following our rules as we see the results of our trades when we don't follow the rules.
30. We begin to see that our lack of success is within us (a lack of discipline in following the rules because of some kind of fear) and we begin to work on knowing ourselves better.
31. We continue to trade and the market teaches us more and more about ourselves.
32. We master our methodology and our trading rules.
33. We begin to consistently make money.
34. We get a little over-confident and the market humbles us.
35. We continue to learn our lessons.
36. We stop thinking and allow our rules to trade for us (trading becomes boring, but successful) and our trading account
continues to grow as we increase our contract size.
37. We are making more money than we ever dreamed possible.
38. We go on with our lives and accomplish many of the goals we had always dreamed of.
2. We begin to trade with our 'new' knowledge.
3. We consistently 'donate' and then realise we may need more knowledge or information.
4. We accumulate more information.
5. We switch the commodities we are currently following.
6. We go back into the market and trade with our 'updated' knowledge.
7. We get 'beat up' again and begin to lose some of our confidence. Fear starts setting in.
8. We start to listen to 'outside news' and to other traders.
9. We go back into the market and continue to 'donate'.
10. We switch commodities again.
11. We search for more information.
12. We go back into the market and start to see a little progress.
13. We get 'over-confident' and the market humbles us.
14. We start to understand that trading successfully is going to take more time and more knowledge than we anticipated.
MOST PEOPLE WILL GIVE UP AT THIS POINT, AS THEY REALISE WORK IS INVOLVED.
15. We get serious and start concentrating on learning a 'real' methodology.
16. We trade our methodology with some success, but realise that something is missing.
17. We begin to understand the need for having rules to apply our methodology.
18. We take a sabbatical from trading to develop and research our trading rules.
19. We start trading again, this time with rules and find some success, but over all we still hesitate when we execute.
20. We add, subtract and modify rules as we see a need to be more proficient with our rules.
21. We feel we are very close to crossing that threshold of successful trading.
22. We start to take responsibility for our trading results as we understand that our success is in us, not the methodology.
23. We continue to trade and become more proficient with our methodology and our rules.
24. As we trade we still have a tendency to violate our rules and our results are still erratic.
25. We know we are close.
26. We go back and research our rules.
27. We build the confidence in our rules and go back into the market and trade.
28. Our trading results are getting better, but we are still hesitating in executing our rules.
29. We now see the importance of following our rules as we see the results of our trades when we don't follow the rules.
30. We begin to see that our lack of success is within us (a lack of discipline in following the rules because of some kind of fear) and we begin to work on knowing ourselves better.
31. We continue to trade and the market teaches us more and more about ourselves.
32. We master our methodology and our trading rules.
33. We begin to consistently make money.
34. We get a little over-confident and the market humbles us.
35. We continue to learn our lessons.
36. We stop thinking and allow our rules to trade for us (trading becomes boring, but successful) and our trading account
continues to grow as we increase our contract size.
37. We are making more money than we ever dreamed possible.
38. We go on with our lives and accomplish many of the goals we had always dreamed of.
Thursday, February 28, 2008
Welcome to our new DowLetter.com Blog
Hi everyone,
We've created this blog to enable subscribers of www.dowletter.com to exchange thoughts and help each other along the way to successful trading the Dow Jones (Wall Street) futures.
From time to time we will also interact with you and aim to answer any questions you may have.
Regards,
The DowLetter.com Team
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