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Managing money wisely is one of the most difficult aspects of stock market trading to master.

2008-05-11T22:07:27Z

Money Management Tips for Stock Traders

Managing money wisely is one of the most difficult aspects of stock market trading to master. It refers to all the nitty-gritty detail work you have to do to make all your trades work together as a successful portfolio. It's not always easy, and it's not always fun, but it's crucial to coming out of the game with profits on the table.

There are four basic components to money management for traders: trading, allocating, recordkeeping and minimizing costs.

Trading

Most people end up holding losers too long and selling winners too early, leaving them to wonder what the secret of trading is. But the best traders know that one of the "secrets" to trading isn't really a secret at all. It just means ensuring that your gains outweigh your losses. To do this, you can't rely on fortune-telling, market-timing, or plain dumb luck--you need to follow a trading plan.

Believe it or not, it becomes stressful for people to have stocks that actually move up fast. Take GSS, for instance. It was in the upper $2s or low $3s, and then it shot up to the $4s. That meant a lot of gains on the table. But it actually caused panic. The same goes for a stock that goes down quickly.

That's where Trending123 comes in: We actually give you a stock trading system. All you have to do is follow it. How? Easy: Use the Trending123 Portfolio Table. It makes money management simple with a color-coded system of trading instructions:

1. Yellow means the setup has triggered the entry price and action can be taken.
2. Green means target has been hit or a profit alert has been issued.
3. Red means a stop loss has been hit or a stop alert has been issued.
4. Blue means the entry price has not been triggered but it's close, or as I like to say, "on deck," so stay tuned and be ready.

All you need to do is wait on alerts and direction, and remember that nothing is ever set in stone. We always have a trading plan, but trading plans, like the market, are not static. We have to revise them sometimes according to market conditions and new positions that we take on. Since the market is constantly evolving, we need to have the flexibility to change and modify our trading plans to accommodate the changing risks.

Allocating

When it comes to losers, we all know what to do: hold. It's winners that we have the biggest issues with--because we're not used to a lot of them. So let's talk about investment portfolio management and the word "dumb."

First and foremost, no position should ever be more than 5% of your investment portfolio. People get into the biggest trouble when they hear someone excited about a stock or are excited about it themselves, and they think for sure it's going to skyrocket. They think, "It's got to go to the moon, because did you not hear how he talked in that update? It's a surefire winner!"

But even though the majority of positions in a portfolio may be winners, some will be losers. This calls for strategic asset allocation, meaning that you can't allocate too much to any single position. Poor asset allocation is a sure way to ruin a portfolio of winners.

But why did I mention the word "dumb" at the beginning? That's simple: because from this point forward, we will never be as dumb as we are right now. Five minutes from now we're going to learn something new. And that makes us smarter. Tomorrow we're going to learn more. And that's going to make us even smarter. The next day you're going to learn even more. And we're going to be even smarter.

So as far as dumb goes, we've officially bottomed as the human race, because tomorrow, and the next day, and the next day, we're going to keep learning new things. But don't forget what you have already learned, because the last thing you want to do is make dumb moves in your portfolio management.

Recordkeeping

You can trade year in and year out without ever violating the rules of allocation, but if you don't keep track of what you're doing, you won't know if you've actually made progress. A simple way to do that is to keep a trading journal.

In your daily journal for stock trading, you should note all the information relevant to each trade you make. Your trading journal template (how it's formatted) is up to you, whatever works best for you--but it's important to keep it consistent and organized for easy reference and comparison.

Here are some things you should note in your journal:

1. Why did you buy a stock?
2. Did you have any issues with holding the stock as you waited for it to reach price target?
3. Why did you exit the stock?
4. Did you made a profit or a loss? And how much?
5. After all, if you don't know what you're doing right, you can't develop the skills you already have. And if you don't know what you're doing wrong, you could end up blaming "bad luck" instead of correcting bad habits.

Knowledge is power. Even better, knowledge is profits. Especially if you're going into technical analysis.

Minimizing Costs

When it comes to trading, you can't ignore costs. Whether it's ongoing expenses of an ETF or commissions you pay to make trades, costs always reduce your overall return. And just like with returns, you can't just look at the dollar amount of costs--you have to look at the percentage. After all, the smaller your portfolio, the more trading costs will hurt you.

For example, let's say each trade costs you $7. If you pay $7 to buy $100 worth of stock, your cost to initiate the trade is 7% of your principal. And if you pay another $7 to sell it, your cost to close the trade is also 7%. So your total commission costs are 14% of your principal ($14/$100), meaning you have to make at least a 14% profit in that stock just to break even. Those sure aren't very good odds.

But let's say you put in $1,000. The $14 you spend for one round trip in and out of the stock is only 1.4% of $1,000, giving you much better odds.

And now suppose you could trade for free--that would give you the best possible odds. Impossible, you say? Not at all:

The Money Show Las Vegas, May 12-15, 2008 I Hope To See You!!

2008-05-11T18:56:19Z

The Money Show Las Vegas, May 12-15, 2008, at The Mandalay Bay Resort & Casino is your best opportunity to learn how to manage your portfolio during these questionable, economic times. Hear from world-class experts in more than 220 FREE workshops where they will give you every opportunity to prepare yourself for the uncertainty that may lie ahead. Also, visit the exhibit hall and meet over 200 exhibitors face-to-face and evaluate the latest tools and software--all designed to help you profit in 2008. Register today-- it's FREE!

Meet face to face with top investment experts - expand your understanding of the markets in over 220 sessions presented by the leading experts on investing

• Discuss ideas with fellow investors - some of the best investment ideas come from other attendees, so talk to your fellow market enthusiasts about their strategies

• Explore the investors' mega-marketplace - representatives from over 200 of the top financial product-and-service providers, publications, funds, and publicly traded companies are all under one roof to answer your questions

• Fine-tune your portfolio - use our new workbook of investing questions to focus all of the intelligence you've gathered at the show into an effective game plan for boosting your profits

• Gain more independence - you'll consider specific, timely recommendations, but you'll also learn the strategies, skills, and resources that can make you an confident investor

John Lansing Speaker Schedule

Message Board Post

JL,

Thanks for going the extra mile and getting the STV update out and online early. Alot of information in one update...truly one I hope everyone reads at least once (or maybe 8 times)! I noticed it this morning before 7am AST/11am EST (Sat) so got a jump start on my weekend "homework".

I know you had a lot to get organized for you trip to the Money Show so was very pleasantly surprised to see an update for Sunday already in place.

Wish you the best in Vegas and look forward to any reports from the Money Show that we may receive.

Linda

Without discipline and rigorous attention to detail, you will not be able to trade successfully.

2008-05-10T14:19:22Z

Trading is a mirror of almost every aspect of your life. If you are thinking or behaving in an undisciplined or unorganized way when you are not trading, you will trade in an undisciplined and unorganized manner. Without discipline and rigorous attention to detail, you will not be able to trade successfully. This is also true if your personal life and relationships are not going well, as you will not be able to give complete focus to your trading and you will fail.

If you spend a lot of time daydreaming about making a financial "killing" that will take you away from your internal suffering, you are trading on hope and you will fail. Take the time you spend daydreaming and turn it into something which will make you stronger, such as rigorous exercise, yoga, meditation, centering and clean, healthy eating. This is a marathon, not a sprint and it takes strength and endurance and good health to stay the course and win the race.

If you are depressed, hypomanic, hung over or rely on substances to alleviate your anxiety or medicate your feelings, you are in a situation where your brain chemistry is altered to the point where you cannot make logical trading decisions. If you do not feel good about yourself, if you lack self-confidence and a winner's mentality, you set yourself up to lose. This is not a conscious decision, and you might never admit it to yourself...BUT...when you are down, depressed or going through real life struggles, you will do things to punish yourself just to re-affirm that you really are worthless and deserve to suffer. The unconscious desire to fail is every bit as powerful as the conscious desire to succeed. Get in touch with that dichotomy at all times, and you will see a side of yourself that you never knew existed.

Treat each trade as a possible winner or a possible loser. There is absolutely no such thing as a "sure thing" in trading, Trading is a game of probability, and the goal is to make more than you lose. If you are in a strait jacket of perfectionism where everything has to work all the time, and you have to get just the bottom or just the top, and you cannot tolerate even one downtick, let alone a drawdown, then you are not suited to be a trader. Good traders know that you only get one opportunity in your life ( if you are inordinately lucky) to pick the exact bottom or the exact top of traded entity. Strive for moderation and balance, and eschew perfectionism, as it will be one of your greatest enemies.

Never make a trade in a market that just completed a major move if the only reason for making the trade is that you just saw a major move and missed it. Do not chase and always let price come to you. The market offers opportunity every day, but most are blinded by it, as the Market Mistress can be very harsh, and does what she can to deceive, seduce and unbalance you.

Winning traders and losing traders experience the trading environment differently. It makes them feel different and as a result their actions vary in a consistent manner. In psychological terms, they interpret the market differently because they have a separate belief system in the way that they see themselves relative to the stock market. Change your belief system from the reactionary emotional beliefs of most losing traders to a more proactive unemotional approach of a successful trader.

Know when NOT to trade. This skill is just as important as knowing when to pull the trigger. Part of being a great trader is being a keen observer of what a stock is telling you. By committing to observe objectively, you give yourself permission not to trade until the conditions are right.

Don't trade for excitement or entertainment. Avoid the highs that come from quick profits or the lows that can appear after losses. If you have a sound system, it does not matter whether any particular trade makes a profit or a loss. What matters is that the probabilities over time are in your favor. You must remember that no system is perfect, and prepare for losses along the way. You should measure yourself on whether you followed your rules and executed your system, for both winning and losing trades. The process of trading is much easier when you focus on execution of a system rather than on whether each individual trade was right or not, because you take your ego out of the process. This makes you more rational and less emotional, which leads to better investment performance.

It is critically important to protect your psychological capital by not overtrading or playing for excitement instead of profits. This can cause you to be emotionally "drawn down", and sit there in exhaustion and despair, usually as a move just begins that could have been a big opportunity. Yet you miss the new big trend because you were financially and emotionally eroded by overtrading in a tough market. As a result, you can't see through the negative emotions because you feel beat up by the markets. Managing your internal psychological state of mind is equally important as managing your financial position.

Be careful not to overreact to intraday news and the endless stream of cacophony which comes to you through your eyes and ears every day. As 2002 showed, there were many whipsaws where the opening occurred in one direction but was then reversed with a close in the opposite direction. Make preparations for each day's trading in advance after the previous day's close, so that you have some idea what the market structure looks like heading into the next day's trading. This allows you to move from a reactionary state to a more proactive posture, and position your mindset to capitalize on news-driven intraday volatility. Ignore 99% of what you see and hear during the day, and focus on your positions and your trading plan.

Accept total responsibility for the results of your trading. Even if you authorized someone else to trade on your behalf, or took the recommendation of someone, it was you who made this decision - nobody forced you. Remember losers always look for somebody else to blame. Winners look to themselves--- particularly if they have to take a loss on some trades, as is inevitable for all traders and all systems. When you accept total responsibility, you commit that in any market environment you will find the way to win.

There is so much more that I want to tell you, but time is short right now. I will write more later.

Just remember this: You will ALWAYS feel the most fearful when you should be the most greedy and vice versa. If you are watching every tick, hanging on every piece of news and noise that comes to you through the media, vacillating on a minute to minute basis between fear and greed, in a state that you cannot sleep or are in terror, or so elated that you know your position will just keep going up and up, you really need to get a grip and GET OVER YOURSELF! Sit down, take stock of yourself, ask yourself why you made the trade, why you bought, why you sold, why you did not sell, what your plan was, what your fail-safe strategy was, etc. Look to yourself at all times. YOU are more powerful than you will ever know. YOU can be a successful trader.

YOU can learn to ride the waves of the market and hold yourself firm and steady in the most turbulent times.

YOU are the master of your trading destiny. YOU CAN DO IT!!

Learn More

Use your losses as learning experiences to inspire and motivate you to find a way to better opportunities and trading successes.

2008-05-10T14:13:09Z

The Rules of Trading Part 2: There Are No Bad Days

Part 1 of this series on the rules of trading described why there are no rules except the ones you make for yourself.

Now that we've established that there are no rules but our own, allow me to elaborate further in Rule #2: There are no bad days in the markets. I can hear the jeers coming up at me as I write this. "How can you say that, Doctor Janice? Every day seems to be a bad day for me because each time I enter a trade it goes against me. My winning trades are not making enough because I get out too soon. I am getting killed with commissions. What is good about losing?"

When you put on a trade, there are three things that can happen:

1. You win
2. You lose
3. You scratch (or break even)

When faced with any of these three situations, people will generally find a reason to complain. The winner will be upset that he didn't win more, the loser will be angry that he lost, and the person that breaks even will be irritated because he's out the commission costs.

In other words, the states of happiness and satisfaction are not common among traders. Traders are human beings that always want a different outcome in order to feel that they have been successful. If we were to really scratch the surface of a serious trader, we would find very few that are ever satisfied or happy with the way things are going for them in the markets.

When we are stuck in this condition of insatiability, we lose sight of the primary reason for trading. Most would say that we trade to make money, and that cannot be denied. However, the really great traders will tell you that making money is a byproduct of executing their plan consistently and with discipline. Built into their plan is winning, losing and breaking even. These three outcomes are part of the process of trading and must be factored in on any given day in the markets. Every day in the markets is a fabulous day for traders that have learned how to win, lose and break even in a seamless manner.

Since it's almost always those who lose that feel the worst, it is good to focus on the process of losing to understand why there are no bad days in the markets. As with every profession, it is important to understand that learning is a process and think more deeply about what we consider failure or error. We must make mistakes in order to learn from them. If we don't, we'll continue making the same mistakes day after day.

There are many benefits to losing if the trader is able to detach emotionally and take a rational approach to the process. This means that the outcome is losing, but the process is learning.

Great advances in science always come through repeated trial and error. There are no great breakthroughs in any profession, despite what you hear about so-called "overnight success." Outstanding performance and great scientific discoveries come through trial and error until the desired result is obtained. Each error brings with it the possibility to learn, strengthen and improve. Learning from mistakes and then correcting them as we try and try again is the way that we advance, both as traders and as human beings.

Great traders use the process of losing to inspire them. They are not restrained by failure; rather they are motivated to push forward, to learn more, to study harder and to be more disciplined. Literature and pop culture are replete with stories of great artists, athletes and performers who overcame intense setbacks, sometimes to the point of becoming suicidal, who then rise up and reclaim their strength.

Robert Downey Jr., who struggled with drug addiction for years and was finally sent to prison for repeated offenses, made a heroic comeback this weekend. His movie, Iron Man, grossed over 100.75 million dollars in three days-topping the estimates of 70-80 million dollars-and setting a record for being the second-highest weekend gross for any domestic non-sequel movie. Robert Downey Jr., left for dead and a "has been" by his colleagues and the world, made a heroic comeback!

This example speaks to the role of inspiration through failure. He could have just as easily slithered away into a corner and lay there as everyone beat up on him and called him a sick, hopeless addict. He turned losing into winning, and winning into winning big. Just as with Downey, Jr., the trading literature is filled with stories of traders who lost millions and came back to win millions more. They used loss to inspire success.

Many great traders have used their failures and losses to motivate and teach themselves and others, often in a most poignant manner. When traders ask me what books to read, I always tell them to read biographies of and interviews with other traders. These stories can be powerful in terms of inspiration and courage to persevere when all seems lost. It is the stories of losing and recovering that motivate us to become better traders. It is our own losing and the drive to recover that pushes us through every day.

There are no bad days in the markets because we use every day to learn, challenge ourselves, grow, and make us stronger and more courageous and set examples for others. If we look at each day as an opportunity to make our light shine brighter and our trades better, we know that there are no bad days. There is only the opportunity to improve and learn so that tomorrow will be better.

Embrace your losses; don't run from them. Use your losses as learning experiences to inspire and motivate you to find a way to better opportunities and trading successes. I encourage you to look at losses as part of the true recipe for your trading success. There are no bad days in the markets if you are on a steady learning curve, so stay with it. The best is yet to come!

Light tomorrow with today...Elizabeth Barrett Browning

Until Next Time,
Good Trading and Brain On!

Janice Dorn, M.D., Ph.D.

There's risk in sitting out a rally

2008-05-10T00:00:45Z

Rally ho!

Even if you're not absolutely sure the worst is over for the market -- and really, who can be? -- the danger of sitting in cash is that you miss out as a lot of stocks move up.

Five of our six Strategy Lab pros, for example, are now in the money, and our leaders are posting double-digit gains -- not bad in little more than three months during the worst financial crunch in years.

Sure, the market may be showing unreasonable giddiness. But who cares, if you can make money off it? You don't bail out until the plane is going down.

Besides, there are some very good reasons many of our players' stocks are rising. Some may make you think, "Darn, I should have thought of that."

Oil, gas and credit cards

All-Star Teamtrader Ken Kam, for example, moved to the top of the gain briefly this week, in part from a 30% payoff on Occidental Petroleum (OXY) -- hardly a surprise if you ever fill up your tank.

It might have been harder to predict and catch Apple's (AAPL) 15% move in the past two weeks or the whopping 25% move by MasterCard (MA) in the same time period. But consumer lenders seem to do well when other lenders suffer.

Still, such hard-to-predict runs are why Kam sticks by his picks through rough patches. (Check out Kam's journal this week, which again offers his list of the best funds for your portfolio's core; many readers ran to get it last round.)

Continue reading "There's risk in sitting out a rally"...

More Room to Run for Goldcorp

2008-05-09T23:56:55Z

Investors, stock gains are all about earnings and Goldcorp has a lock on them for a while. Let's examine some of the reasons why this stock will perform well over the long term. By long term I'm talking about the next six to forty months.

Goldcorp is a member of the basic materials sector. The 52 week stock price range is between 21.00 and 46.30. At this writing Goldcorp is about ten dollars a share below its 52 week high. This is the slow quarter for gold companies and that makes it a buying opportunity for you, the investor. Demand from Asia picks up in the third and fourth quarters as buyers place their orders for wedding season.

There are 708 million shares outstanding with 55% of them held by institutions. Management is repurchasing stock.

Book value (18.17) is bullish. Book value reflects the value at which assets are carried on the balance sheet.

Relative performance of stocks versus bonds is a favorable influence for Goldcorp. When the total return for stocks has outperformed bonds, that makes a bullish case for Goldcorp.

The long-term debt/capital ratio is 7.16%. This reflects well on the company's financial stability. The average ratio for gold companies is 9.5%.

Gold (and Goldcorp) will continue to look good no matter who wins the upcoming election. Keep reading to find out why.

May Move is Like an October "Fake out"

2008-05-09T23:52:05Z

I have seen this pattern before. We have a decent run and analysts start to relax and explain why it will continue. This is despite the fact that we have seen frequent dips (especially in the NASDAQ) during May and beyond with usual recovery in November. Now, please don't misunderstand, I am a professed Market Bull and always see stocks to buy even in the darkest times. I rarely have tried to "time the market" and usually stay fully invested. However, this is one of those times where I think the market has gotten a little ahead of itself considering the financial mess we still have, the housing slump, high gas prices, high food prices, and company earnings that have done fairly well but are still reduced. Also, consumer credit card debt is still very high. The Fed has helped with significant easing, but that has likely stopped for awhile and might even reverse.

So, if you were to considering timing the market, it depends largely on what you really believe. If you believe that this is a bear market and we have been experiencing a bear market rally, then you will be inclined to think that a large correction is coming soon. If you believe we are still in the middle of a long bull market and have simply corrected, then you will be inclined to think this market could continue to rally into the summer.

Now, being a bull, I would like to believe the latter. Unfortunately, I do not. I think that we are in the middle of a bear market and this is a bear market rally. As such, we are likely to tumble pretty fast from here and might retest the March lows.

When does Doc think we'll see a real rally in the market? Read on to find out.

Strategy Lab Open Week Fourteen: We've been down this road before.

2008-05-09T23:41:12Z

Microsoft's not buying Yahoo, Ford may be getting a boost, investors are worried about inflation, and the stock markets are all over the place. Through it all, our intrepid stock pickers are managing their portfolios...and making some nice profits too! Here's your look at the stocks on the move in Strategy Lab Open this week:

The top five most popular stocks in the competition remained the same: Apple Computer (AAPL) held on to its lock on the top spot on the list, as even more people added the stock to their portfolios. Google (GOOG) reclaimed the number two spot, followed by Microsoft (MSFT), Potash (POT) and General Electric (GE).

Of course, Apple and Google stay popular because people keep making money with them! They led the list of the most profitable stocks in the competition for the last week. Public Storage Inc (PSA), Visa (V) and SLO Round 1 favorite Research-in-Motion (RIMM) rounded out the top five most profitable stocks list. Visa was also one of the most purchased stocks in the competition.

What our stock pickers are buying and selling this week

The top five most purchased stocks in the Strategy Lab Open for the last week cover a wide spectrum of companies. As mentioned above, Visa led the list, followed by steel and iron producer Mechel Open Joint Stock Company (MTL), mining giant Companhia Vale ADS (RIO), biotech company Celgene (CELG) and internet information provider Akamai Technologies Inc (AKAM).

The five most sold positions in the competition were the UltraShort Financials ProShares ETF (SKF), Trinity Industries Inc (TRN), biotech company Gilead Sicences (GILD) the Ultra Short Oil and Gas ProShares ETF (DUG) and Graham Corp (GHM).

Money Miser Matthew Tansey started off the month of May by taking profits in some of his more successful positions, pruning back his holdings in some less profitable stocks, and moving money in to some new picks. Find out why he owns some of the most popular stocks in the competition, including Visa and GE, and where he's putting his new money now in Freeing up some cash.

Aknaten of Maybe a Pine Tree been saying to sell Yahoo (YHOO) all along, convinced that Microsoft was overpaying and that the stock would drop. Well, guess who was right?! Get his take on what the future holds for Yahoo, and what to do with the stock now in Balmer falls short, You should too!
Russ of RD's Picks was one of those who sold Graham Corp, exercising discipline and locking in profits when the stock hit his fair value estimate. Read all about his newest pick, a stock he thinks could be a double over the next year, in Growth? Value? Income? How 'bout a stock with all three?
Don Moncrief of I Eat Bear takes a look at risk tolerance, investing time horizons and how both Strategy Lab Open and investing in general are like the Kentucky Derby. Get his recommendations for stocks that make sense for short term investors and longer term investors in Akin to the Kentucky Derby.

And finally, Stock Surfer Randal LaBine is back from his honeymoon (congratulations, Randal!) and has a new perspective on investing after taking a break from the market. Find out why he's feeling increasingly bearish, and how his new attitude is going to affect his investing strategy going forward in Randomness Thoughts from a Bear.

Until next week,
Jamie Dlugosch,
Executive Editor, InvestorPlaceBlogs.com

Time to snap up CROX?

2008-05-09T23:24:47Z

I believe it was Chef Mario Batali of Food Network
Fame that helped popularize that ubiquitous rubber
shoe called Crocs (CROX). Since arriving on the
national stage those colorful shoes have done nothing
but generate huge sales for shareholders. All systems
were go for this rocket ship of a stock. That is until
recently when a few management mistakes combined
with a weakening economy pressured shares lower.

An earnings warning during this most recent quarter
was the final straw for many and opened the door to
massive short selling. After the close on Wednesday
the company released results that were within the
range of reduced guidance. In the world of as long
as the news wasn't horrendous the stock will go up,
CROX went flying in the after hours market. Is this
the bottom for a former high flyer? Can CROX
reignite? I want to know what you think. The news
is very timely so chime in with if you have an opinion.
I will report back with your bull/bear thoughts in
next week's column.

Bull/Bear Report: Ford -- Is This Stock a Lemon?

2008-05-09T23:12:00Z

I have been a bull on Ford (F) for the last 2 years with little to show for my positive opinion on the stock. That all changed, maybe, with the tender offer from Kirk Kerkorian to buy shares at $8.50.

Believing that Ford had turned a corner, Kerkorian decided to take a major stake irrespective of current economic conditions. In a vote of confidence for management, clearly Kerkorian feels that better days are ahead.

Is such a bold move justified?

Obviously I am a believer despite being a bit early in my call. Ford, a leader in truck production, has been going through a painful transition diversifying its product line as competition sliced its market share.

With its stock value well off former highs, buying shares in the single digits made Rational sense to me. That case has only gotten stronger as the company has yet to truly turn the corner.

As we patiently wait for improvement and a return to growth, China, which is just becoming addicted to large SUVs, has become a huge part of Ford's future. More importantly, the negatives of higher fuel prices create long term opportunities for the company.

New technologies and advancements in alternative energies may very well create a huge boom for automakers. Certainly we see that already taking place with growing interest in hybrid vehicles.

But, I think there is so much more to that future growth story. At some point there will be a tipping point that results in the wholesale replacement of fossil burning vehicles. That means hundreds of millions of new vehicles using whatever becomes the preferred solution to the combustion engine.

The potential for the future, instead of the negativity of the present, drive my interest in Ford. From a valuation standpoint, the current price of Ford offers an attractive entry point.

Shares trade for just 15 times forward earnings and a small fraction of total sales. Although there is a fair amount of debt on the balance sheet the company does have a decent amount of cash, $23 billion.

What did our bloggers think of Ford? Well there were two opinions, one bullish and one bearish. Continue reading to get the arguments on both sides of the equation.

The Bull Case - Wade Reese

Wade has not been a fan of the auto industry lately, but a look at the chart for Ford made him a believer.

Charts don't lie -people do!

As I recall the squawk and chatter about GM over the last 12 months, I come to realize that I am not easily impressed with the automotive industry. You have to go back to 1998 and 1999 to find the last positive performance. Ford is changing all that as we speak. A YTD chart comparison of GM and F leaves no room for doubt.

Considering the facts that Ford is now profitable, they have the "Green" models best suited for $4.00 per gallon gasoline in America and their global expansion is in place is proof enough that Ford has the right team in place for those tough times ahead.

The Bear Case - Don Barrett

Don isn't sure that investors can count on Ford's growth in export sales to continue. He's adopting a wait-and-see attitude.

Mr. Kerkorian in my view didn't make a very wise investment. While I'm giving my view I'm going to clarify why the Mr. Bernanke has continued to lower rates and with the tick down in unemployment to 5% this a.m. he is done with the rate cuts.

Mr. Kerkorian and Vad who was criticizing the cut of a quarter of a point a couple of days ago. Don't understand why the Fed was cutting rates. And if the Fed hadn't cut rates do you know what we would have had? A recession! Are we in a recession? No. By the most commonly used definition of a recession, two negative quarters of growth, we are not in a recession. How many quarters of negative growth have we had? Zero Zip Nada. Are we going to have a negative quarter in this business cycle? I had thought maybe one but with this mornings news I don't think we will have one.

Now to Mr. Kekorian and his investment in Ford. Let me backtrack a little to the rate cuts and the falling dollar. Why did the Fed keep cutting rates and in effect let the dollar drop? Exports! What is holding the economy up and keeping us out of a recession? Exports! Why are exports at record levels each month? The weak dollar! So,in my view the Fed has made the best out of a bad situation. If the U.S. hadn't had the right policy to encourage other countries to import our products ,we would be in a deep whole and it would have taken years to dig out of it. Look at DuPont, GE, Ford and all the other major companies doing the vast majority of the exporting and cut their exports in half and what would be the most likely scenario? Higher unemployment and most likely a "recession"!

One other point on the present economic situation. A lot of Americans have paid higher prices on just about everything and inflation is a problem. But, if you look at the other side of the coin, where would we be without the jobs created by the weaker dollar and rate cuts. I would postulate much worse conditions than we currently have.

Mr.Kerkorian is buying into a company that had a good quarter recently but if you look at sales most of Fords improvements were where? Exports! Will this trend in auto exports continue. Maybe. The dollar is strengthening and it will slow exports of Ford eventually. With the pick up in the U.S. economy and dropping unemployment, will Fords domestic sales pick up. Maybe. While Ford and GM reported last week of rising exports,they also had slowing domestic sales due to the "recession". But, if you caught this weeks auto sales Toyota and the other two major Japanese auto makers had "increasing" U.S. auto sales. Ford and Gm sales dropping in the US due to the "recession" and Japanese auto makers had "increasing' sales in the US. What's the deal? U.S. automakers domestic sales have been shrinking as the Japanese US sales are increasing. Why? The Japanese are building a better product and they are building automobiles the American public wants. Ford and GM can't seem to get away from the dual cabs and gas guzzlers they make and they are completely out of touch with the American publics needs. How many years has the Toyota Camry (built about a 2 hour drive from where I live) been the top selling automobile in the U.S.?

I wish Mr. Kerkorian the best and I hope he can have some input on the course Ford takes the next few years. If you think back Ford and GM have been in trouble for years and their problems didn't just begin. Make a better vehicle. And they will come!

I'm with Kerkorian and Mr. Reese. Ford is a buy in my opinion. You may have to be patient, but that's what investing is all about.

Jamie Dlugosch
Executive Editor, InvestorPlaceBlogs.

Crocs Update

2008-05-09T19:23:32Z

In the most recent issue of Emerging Growth, I recommended selling Crocs (CROX) after its earnings came out on May 8. The company guided Wall Street higher and the stock jumped up yesterday, so this is a great opportunity to sell Crocs into strength. Despite the higher guidance, I still recommend selling Crocs due to rising volatility.

Priceline.com was no shock to Trending123.com subscribers or anyone reading this blog

2008-05-09T17:41:21Z

Priceline.com was no shock to Trending123.com subscribers or anyone reading this blog!!

Shares of Priceline.com (PCLN) have spiked nearly 15% in premarket trading after the company reported a 130% jump in earnings per share over one year ago. If premarket gains hold, the stock will establish a fresh 52-week high.

Priceline reported first quarter earnings of $0.76 per share, which was $0.16 better than the consensus estimate that stood at $0.60. Revenue rose 41.2% year-over-year to $403.20 million versus the $377.17 million consensus estimate.

The company also topped its previous guidance. First quarter gross travel bookings increased 76% compared to last year, versus the company's guidance of 60% to 65%. Pro forma gross profit increased 74.7% year-over-year versus the company's guidance of 55% to 60%.

The online travel company expects to continue its winning ways. Priceline said it expects to earn between $5.25 and $5.65 per share for the full year, which is well ahead of the $5.12 consensus estimate.

It broke out of an Ascending Triangle mentioned back on this update back on April 18th so the question to ask yourself why aren't you seeing what I am seeing or are you?

Full Report

Message Board Post

Hi John

Thanks much for the options portfolio addition. It has done well for me and I appreciate having it since I don't have a great deal of money to invest in the market.

Rusty

Why Split it When You Can Sell It?

2008-05-09T15:46:38Z

Citigroup surprised investors again this morning saying that they would sell as much as $400 billion in assets over the next several years. This amounts to just about 20% of their current asset base. In recent years the bank has been criticized as being too big to manage effectively. The move to sell assets is in response to those who had wanted the bank to spin off several divisions and break the bank up. Among the assets to be sold are the real estate, leveraged loans and Structured Investment products that caused much of the banks current difficulties.

At a meeting with investors and analysts this morning CEO Vikram Pandit said that the bank would revive as much as $15 billion in re engineering benefits form the moves and be able to regain solid growth rates going forward. He expects the bank to resume revenue growth of 8 to 10%.

Where does he see Citigroup's growth coming from? Read on to find out.

He broke down for investors what segments he expects to provide the growth for Citigroup:

7% annual revenue growth form credit cards
8% from consumer banking
9% from Securities and wealth management
14% from transaction services

Pandit has also set a goal for the bank of a 16 to 18% return on equity for Citigroup. He described the steps the bank must take to recover from the financial crisis as get fit, restructure and then maximize.

Ananlysts were cool towards the plan with most keeping their ratings unchanged. Several pointed out that Citigroup still has enormous exposure to subprime and other leveraged securities and could face still more asset write downs in the months ahead.

HNR: Is the recent price drop justified by deterioration in fundamentals?

2008-05-07T16:35:25Z

I have previously posted about my rationale for a large position (in fact my largest holding) in Harvest Natural Resources (NYSE:HNR).

Lately, the stock has not done too well - in fact it is down about 25% in the last few weeks. So I have been doing some digging to see if anything changed regarding the fundamentals.

The main trigger for the decline seems to be an analyst downgrade (2 levels below previous). Rather strangely, the main reason he gave for the downgrade was the lack of stock price appreciation in response to a positive event (more on this later). I expect a better reason from a professional analyst: if there is no fundamental deterioration and the price is lower than before then I would expect the stock to be upgraded rather than downgraded.

The positive event the analyst referred to is the recent sale of a neighboring oil field asset by Anadarko (NYSE:APC), which established a comparable market value to HNR's relatively illiquid assets. Now the APC sale established a value of proven & probable ("2P") reserves of about $6 to $8 per barrel of oil equivalent. Using comparable metrics, the enterprise value of HNR implies that their oil & gas assets are being valued at $3 per barrel of oil equivalent, implying that the stock is selling at least 50% below what just the Venezuelan assets are worth. Note that the "Chavez" discount would be shared by both APC and HNR assets since they are neighboring fields. And there are more assets outside Venezuela that are not being valued in the stock price at all.

Today the company announced its Q1 results which indicate that the recovery towards normal oil production is still intact, albeit a bit slower than I would have liked. Production is up to 13.3Kbpd which is up slightly from last quarter. While I am a bit disappointed at the slow pace of progress, most of the disruption due to the two year hiatus seems to be finally over, and normal operation seems to have resumed. During the conference call, the CEO suggested that the peak production that is possible (based on pre-disruption 2004 performance) may be in "mid 40Ks" range, as more and more production drilling takes place. And since the fixed costs are high, every extra barrel of oil produced adds disproportionately into profits.

Here's the rest of the story on HNR.

The CEO also hinted at more stock buybacks ahead - he suggested that the stock price is irrationally cheap but that the $18M pre-approved buybacks could not be done due to constraints of quite period following internal news about the quarter. Since the total EV is only about $200M, a buyback of about $18M can be significant. The CEO also said that the analyst downgrade made no sense to him.

HNR has been adding geographical diversity to their asset base with fields in Gabon, Indonesia and (recently) two small fields in US, further reducing risk and improving the chances of positive surprises.

But the main reason to invest in HNR is the huge leverage as production recovers from the current 13kbpd (where its a bit above break even due to large fixed costs) to a possible figure near 30 to 40Kbpd over the next few quarters. This will also add to the recovery factor assumed in pricing the assets under ground which also should add to the enterprise value of HNR.

I think that HNR is even more attractive at the current price and the weakness over the past month presents a great buying opportunity.

Click here to visit my blog and read more of my recent posts.

Has Berkshire Lost Its Hathaway?

2008-05-07T16:24:27Z

How is Buffett doing in his plan to take over the municipal bond insurance market? The Berkshire Hathaway shareholders meeting featured a discussion of progress to date, as well as the potential risk to the financial system posed by the large amount of outstanding credit default swaps. For a person who once characterized derivatives as financial instruments of mass destruction, Buffett is very comfortable with them, remarking that Berkshire has written two types of them and expects to make very good money doing so. These instruments aren't that scary, apparently, when he is using them.

On bond insurance, Berkshire wrote 400 million premium during the first quarter, more than any other player, and possibly more than all others combined. Buffett was very pleased with Ajit Jain's performance: he was able to command a premium of 2.25% in order to backstop insurance that was originally written at 1%. That to me illustrates Buffett's approach - he always has extra capital and employs it to write risks at generous premiums when market conditions permit. This opportunitic approach serves him well but may limit Berkshire's long term prospects in the muni-bond business, as other players return to the market and rates return to normal.

There has been a lot of concern lately that the counterparty risk on the 60 trillion of CDS outstanding as of the end of last year may lead to a collapse of the financial system. Asked to comment on the topic, Buffett's response seemed to lean toward the idea that it's a zero sum game: there will be winners and losers, but to the financial system as a whole the outcome doesn't make any difference. He doesn't think the amount of CDS in and of itself will cause a problem, although it would exacerbate chaos in the event of financial stress from other sources, such as the Bear Stearns crisis.

Read the rest of my thoughts on Berkshire Hathaway and where it's headed.

Buffet's partner, Charlie Munger, endeared himself to me by commenting that the amount of CDS insurance on some bonds greatly exceeded the face amount of the bonds, leading to efforts to make the loss bigger so the payout would be bigger. Then he talked about how in life insurance it used to be illegal to buy insurance on people you didn't know, to get a big payout on their death. This plays to my pet peeve, the moral hazard created by permitting credit default swaps without any requirement of an insurable interest. Munger criticized this is reflecting inadequate regulation, an opinion I heartily agree with.

Apparently recording devices are not allowed at the Berkshire Hathaway shareholders meeting. I found a fairly detailed set of notes on Seeking Alpha, where I have occasionally been able to find transcripts of earnings conference calls. After reading the notes, one thing that stood out to me was that a large part of Buffett's strength comes from always having extra capital. He has been criticized recently due to the amount of cash on hand at Berkshire, but over the years he has been able to achieve a lot by always being fully credible and always being able to write a check.

Berkshire is a formidable competitor in the triple A rated bond insurance business, because total crediblility of the insurer is necessary to achieve its desired effect of reducing the borrower's interest costs. While I don't think the realities of competition will enable Berkshire to maintain the very high premiums they have received to date, it is possible that this credibility may crate a situation where Ambac (ABK) and MBIA (MBI) will need to go to great lengths to demonstrate that they are equally as solid. One thing is certain - Berkshire is a responsible competitor and will not write coverage at inadequate premiums. That may make the business more profitable for all insurers going forward.

Buffett's words of wisdom are always worth reading - but, is Berkshire Hathaway a great investment today? Buffett himself thinks returns will be less in the future than they have been in the past, mainly because given Berkshire's size there simply aren't enough big opportunities out there to generate outsize returns. He said he would be happy if they could earn 10% pretax, including dividends - margins less than in recent years.

First quarter 2008 results were not impressive: revenue was down, primarily due to unwillingness to write reinsurance at inadequate rates; and EPS were down, primarily due to mark to market losses on derivatives, which management does not regard as significant or permanent. The property and casualty business is cyclical, and in the current competitive environment Berkshire's growth and earnings will be affected.

Berkshire has traded at a well-deserved premium for many years: but given the difficult insurance environment, decreasing margins and growth will put pressure on share prices. While the successful entry into the bond insurance business is a coup, earnings were not material to Berkshire's results and will not be for some time. I would not buy Berkshire at today's price, which seems to reflect unrealistic expectations about future growth and profitability.

Bull Stocks Since the End of Bear

2008-05-07T15:45:51Z

On March 17, the stock market tumbled on the news that Bear Stearns had collapse and was being taken over for just $2 a share by JPMorgan Chase. I couldn't believe some of the bargains I saw, and I urged my Emerging Growth subscribers to load up on fundamentally superior stocks. Here's how some of our top Emerging Growth stocks have performed since March 17:

Graham Corp. (GHM) +76.9%
General Steel (GSI) +75.0%
GrafTech International (GTI) +61.4%
Synaptics Inc. (SYNA) +54.7%
Cypress Semiconductor (CY) +49.4%

In this lesson, we want to give a brief overview on how options are priced.

2008-05-06T23:50:06Z

In this lesson, we want to give a brief overview on how options are priced.

Option contracts:

When you decide to purchase options, the first thing you need to realize is that you can't purchase a single stock option, you can only purchase option contracts. Each option contract consist of 100 options. The price listed on the options page will only provide the price of a single option and you will need to multiply that single price by 100 when you decide to buy a contract.

Option pricing:

As we discussed in the previous section, when you purchase an option you are not buying the actual stock itself, but simply the right to buy or sell the stock. As such options prices are substantially lower than the price of the stock itself.

There are a number of factors that are used to determine the value of the option. This includes the following:

1. The intrinsic value of the underlying stock. Obviously the more in-the-money the option is, the more expensive it is.

2. The volatility of the stock.The more a stock swings up and down in a short period of time the more volatile, "the greater the volatility - the higher the option price."

3. The amount of time purchased before the stock expires. For example, if you purchased an option that expires in two months, it would cost more than an option that expires in one month.

4. The dividend paid by the company is a important factor.

5. The interest rate (3 month T Bond) also plays in the pricing of an option.

Bid and Ask Spreads:

For real short term option plays you must choose options with small spreads between the bid and the ask. When you decide to buy an option you will be given two prices the "Bid" and the "Ask" price. The Bid, which is the lower of the two prices, is the price you will receive per option if you decide to sell your contract at that particular moment. The "Ask" is the price you will have to pay per option if you decide to buy the option on that stock. Note: As mentioned previously this is only the price per option, you will have to multiply that number by 100 when you buy an option contract.

There are numerous Options plays available to an Option Trader. These include Covered Calls, Covered Puts, Bull-Call Credit , Bear-Put Credit, Straddles, Strangles, Collar, Leaps, etc. Education is essential and understanding the risk factor of Options and their rewards is of most importance.

Technical Analysis Really Just Studies Supply And Demand In A Market NASDAQ, QQQQ, $IIX, $NWX, $SOX, $BTK Why My Targets Are So Much Higher

2008-05-06T20:50:21Z

Technical Analysis Really Just Studies Supply And Demand In A Market NASDAQ, QQQQ, $IIX, $NWX, $SOX, $BTK Why My Targets Are So Much Higher!

The MOST Powerful Pattern Update..............Learn More

Fibonacci Retracement

A term used in technical analysis that refers to the likelihood that a financial asset's price will retrace a large portion of an original move and find support or resistance at the key Fibonacci levels before it continues in the original direction. These levels are created by drawing a trendline between two extreme points and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.

Fibonacci retracement is a very popular tool used by many technical traders to help identify strategic places for transactions to be placed, target prices or stop losses. The notion of retracement is used in many indicators such as Tirone levels, Gartley patterns, Elliott Wave theory and more.

The Fibonacci sequence of numbers is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc. Each term in this sequence is simply the sum of the two preceding terms and sequence continues infinitely. One of the remarkable characteristics of this numerical sequence is that each number is approximately 1.618 times greater than the preceding number. This common relationship between every number in the series is the foundation of the common ratios used in retracement studies.

The key Fibonacci ratio of 61.8% - also referred to as "the golden ratio" or "the golden mean" - is found by dividing one number in the series by the number that follows it. For example: 8/13 = 0.6153, and 55/89 = 0.6179.

The 38.2% ratio is found by dividing one number in the series by the number that is found two places to the right. For example: 55/144 = 0.3819.

The 23.6% ratio is found by dividing one number in the series by the number that is three places to the right. For example: 8/34 = 0.2352.

For reasons that are unclear, these ratios seem to play an important role in the stock market, just as they do in nature, and can be used to determine critical points that cause an asset's price to reverse. The direction of the prior trend is likely to continue once the price of the asset has retraced to one of the ratios listed above. The following chart illustrates how Fibonacci retracement can be used. Notice how the price changes direction as it approaches the support/resistance levels.

Despite all the fancy and exotic tools it employs, technical analysis really just studies supply and demand in a market in an attempt to determine what direction, or trend, will continue in the future. In other words, technical analysis attempts to understand the emotions in the market by studying the market itself, as opposed to its components. If you understand the benefits and limitations of technical analysis, it can give you a new set of tools or skills that will enable you to be a better trader or investor.

Full Update

Message Board Post 05/06/08

T123 is the most comprehensive trading site there is. If you are new to the market or if you've trading a long time, the value is incredible. The tools, scans, alerts, updates, ongoing support and training- amazing!

Primarily an options trader, I have applied John insight to my personal plan and have tripled my total portfolio since joining in October. Many thanks.

AmandaB

Message Board Post 05/06/08

JL,

I just wanted to add my thanks to you. Not just the options but the underlying as well. Becuase of your work I'm on the right side of this move.

What Next for Citgroup?

2008-05-06T15:32:24Z

What now for Citigroup? The pressure to split up the banks and spin off some of the units to focus on the core banking business is growing. CEO Vikram Panidt is resisting the calls to spin off units the like Smith Barney brokerage unit. He is said to be planning to spin off the smaller Primerica Financial Services unit but remains determined to keep most of the bank together. He is expected to put forth his plans for the banking and investment giant this Friday at an important meeting with analysts and investors.

As he is preparing for the meeting, the bank made a move this week that has to be somewhat embarrassing for Mr. Pandit. He became a part of Citigroup when the bank paid $00 million to purchase his Old lane hedge fund operation. In the sale he personally received about $165 million. Citigroup recently announced that it is taking a write-down of over $200 million related to the fund and said it was going to have restructure the hedge fund. According to the bank virtually all of Old Lanes original outside investors have withdrawn their money after the fund experienced large losses in the latter half of 2007. The losses are a result of the credit market turmoil.

So far this year the bank has reported losses of almost $15 billion. Mr Pandit did not oversee the lending and investing practices that created these losses but inherited the problems when he ascended to the CEO position last December. Since then, the ban has had to rise almost $25 billion in capital to support its balance sheet and offset the growing losses from mortgage backed securities and highly leveraged loan transactions. Mr Pandit has also moved aggressively to cut costs, laying off employees and changing spending practices at the bank. He changed the bank's operating structure along geographic rather than product lines and slashed the dividend. He has repeatedly said that he thinks the bank needs to be streamlined, not split up into several pieces.

Friday we will get an additional look at his plans for the future and more importantly how investors view his plans for the future.

Iron Man Is Cash King

2008-05-06T15:02:28Z

One of my favorite stocks in my Quantum Growth service is Marvel Entertainment (MVL), which is in the superhero business. Yesterday, the company reported first-quarter earnings of 58 cents per share which easily beat Wall Street's consensus of 43 cents per share. The stock gapped up nearly 10% in yesterday's trading. The company also raised its profit guidance for this year.

That wasn't the only good news for Marvel. The opening weekend for the new Iron Man movie was a smash. The movie brought in over $100 million, and over $200 million for its global haul. This was so big that one analyst said that Iron Man will contribute 55 cents per share to Marvel's bottom line. His earlier forecast was for just 15 cents per share.

You probably won't be surprised to hear that Iron Man 2 is scheduled to be released in 2010.