Monthly Archives: March 2014

Cut to the Quick on Good Investment Decisions

brian portnoy author

Meet Brian!

I’m delighted to share this guest post by Brian Portnoy, author of The Investor’s Paradox. I think you’ll find the article below to be quite helpful if you’re interested in finding the perfect fund manager. You can read more about his book, The Investor’s Paradox, on Amazon.

For the sake of full disclosure, I haven’t yet read this book. But from Brian’s article it looks like it would be a great fit with a large percentage of readers. So I’ll add it to my reading list. Now read what Brian has to say to decide if you want to do the same.

Take it away, Brian!

Cut to the Quick on Good Investment Decisions
By Brian Portnoy,
Author of The Investor’s Paradox: The Power of Simplicity in a World of Overwhelming Choice

Too much choice

Over the past couple decades, the market for investment funds has gone from a manageable corner store to a massive warehouse club with countless aisles and roof-scraping shelves.

The quantity of choices is somewhat beyond comprehension. With tens of thousands of mutual funds, exchange traded funds (ETFs), hedge funds, and other products lining the shelves, making sense of the full opportunity set is nigh impossible. What’s more, the task is aggravated by the increasing complexity of the choices on offer: emerging categories like “liquid alternatives,” “smart beta,” and “active ETFs” require individuals, advisors, and institutional investors alike to bone up on the fund industry’s seemingly ceaseless factory output.

Let’s face it. Very few of us directly build our investment portfolios by buying individual stocks and bonds directly. Perhaps we directly own a few blue chip stocks, or take a lark on exciting story stocks like Tesla or Netflix. Far more common is buying a menu of funds to reach our financial objectives. But what’s the right method for doing so?

The false promise of checklists

Let’s quickly tackle the standard method for identifying good fund managers: “The Five P’s.” One version of the time-honored list (from industry leader Morningstar) consists of people, process, parent, performance, and price. For alliterative pleasure and analytic robustness, we could also throw in portfolio and philosophy. These categories are all eminently reasonable items to consider. Who wouldn’t want to know about the people running the fund or what the the investor's paradoxfund costs?

Ultimately, though, this approach is akin to driving while looking in the rear view mirror. A checklist of backwards looking attributes tells us some seemingly relevant facts and figures, but one would be hard pressed to find predictive power of future success in any of them. Indeed, in the practical world of fund selection, the Five P’s is a long-standing recipe for returns chasing.

Performance tends to dominate our attention, and it is hard to resist the allure of good recent returns. Among other human biases, our built-in craving to see patterns (even where they don’t exist) and be overconfident about our ability to pick the “best” choices (with little evidence to suggest this happens persistently) put performance metrics too centrally in our crosshairs.

The four questions

In The Investor’s Paradox, I offer a different take. I believe that there are four straightforward questions that cut through the noise of fund investing. This is not a checklist of attributes, but guideposts to a establish a dynamic approach to making good investment decisions. The questions are pretty easy to get; putting them in motion — the dynamic part — is harder. We can pick a fund that has done well in the past, but if we just want to “set and forget” our picks, then we’re not adapting to change. Success here depends on a cycle of establishing and managing expectations. This is harder than building a checklist, but ultimately more useful.

Can I trust you? No single investment can make your portfolio, but any single investment can break your portfolio. Just ask those who invested with Bernie Madoff. Trust is a complex affair, and in finance, it goes well beyond a forensic analysis executed by regulators and accountants. At a deeper level, it is a tricky psychological engagement to size up others as potential long-term partners with whom we share several key attributes, including transparency, fairness, and an alignment of incentives. A good pedigree and relevant experience are not sufficient.

What risk(s) are you taking? Most investment funds focus on a particular asset class, such as bonds; and then a sub-category within that asset class, such as high yield bonds. It’s highly likely that the returns a manager delivers will be highly correlated to the returns of that class. The trick is figuring out exactly which sand box the manager is playing in, which grows more difficult with non-traditional offerings. Generally speaking, if a fund’s returns vary dramatically from its chosen sub-asset class, it means that the manager is much smarter than the other well-informed investors in that asset class (unlikely) or he is taking excessive, and in some cases inappropriate, risk in the portfolio.

Are you good at what you do? In finance, there is a conventional notion of “alpha” that captures outperformance relative to well-defined benchmark. This is a useful, but narrow definition of skill. In the real world of selecting managers, skill transcends statistical analysis and becomes a social engagement involving expectations management. At its foundation, skill is about keeping one’s promises. It’s actually not easy for a fund manager to maintain consistent, predictable risk exposures, let alone demonstrate true skill. Finding ones that do will be a good addition to a well-designed portfolio.

Are you a good fit? This question is an orange compared to the three previous apples, as we ask this of ourselves more so than the manager. Good investing starts by articulating one’s own objectives. Absent that first step, we’re effectively roaming around that middle section at Costco, randomly buying things that seem interesting or different. Lots of trustworthy, focused, and skillful managers aren’t good fits.

Attempting to pick funds that consistently outperform others is futile. Just as there’s little evidence that even seasoned stock pickers can “beat the market,” there is no evidence that fund pickers can regularly pick winners. Even so, selecting the right fund managers for a particular purpose is quite possible. So while the four questions may sound basic, and each has nuances, they still allow us to first understand and then adapt with the experts we choose to manage our money.

© 2014 Brian Portnoy, author of The Investor’s Paradox: The Power of Simplicity in a World of Overwhelming Choice

Author Bio
Brian Portnoy, Ph.D., CFA,
 author of The Investor’s Paradox: The Power of Simplicity in a World of Overwhelming Choice, has been successfully researching, advising, and investing in hedge funds and mutual funds for the past fourteen years. He is currently the Head of Alternative Investments and Strategic Initiatives for Chicago Equity Partners, a $10 billion asset manager. Previously, Brian held senior roles at Mesirow Advanced Strategies and Morningstar, the world’s premier research shop on mutual funds. He has spoken at numerous investing conferences across the U.S., Europe, and Asia, and has appeared frequently in major media outlets such as CNBC and the Wall Street Journal. Prior to his investing career, Brian pursued his research and teaching interests in political economy and markets at the University of Chicago, where he earned his Ph.D. in 2000. Brian is a CFA Charterholder and a member of the CFA Society of Chicago.

For more information please visit http://www.theinvestorsparadox.com, and follow the author on Twitter. This blog was originally posted on Amazon’s Money Markets Blog.

How To Be a Successful Option Trader

how to be a successful option trader

Option trading can be extreme. Read this article to learn what it takes to be successful…

Learning How To Be a Successful Option Trader is easier than you think. And since options trading offers so much profit potential, learning to be a successful options traders is something a lot of individual investors are understandably curious about.

So…

In this blog post I’ll show you the number one thing that determines whether or not you will be successful in trading options. Plus, I’ll share some of my favourite tools and free resources from all around the web. So after you read this blog post you should have a pretty good idea of what it takes to be a successful option trader.

And just so you know: Even though I primarily trade common stocks, I still have lots of options experience. I don’t talk about it too much here. But I have written before about trading leap call options and put option trading examples – both are techniques equity investors can use to augment their investing returns.

Now let’s get down to the business of what really makes a successful option trader…

The Most Important Factor in Being a Successful Option Trader:

If you want to be a successful option trader then there’s one key distinction you’ll want to keep in mind. Basically, when you’re trading options you need to decide if you’re going to approach it like a trader or if you’re going to approach it as an investor. I think that’s the most important precept.

So while options can work well for everyone, be clear on how you’re going to approach options trading. Speaking in very broad strokes:

  • Investors looking to trade options should focus on long-dated call options that are already in the money. They will do best when buying options during a short-term technical pullback. On a short-term price rally, investors may want to opportunistically take profits (even more so than when buying the underlying equity).
  • Traders looking to trade options should focus on short-dated call or put options based on their short term technical analysis.  Traders will likely want to buy out of the money options to avoid risking too much capital and to maximize percentage gains on quick moves. Traders should expect to lose a large percentage of these trades (with winners making up for multiple losers).

And by the way…

If you’re just getting started with option trading, I recommend test-driving your strategy before putting hard-earned money to work. Since options are a little tricky to first get the hang of try a stock simulator game to avoid expenses lessons on the road to becoming a successful option trader.

Links and Tools for Successful Option Traders:

The good thing about learning to be a successful option trader, is that there have already been plenty of options trading success stories. So instead of having to blaze your own trail you can follow the advice of other option trading experts who’ve already made the transition from strict equity trading only.

Top 10 Traits of a Successful Option Trader: It’s much easier to be successful when you’re emulating winners. So read this short blog post to see what successful option traders have in common.

10 Option Trading Traits from Investopedia: Lean a little more about what it takes to win at option trading using this Investopedia article. It’s quite thorough and should shed even more light on what you need to do be a successful option trader.

Option Trader Personality Profile: This article is a little bit cheesy. But it does raise some good points about what it takes to be a successful option trader. If you thought stock trading made it difficult to maintain composure over your emotions just wait until you wade in to the volatile world of option trading!

Lean The Option Trading Basics: Success-With-Options has some great information to help you start learning option strategies. Their basic information doesn’t assume much prior knowledge so if you’re still interested in being a successful option trader this will be more than enough to get you going. You can also find free advanced option trading strategies to really help you improve your long term returns. Not bad right?

So…

Hopefully this list of options trading resources will help get you on your way to being a successful option trader. While option trading can be frustrating at first, it can also be a great way to augment your investment returns.

And By The Way: If you’re looking for more information on how to improve your stock market trading and investing, I encourage you to sign up below. You’ll get a copy of my free ebook and weekly updates with my favourite stock trading tools and resources. What’s not to love?

How Do You Find Top Stock Picks to Buy Now?

top stock picks to buy right now

Read this article to find the top stock picks to buy right now…

How Do You Find Top Stock Picks to Buy Now? It’s a good question, and one worth learning the answer to. Luckily, you came to the right place. And in this blog post we’ll look at how you can find the top stock picks to buy right now.

Of course…

You can always rely on third-party stock trading services. But today we’ll start with the basics and help you find top stock picks to buy now using free stock trading tools and resources available online. Now before we jump in to specific stock picks and ideas, there’s one thing I want to make clear.

The Top Stock Picks to Buy Now Are Momentum Stocks:

I’m primarily a value investor. So it hurts me to say this. But if you’re looking to find top stock picks to buy now you probably want to focus on the momentum favourites. The sad truth is…

In the short term grind of the stock market, money chases performance, not value. Of course markets are efficient over the long term. But if you’re a short term trader you can use the momentum-based-popularity content to find the top stock picks to buy now. Just don’t get married to these names because momentum stocks can cool off quickly.

Here’s a link to free momentum stock screening videos to help you zoom in on the top stock picks to buy right now.

Now with that in mind, you should know not all momentum stocks are created equal. And below I’ll show you some of my favourite screens to find top stock picks to buy right now. In my experience, it pays most to look for stock picks that are not only momentum favourites but also have a few key fundamental drivers in place to ensure a margin of safety.

 Undervalued Momentum: Top Stock Picks to Buy Now

One of the best stock picks to buy now are the undervalued momentum names. These stocks have not only demonstrated strong price performance, but they also have a fundamental margin of safety. You see…

Undervalued momentum stocks are often the top stock picks to buy right now because they are not too extended in their run and they have a strong business case backing them up. If you want to see what this looks like in practice, You can watch this short video to learn how to find safe momentum stocks.

The big risk with buying a momentum stock is that you are only paying for momentum. When you focus on momentum stocks with strong earnings and high assets you can eliminate this major risk and focus only on buying the top stock picks right now.

Insider Momentum: Another Source For Top Stock Picks Right Now

If you’re looking for more speculative top stock picks to buy right now, there’s another angle you can use. To get great stock picks you can often look at what insiders are doing. While there are lots of reasons insiders sell stock, there is usually only one reason insiders buy stock.

So following stocks with momentum, safety and insider buying is another way to zoom in on the top stock picks to buy right now. If you’re not sure how to find these stocks then watch this short video to find safe insider buying stocks. When you team up with insiders, it makes it easy to isolate the top stock picks to buy right now. Make sense?

Ideally, you will be able to focus on stocks with undervalued momentum AND insider buying. In my opinion, these make up some of the best stock picks to buy right now. And using the stock screens in the videos above you’ll see these ideas are actually pretty easy to find.

So hopefully this blog post has helped you zoom in on the top stock picks to buy right now. By using these techniques you can always be on the lookout for the best top stock picks on the market today.

And By The Way: If you’re looking for more valuable information on how to sort and screen stock ideas then I encourage you to sign up using the form below. Enter your email for my free 12 page ebook on how you can make money in the stock market. Plus, I’ll send you my favourite tips, tools and resources each week to help you improve your stock trading.

How to Win Friends and Influence People (Book Review)

How to Make Friends and Influence People book review

Learn why How to Win Friends and Influence People is a book you don’t want to pass up…

How to Win Friends & Influence People by Dale Carnegie is “The Only Book You Need to Lead You To Success.

And to be fair: How to Win Friends and Influence People is a classic personal-development book. So while it’s not an investing book, it does have relevance for investors. Do you know why?

The reason How to Win Friends & Influence People should be of interest to you as an  investor is because Warren Buffett took a Dale Carnegie course (based on the book) to improve his social skills. This was a critical step for Buffett because it allowed him to get comfortable speaking in front of others. It’s hard to imagine his investment partnerships taking off without the help from Dale Carnegie.

So by now you must be wondering…

Is How to Win Friends and Influence People the right personal development book for you?

Why How to Win Friends and Influence People is a Good Book:

How to Win Friends & Influence People is a classic book that has been around for nearly one hundred years. In that time, over 15 million copies of How to Win Friends and Influence People have been sold. These facts alone should be enough to convince you that How to Win Friends and Influence People is a great book worth reading.

How to Win  Friends and Influence People is also easy to understand. And it’s written in a very conversational tone with simple anecdotes that clearly illustrate the underlying points. I think this is one of the reasons How to Win Friends and Influence People is so popular.

Another thing to keep in mind is…

How to Win Friends and Influence People is a book that can be applied to any situation. It is a book that’s helpful for business owners, sales people and even family members. How to Win Friends and Influence People is so widely applicable and bound to impact your life positively in a wide variety of ways. But that’s not even the best part of this classic non-fiction book.

The Best Part About How to Win Friends and Influence People

How to Win Friends and Influence People is an amazing book with all kinds of lessons for improving your interpersonal skills. But the best part of the book is how it’s very focused on providing actionable information. For example…

The introduction to How to Win Friends & Influence People provides steps on how to get the most out of the book. It tells you to take notes and think intensely about the lessons you learn when reading. The chapters are also organized into sections so it’s easy to wrap your mind around the key concepts behind each tactic Dale Carnegie shares.

Finally:

Each chapter of How to Win Friends and Influence People ends with a key takeaway lesson. This makes it especially easy to apply the information in the book to your life for a positive impact. Pretty cool, right?

Why You Need To Read How to Win Friends and Influence People Twice:

How to Win Friends and Influence People is an amazing book. But since it is so jam-packed with knowledge you’ll probably want to read it more than once. Luckily, the book is pretty short and easy to read. But the point is…

How to Win Friends and Influence People is a book you’ll want to revisit at least once or twice over the course of your life. That’s because the lessons are quite diverse and they apply to so many different aspects of life that you simply can’t absorb and apply all the information in one read.

While most of the book carries a common theme, there are still nuances to each tactic. And that’s why it’s a book you’ll want to read more than once. So is How to Win Friends and Influence People the right book for you?

How to Win Friends and Influence People – The Final Word:

How to Win Friends and Influence People is a great book that has really stood the test of time. 15 million people have already benefited from the knowledge in this classic book. So what are you waiting for? In fact, I recommend you buy How to Win Friends & Influence People on Amazon today.

How to Win Friends and Influence People is a book you can use your entire life to improve your personal relationships, your sales ability and your general outlook on life. How to Win Friends and Influence People is a great book and one I recommend reading, and keeping on your desk as a reference manual. If you’re looking for more information, you can also watch the video book review of How to Make Friends and Influence People, below.

How to Win Friends and Influence People Video Book Review:

Fallacies in Efficient Market Theory

fallacies in efficient market theory

Read this blog post to familiarize yourself with common fallacies in efficient market theory…

Fallacies in Efficient Market Theory: Do they exist? And if so, how can investors and traders take advantage of the market inefficiencies to make more money in the stock market?

Well…

In this short blog post we’ll quickly look at efficient market theory – and some of the common fallacies. Then, I’ll show you the most compelling rebuttal to the efficient market theory I have ever seen. So by the end of reading this article you should have a very strong understanding of the fallacies in efficient market theory.

By the way, if you aren’t familiar with efficient market in the first place, you should read A Random Walk Down Wall Street. Now let’s get into it…

Common Fallacies in Efficient Market Theory:

While efficient market theory has remained popular in academic circles, there are still a number of common fallacies that exist today. So to get started…

Remember that efficient market theory says everything in the market is perfectly priced. That’s because all the information available is known by market participants and factored in to the price. At first glance, you might think this view is a little bit naive. And I can’t really blame you.

Beyond a general feeling of “too good to be true,” a more pressing fallacy with efficient market theory is the idea that markets are efficient ALL of the time. I think Ben Graham said it best, “In the short term the market acts like a voting machine, but in the long term it acts as a weighing machine.”

So while academics argue markets are efficient all the time, I think Ben Graham is the one you should trust. Think about it: Traders make their living exploiting short term market inefficiencies. So in the short-term the market can be a little bit more like a popularity contest than a valuation contest. And again…

Doesn’t it seem naive to admit that people are perfectly rational creatures all of the time? If you’ve ever traded stocks before you probably know how tricky it can be to control your emotions at all times, right? People make mistakes. And I think failure to recognize it is a big shortcoming of efficient market theory.

Another common fallacy about efficient market theory is that there is no distinction between information and knowledge or judgement. Just because all the information is only a few Google searches away, it doesn’t mean the majority of market participants have successfully interpreted it. People make mistakes.

As you can probably tell by now, there are a lot of fallacies in efficient market theory. For more common fallacies in efficient market theory I encourage you to read this paper on Common Sense Investing by Benjamin Graham.

Now let me share the most compelling investment against efficient market theory. I think this argument points out all of the fallacies in an extremely convincing manner.

The SuperInvestors of Graham-and-Doddsville:

Warren Buffett wrote an essay for Columbia Business school called The SuperInvestors of Graham-and-Doddsville. In this paper he does a very compelling job pointing out the fallacies of the efficient market theory. It’s also included as an appendix in The Intelligent Investor. Take a second to watch this short video to see what I mean…

Hopefully by now you’re starting to see some of the major fallacies of the efficient market theory. When you realize that people are often influenced by emotion, and that value investing has proven time and time again to outperform, it’s hard to take efficient market theorists at face value. Know what I mean?

But what do you think? Do you believe in efficient market theory? Or do you think these fallacies ring true?

And By The Way: If you’re looking to stay up to date with your approach to stock market trading and investing I encourage you to sign up using the email form below. You’ll get my free 12 page eBook explaining how I started consistently profiting in the stock market. Plus I’ll send you free updates and tools each week to help you make more money in the markets.

Sector Rotation and the Business Cycle

economic cycle and sector rotation

Read this article to see how you can use sector rotation and economic cycles to your advantage…

Understanding Sector Rotation and the Business Cycle can help you outperform in the stock market. But using sector rotation to time your stock buying and selling can be a complicated affair.

So…

In this blog post I’ll show you my favorite resource for timing sector rotations and the business cycle. Because believe it or not, there are a couple of simple online charts you can use to help you understand sector rotation and the business cycle.

Sector Rotation and the Business Cycle – The Basics:

Sector rotation and the business cycle sound complicated. But once you think about the basics of the economic cycle, everything becomes pretty clear. So here’s what you need to keep in mind…

The business cycle refers to the expansions and contractions of the economy. And investors are always concerned with how this affects stock prices in different sectors. They’re also concerned with how government policies and central bankers interpret the business cycle. For example…

If the economy is contracting, central bankers will stimulate the economy by lowering interest rates (and using the other FED policy tools). And if the economy is growing central bankers may put pressure on growth to slow down inflation. These actions are what you should really be watching as an investor trying to capitalize on sector rotation. Now let’s get into some specifics…

Diagram of Sector Rotation and the Business Cycle:

Sector rotation and the business cycle go hand in hand. As interest rates (and cost of capital) change, so do the relative appeal of investments. And since a picture is worth a thousand words, take a second to review this sector rotation and business cycle diagram.

sector rotation and the business cycle

The above diagram distinguishes the impact of the business cycle on sector rotation (Chart from ACG Advisors)

As you can see in the diagram above, the business cycle has a massive influence on sector rotation. And if you want a little more detail…

Sector Rotation and The Business Cycle: Further Reading

While the above chart should give you a lot of context on how sector rotations are influenced by the business cycle, there are other great resources you can review. And surprisingly, one good introductory resource for learning more about sector rotation and the business cycle is Jim Cramer’s Real Money. He even includes his own version of the above business cycle diagram…

real money business cycle and sector rotation

Cramer’s Real Money provides great insight on how traders and investors can capitalize on sector rotation using changes in the economic cycle (Click to Enlarge).

Jim Cramer’s Real Money provides a lot of insight into sector rotations and how they are influenced by central bank policy makers and the business cycle. His portion of this book is really focused on how to make the most money in different parts of the economic cycle. So if you’re looking for more actionable information on how to take advantage of sector rotations and the business cycle you may want to read this Real Money book review.

And By The Way: If you’re looking for more insight into how to improve your stock market investing you might enjoy downloading my free ebook below. It’s only 12 pages so you can read it quick. And I’ll send you the best resources and tips each week to help you swing trading smarter.

Put Option Strategy Examples

put option strategy example

If you think the market balloon will pop, read these put option strategy examples to cash in…

Put Option Strategy Examples can really help you take advantage of option trading. So getting familiar with the difference between puts, calls and strikes is well worth learning. And soon enough you can use put option strategies to protect your portfolio and improve your return.

Now you must be wondering…

What are some put option strategy examples? Do put options really limit your losses? And can put options be applied to the broad market or do they work best when focused on individual stocks?

Well my inquisitive friend, you’ve come to the right place. In this short blog post we’ll answer all that and more.

And by the Way: If you’re interested in using options on the long side, you’re sure to enjoy this post on Trading LEAP call options. Now, let’s get into some put option strategy examples, shall we?

Why Put Option Strategies Start With Limited Losses:

Put option strategy examples are most commonly embraced by traders and investors who are looking to limit losses in the stock market. Some investors use put options to make exceedingly bearish bets, while others use put option strategies for a little extra hedging. But no matter the exact approach… there’s one thing most put option strategists have in common...

Put option strategies allow you to profit if stocks go down; but, they don’t have the unlimited losses you are exposed to when short selling stocks. That’s because in the case of put options, you pay a fixed price for the option contract. Even if the underlying stock goes to the moon you can only lose the amount of money you paid for the option contact. Make sense?

While shorted stocks can always squeeze higher, put option losses are limited to the strike price your pay for your option contract. Got it? Now, let’s dive in to some more specific put option strategy examples.

Put Option Strategy Examples For Stock Market Indices:

A lot of traders and investors use put option strategies to protect themselves from drastic changes in the stock market. This is one of the technique’s described in Fooled by Randomness. And it’s a very common put option strategy employed by hedge funds, brokerage firms and money managers all over the world. So how does it work?

Basically, it’s kind of like insurance: you pay a premium and you are compensated in the event of losses. For example if you have a long-only portfolio of stocks, you can get  downside protection by buying put options of the S&P-500 ETF SPY. Then in the case of a market decline, your put options will increase in value while the stocks in your portfolio go down.  So…

Depending on the time frame of your options (and the strike price), the amount you pay for protection will vary. Long dated put options expiring a year or more down the road will cost more than put options that expire in a week or two. With option, you pay for time. Thus…

The exact broad market put option strategy you choose will depend on whether you fear a short term market hurdle caused by a specific catalyst, or if you think the market as a whole is overvalued. In the former case you’re probably looking at shorter, more time-specific option strategies to protect your portfolio from a specific event. Cool?

And naturally…

If you’re incredibly bearish on the stock market, then put option strategies can help you really profit should the market collapse (although this is not without it’s risk). You may lose a little of your premium as the market grinds higher but your put options will shoot up in value if the market collapses.

Now that you have an idea of how put option strategy examples work in the broad market, let’s zoom in on some specific stock picks and ideas.

Stock Specific Put Option Strategy Examples:

Put option strategies are really effective for getting downside exposure on specific stock issues, not just the broad market. One of the reasons put option strategies are so popular is because not only are your losses limited, but you can avoid the worst short squeezes because you don’t have to worry about being able to borrow shares. You see…

Put option strategy examples can help you avoid the unique pains of shorting specific stocks that have a very high percentage of stock sold short. Instead of worrying about what percentage of the float is tied up in short stocks, you can just buy put options. One example where this benefit is extremely apparent is a stock like Tesla Motors (TSLA). Specifically…

If you tried to short sell shares of TSLA last year around $100 you would have found that a high percentage of shares are sold short it can be difficult to find shares to borrow. Beyond that, you could have got short squeezed for hundreds of dollars as TSLA grinds higher with no end in sight.  On the other hand…

If you took the strategy of buying put options you would find that the % of shares sold short doesn’t influence the liquidity of your position. And while your options may have expired worthless, your losses would be limited to the cost of the puts (instead of the untold upside TSLA has experienced).

One word of warning: Buying put options or shorting a stock because a company is overvalued is often a mistake. Valuations can defy logic longer than you can stay liquid on the short side. Accordingly you may want to wait until an overvalued stock begins to fail before adding to your put options. Don’t force the buy and let the market confirm your idea before you put money on the line with risky examples of put option strategy.

In conclusion: I know put buying strategy examples are complex. And it can be difficult to wrap your around exactly how put options work, especially if you’re new to option. But the thing you should keep in mind is the above examples of put option strategy are an effective way to get downside exposure to the stock market while avoiding some of the unique risks of short selling. Not bad, right?

And By The Way:  If you’re looking for more innovative and unique ways to approach the stock market then I encourage you to download my free e-book below. You’ll learn to swing trade smarter, and get free updates each week with my favourite stock market tips and resources.

Best Ways To Short The Chinese Stock Market

best way to short chinese stock market

If China’s growth is slowing, it could pay to learn how to short sell the Chinese stock market…

The Best Ways to Short the Chinese Stock Market: It’s easier than you think. Shorting the Chinese stock market is of increasing interest to investors and traders as rumours of slowing Chinese growth continue to gain steam. If you aren’t convinced this free documentary about How China Fooled The World might be of interest to you.

And luckily…

There are a number of different ways to short the Chinese stock market. And in this blog post I’ll share some of the most common. This way you can find the best way to short the Chinese stock market, given your individual trading and investing preferences.

Now let’s cut to the chase…

ETFs Are The Easiest Way To Short The Chinese Stock Market:

The truth is, ETFs are one of the best ways to shot the Chinese stock market. That’s because shorting the Chinese stock market with ETFs is very easy. For example, you can use ETFs to get broad market exposure to China while still keeping your

Plus…

Having broad exposure to the largest companies in the Chinese stock market is an easy way to diversify your bet against the Chinese stock market indices. That way, you don’t have to pick out only one company or sector, but instead you have thorough exposure to slowing global growth. So here are a list of the most popular China ETFs that you can use to short stocks. Shorting FXI seems to be the most straightforward strategy.

But for more nuanced traders might want to short Chinese stocks more specifically. In that case, take a look at this…

The Best Stock Screens To Short The Chinese Stock Market:

The best way of shorting the Chinese stock market might be to focus on the weakest or most over-valued Chinese stocks. Plus, there are plenty of Chinese stocks listed on American exchanges. And that can make it easy to find Chinese stocks that you can sell short in your native currency. So here’s how I recommend you get started.

Using free online stock screeners like Finviz.com you can zoom in on stocks from a given country, in this case, China. When I’m screening for stocks that I want to short, there are a couple of things to keep in mind – and these are especially true with Chinese stocks.

First of all, you want to focus on Chinese stocks that are overvalued. These make good candidates for short selling because they can often experience a steep decline when the momentum finally runs out. Without hard assets or strong valuations to back them up the stocks can fall very fast, which means a bit payday for you.

But before you get carried away shorting overvalued Chinese stocks…

You should know that a high valuation is not reason enough to short sell any stock. That’s because valuations can always go higher as short term traders act on emotional impulse rather than logic. Instead, you should focus on short selling overvalued Chinese stocks that are already starting to deteriorate. Look for Chinese stocks where the momentum is already starting to fade. To get you started…

Here’s a stock screen of overvalued Chinese stocks with negative price performance in the last month. This would be a good place to begin looking for Chinese stocks to short sell. Make sense?

Hopefully this blog post has helped you figure out how to short the Chinese stock market, as well as how to find the best stocks to short sell based on your personal preference and investing style. As you now know, there are many ways to short the Chinese stock market, so let me know which one looks best to you.

And by The Way: If you’re looking for more information on how to intelligently approach investment opportunities then I recommend you download my free ebook below. You’ll find that it’s easy to read and can help you make smarter capital allocation decisions. Why not check it out?

Fastest Growing Penny Stocks in 2014

fast growing penny stocks in 2014

Learn how to spot fast growing penny stocks in 2014 (click to enlarge)

Looking for the Fastest Growing Penny Stocks in 2014? Well, look no further! This blog post will focus entirely on the fastest growing penny stocks in 2014.  But keep in mind…

There are a couple of different ways to rank stock growth. So in this blog post you’ll see a couple of different takes on the fastest growing penny stocks in 2014. That way, you’ll have the best chance of finding the best fast growing penny stock for you.

Now let’s cut to the chase…

Stock Screens For Fastest Growing Penny Stocks in 2014:

As I mentioned, there are a couple of different ways to sort the fastest growing penny stocks in 2014. So here are some of the easiest ways to find fast-growing penny stocks…

By using free stock screeners you can easily identify fast growing penny stocks. And by focusing on current, past or future growth rates, you can easily identify penny stocks at different point in their growth stories. This is essential to finding the right penny stock for you. Personally…

I like to aim for penny stocks that have strong sales growth in the current years and high EPS projections for the coming years. Of course I always combine this with a Margin of Safety. But it’s a great place to start.

Another approach to find fast growing penny stocks is to focus on earnings revisions. When companies revise their EPS upward it is often a very positive sign for growth. You can definitely zoom in on the fastest growing penny stocks in 2014 by finding those with big upside revisions. Here’s an example…

fastest growing penny stocks 2014

These stock ideas are under $5 but likely to experience further growth based on ESP revisions (click to enlarge).

As you can see, there are plenty of different way to find the fastest growing penny stocks in 2014. And as the year rolls on there are sure to be new winners in the penny stock market. If you’re still a little unsure which penny stock picks will work best for you, I encourage to read these tips for trading penny stocks.

And Of Course: If you want to learn more about how to improve your stock market trading and investing I encourage you to download my free ebook below. It’s only 12 pages so you can read it quickly. But it will give you a concept of how I formed an intelligent approach to swing trading and how you can too!

How To Survive a Bear Market (In 3 Easy Steps)

how to survive a bear market

Learning how to survive a bear market doesn’t have to be complicated…

Learning How To Survive a Bear Market can help you protect your trading and investing accounts in times of market strife. But learning how to survive a bear market isn’t always easy. So in this short blog post we’ll explore how you can survive a bear market in 3 simple steps.

And keep in mind…

Even though we’ve previously looked at how to calculate the downside when stocks are dropping, and how to trade stock market pullbacks – a bear market is an entirely different beast all together. So…

If you keep these practices in mind you will be well on your way to surviving the next bear market – whether cyclical or secular. So, let’s explore what you can do to survive a bear market…

How To Survive a Bear Market – Step 1

The first step to surviving a bear market is simple stage analysis. If you aren’t objective about the stock market price action you are unlikely to spot a bear market pullback until it’s too late. And the easiest way to be objective is to keep an eye on what stage the market is in and adjust your risk exposure accordingly.

Over the years I’ve read myriad investment books, and it’s amazing how many of the time-tested traders and investors focus on stage analysis. Technical-analysis-oriented books like Secrets for Profiting in Bull and Bear Markets and How to Trade in Stocks both share techniques for identifying the stage of the market. Both books also emphasize the importance of remaining disciplined in the face of stage analysis.

Speaking of which…

How To Survive a Bear Market – Step 2

The second step to successfully surviving a bear market is to remain objective and unattached to your stock picks and ideas. It’s very easy to get emotionally involved with your investment ideas – especially when you invest a lot of money in them. But the truth is…

If you’re too complacent or (worse yet) enamored with your stock ideas then you won’t be able to see when the facts are changing. You need to keep your eyes open to cracks in your investment thesis and be ready to admit when you’re wrong. While this step is simple, it’s not exactly easy.

On the other hand…

One key to mastering step 2 in surviving a bear market is always having a steady source of stock ideas and investment picks. There are lots of different ways to find new trading ideas and stock picks. And having a steady stream of stock ideas to analyze and look at keeps you critical of your current portfolio holding – which is essential to surviving a bear market.

How To Survive a Bear Market – Step 3

The final step to surviving a bear market is to zoom out! Once you see a bear market starting to grab hold you should take a step back. Use weekly stock charts to get a bigger picture.

So instead of freaking out about the day to day action…

Take a wider view and re-calibrate your perspective on support and resistance trend lines. Realize that in a bear market it’s not time to press your bets on the long side. Instead, you need to be patient. And before you dive back in…

Repeat step 1 of how to survive a bear market! Wait for the market to confirm it is basing out and starting to move higher before putting your capital at risk. If a new bull market is truly under-way there will be lots of profits to be had: So don’t force the buy and wait for the market to prove itself on the bigger picture (weekly or monthly) time frames.

Hopefully by now you can see the overall key to surviving a bear market is about protecting your capital and making sure you live to see another day. And I hope these three easy steps help you understand how to survive a bear market in practice.

And By The Way: If you’re looking for more information and resources to help you profit in any stock market condition, I encourage you to download the free ebook below. You’ll also get free weekly updates sharing my favorite stock market tip, tools and resources.