As most of you likely have heard America is about to plunge to its economic death when the clock strikes 12:01 on January 1st. Lawmakers in Washington are about to drive us right off the Fiscal Cliff! At least that is what the media will have you believe. On January 1st, if congress cannot compromise, we will see tax increases across the board on all Americans and mandatory cuts to spending in areas of Defense and many other social programs. These tax hikes and spending reductions were put in place to force the hand of politicians to come to some sort of compromise on millionaires tax rates and more fiscal responsibility in reducing our nations deficit.
We are not going to get into picking sides and pointing fingers at who is right and who is wrong because likely both sides are at fault. What we want to do is to try to determine if "going over the cliff" (i hate this term by the way) will sink the economy back into a recession and cause the stock market to crash. Now I am of the opinion that the media attempts to scare the sap out of the American public; frightened people are easier to herd and make conform to ideologies. If you have been listening to any sort of news media in the past 6 months, the Fiscal Cliff has been front and center and now the chatter has become deafening. I am hearing "traders" on CNBC talk about how this is the first time in their careers that they have sold all of their stocks and are sitting in a 100% cash position. Even blogs i follow with very successful traders and investors are shaken by the idea of going over on Jan 1. When I begin to hear this much widespread panic, a little bell goes off in my head. Not a warning for fear but rather a warning for opportunity.
Very typically the markets will not reward herd mentality. What I mean is when the majority of investors and news feeds are leaning one way or another, for example on the Fiscal Cliff issue, there becomes more opportunity on the other side of the spectrum. If the majority of participants are all selling, then at some point there are no more sellers left and the opportunity to buy becomes greater than selling. With all of the negativity surrounding the cliff deal, it just seems to me that everyone is expecting the same outcome...A No Deal.
When everyone is expecting a possible outcome the markets will adjust for the expected result, in this case everyone thinks we are headed over the cliff and the market has held itself back from reaching new highs. This is where the term "priced in" comes from. Someone will say the market has "priced in" a No Deal on the Fiscal Cliff; what this ultimately means is that the market is prepared for the No Deal by congress and that most of the damage (in terms of lower stock prices) has already been accounted for. Therefore we likely will not see a crash as a result; crashes occur from surprises, not widely expected events.
My warning bell has notified me that we could see a surprise result in the opposite direction of what everyone else is expecting. Now I am not positioned heavily in one direction or another, but I am also not panic selling the positions I do have; I am actively looking for good opportunities this mini panic has created. It is NOT a good idea to try to guess the outcome of an unknown event and bet for or against it; guessing and gambling are not part of my plan. What my plan does do is get me positioned to take advantage of what the price action shows me to be the best possible decision. The recommendation I am giving is to not panic along with the herd, but also don't try to anticipate the result of this decision. Full disclosure I am roughly holding 1/3 stocks and 2/3 cash; I am holding onto my strongest positions and prepared to add to those holdings should the result I'm expecting come to fruition. I think it is most prudent to hold some stock and some cash in this moment of uncertainty. I don't want you heavily leaning one way or another until a decision is actually announced and settled.
However, the market does not care about my opinion or anyone else's, it will do as it pleases and we are merely along for the ride. That being said investing and trading are not so easy as just going along with what the news tells you to do, if it were everyone would be a millionaire. The market is full of tricks and we have to be prepared at all times for reactions that we do not anticipate. Initially if there is a No Deal outcome we will most likely see a knee-jerk sell off in the markets. But, I would consider that an opportunity to buy, not sell. Again, I may be proven wrong on this and as always I will obey my risk management.
Sunday, December 30, 2012
Wednesday, December 26, 2012
Where Are We? A Market Overview
If you are new to this market you will need a quick crash course on where we are and where we have been over the past 3-4 years. It is very important to understand what has happened in the recent past if you are going to be managing your own savings. Knowledge of the worlds economies is very helpful in identifying possible trends or pitfalls along the way. So lets get started!
Unless you have been living under a rock for the past 5 years you will know that America went through a fairly severe recession. Which included a large stock market crash that coincided with the collapse of the housing market. However since that crash the stock market has rallied over 100%! Most people who don't follow the markets and only listen to the news may be surprised to hear that fact. What that essentially means is that if you had invested your life savings in the stock market in 2008 you would still have roughly the same amount of money here in 2012. That is unless you panicked and sold everything near the bottoms (which is most common for individual investors to do) you would still be on fairly level footing as America is beginning to pull itself out of the recession. We will get into investor psychology later in our studies, but the point is that America has started to come back; housing is recovering, unemployment is improving and our stock markets are approaching all time highs.
These recoveries rarely happen on their own and this time is no different. Since the crash in early 2009 the Federal Reserve Bank of the USA has engaged in a massive stimulus program that has aided in the stock market recovery. Whether this has helped the actual economy is up for debate but as investors we rarely care why something is happening, we simply need to be prepared to take advantage of the opportunity in front of us. This stimulus program goes by the phrase "Quantitative Easing" or "QE" and basically means that the government has been printing money and purchasing bonds and other types of securities (stocks, bonds, mortgage loan packages). The purpose of this "easing" is to make money cheaper for lenders and theoretically provides free cash to be put to work in the markets, creating higher stock prices.
The reason we focus on this policy by the Fed is that it is the primary driver of our stock market recovery over the past 3 years and their actions are what we need to focus our attention on (for now). Since 2009 we have had several of these easing packages QE1, QE2, Operation Twist, QE3, and the latest going into effect in January 2013, QE4. The reason we care about these operations is this:
Needless to say there is quite a correlation between the Fed stimulating and our market going higher. It is not very important that you understand exactly what they are doing, however it is very important that you follow along and listen to what the market is telling you. And if its not clear to you yet here it is: DON'T FIGHT THE FED! As long as the Fed is stimulating the markets and the economy, you should be investing along with them. Period.
There are structural (fundamental) reasons our economy has improved lately as well. Since the crash in 2009 the unemployment rate in the US has dropped from 10% at its highest down to roughly 7.7%. Which is the lowest unemployment we have seen since the recession. Employment is very important for the health of our economy being that we are primarily a consumer based economy. Which means that if people are not working, they are not buying things. If they are not buying things then business will struggle and therefore have to lay off more people, making the problem worse. So the unemployment claims are very important to follow as an investor.
Another important factor helping the economy and confidence is the fact that housing prices have begun to improve. It is a very good thing to see in a recovery when the primary driver of the collapse (housing market) has begun to turn and go higher. Part of the reasoning behind the housing rebound has been due to interest rates on loans are near all-time lows. This encourages people to take out safer loans and allows them to afford a new house or refinance their existing mortgage to a more affordable rate.
Basically I can sum all this up for you in a few lines:
1. Don't fight the Fed...If they are stimulating you should be buying stocks
2. Watch Unemployment. Jobs cure all in a consumer based economy
3. Housing seems to be rebounding and creating more confidence in the recovery
4. Despite political squabbling and tax fears, the US markets are within 10% of their all time highs (this is a strong signal)
This is merely a commentary on the market recovery and some of the general reasons behind it. This is a simplistic view of a very complicated system, however you will find through our journey that the simple solution is most often the best. If you understand these basic concepts you will be building a solid base to continue our studies into the markets. Feel free to ask me any questions you may have in the comments section below and I will look forward to our next discussion which will involve how to begin to pick out some stocks that we will want to follow.
Unless you have been living under a rock for the past 5 years you will know that America went through a fairly severe recession. Which included a large stock market crash that coincided with the collapse of the housing market. However since that crash the stock market has rallied over 100%! Most people who don't follow the markets and only listen to the news may be surprised to hear that fact. What that essentially means is that if you had invested your life savings in the stock market in 2008 you would still have roughly the same amount of money here in 2012. That is unless you panicked and sold everything near the bottoms (which is most common for individual investors to do) you would still be on fairly level footing as America is beginning to pull itself out of the recession. We will get into investor psychology later in our studies, but the point is that America has started to come back; housing is recovering, unemployment is improving and our stock markets are approaching all time highs.
These recoveries rarely happen on their own and this time is no different. Since the crash in early 2009 the Federal Reserve Bank of the USA has engaged in a massive stimulus program that has aided in the stock market recovery. Whether this has helped the actual economy is up for debate but as investors we rarely care why something is happening, we simply need to be prepared to take advantage of the opportunity in front of us. This stimulus program goes by the phrase "Quantitative Easing" or "QE" and basically means that the government has been printing money and purchasing bonds and other types of securities (stocks, bonds, mortgage loan packages). The purpose of this "easing" is to make money cheaper for lenders and theoretically provides free cash to be put to work in the markets, creating higher stock prices.
The reason we focus on this policy by the Fed is that it is the primary driver of our stock market recovery over the past 3 years and their actions are what we need to focus our attention on (for now). Since 2009 we have had several of these easing packages QE1, QE2, Operation Twist, QE3, and the latest going into effect in January 2013, QE4. The reason we care about these operations is this:
There are structural (fundamental) reasons our economy has improved lately as well. Since the crash in 2009 the unemployment rate in the US has dropped from 10% at its highest down to roughly 7.7%. Which is the lowest unemployment we have seen since the recession. Employment is very important for the health of our economy being that we are primarily a consumer based economy. Which means that if people are not working, they are not buying things. If they are not buying things then business will struggle and therefore have to lay off more people, making the problem worse. So the unemployment claims are very important to follow as an investor.
Another important factor helping the economy and confidence is the fact that housing prices have begun to improve. It is a very good thing to see in a recovery when the primary driver of the collapse (housing market) has begun to turn and go higher. Part of the reasoning behind the housing rebound has been due to interest rates on loans are near all-time lows. This encourages people to take out safer loans and allows them to afford a new house or refinance their existing mortgage to a more affordable rate.
Basically I can sum all this up for you in a few lines:
1. Don't fight the Fed...If they are stimulating you should be buying stocks
2. Watch Unemployment. Jobs cure all in a consumer based economy
3. Housing seems to be rebounding and creating more confidence in the recovery
4. Despite political squabbling and tax fears, the US markets are within 10% of their all time highs (this is a strong signal)
This is merely a commentary on the market recovery and some of the general reasons behind it. This is a simplistic view of a very complicated system, however you will find through our journey that the simple solution is most often the best. If you understand these basic concepts you will be building a solid base to continue our studies into the markets. Feel free to ask me any questions you may have in the comments section below and I will look forward to our next discussion which will involve how to begin to pick out some stocks that we will want to follow.
Monday, December 17, 2012
Stocks and Fantasy Players...More in Common Than You Think
These days there are many in our generation or younger that partake in fantasy sports leagues that have absolutely zero interest or trust in the stock market. This does have some merit as we have been programmed by the media that the market is very complicated and you should only trust your money to a professional. That, and the fact that anyone over the age of 18 has seen two major stock market crashes leaving many of their parents' retirement plans in doubt. Yet they play fantasy football, baseball, basketball, etc. and have developed many skills that directly translate to managing a successful stock portfolio.
Think of a stock portfolio (which is simply a collection of stocks, funds and cash) as your fantasy sports team roster. Football being a great example but others work just as well.
Your team requires a QB, RB, WR, TE, and Defense. Think of these positions in terms of their value within your overall roster; you want a QB who will be consistent and solid, a Running Back who will get many opportunities to score touchdowns, Wide Receiver has a few purposes depending on how you want to structure your team, for example a boom or bust sort of player or a more dependable possession receiver. Your Defense should be solid, not give up many points and have the opportunity to create some turnovers (upside).
Now that you have an idea of how you want to build your team you do some research on what kind of opportunity each player offers. You narrow down your list to the players that fit your strategy and draft as many as you can. As the season plays out some of your picks will do better than others, some will completely fall apart and some new prospects will emerge.
Congratulations! If you have made it through a successful fantasy season, you have already done more than necessary to manage your own money.
In order to build a solid and successful stock portfolio you will need some of the following stocks:
-solid producing stocks in terms of consistency and upward momentum
-stocks with strong upside potential, but likely some higher risk
-stocks that are safer and less likely to go up or down quickly; pay dividends
You will begin to research companies you may work for or regularly use their products. You will begin to think about each company's future growth potential or lack there of. It is usually prudent to determine how strong their financial health is and most importantly you will need to observe and follow their recent stock price performance through looking at price charts.
Once you have narrowed your list to a few stocks that seem to be the strongest, you can then buy them and continue to monitor their progress. Just as in fantasy sports some of your picks will do well, some will do poorly and others will begin to attract your attention and you will research them. It really begins that simply. Buy stocks of companies you know and/or like, follow their performance, and adjust your holdings accordingly. With online resources it has never been easier to be a self manager of your savings. With my basic guidance and concept lessons you will know everything you need to begin to manage your own money safely and hopefully successfully.
We will cover many topics in further posts coming shortly; concepts that are very basic to understand. We will discuss how to identify strong buying opportunities through supply and demand. We will learn how to listen to what the Market is saying; we will not fear what some commentator on tv or the radio says. Most importantly we will learn how to manage risk in our portfolios. There are not many things in the market you can control, but the one thing you can control is how much you are willing to lose on a single stock. You set a limit and stick to it.
It really is very simple and requires no cost to begin the process of learning and following the market. I hope you will come with me on this path and learn what you can do for your financial future.
Think of a stock portfolio (which is simply a collection of stocks, funds and cash) as your fantasy sports team roster. Football being a great example but others work just as well.
Your team requires a QB, RB, WR, TE, and Defense. Think of these positions in terms of their value within your overall roster; you want a QB who will be consistent and solid, a Running Back who will get many opportunities to score touchdowns, Wide Receiver has a few purposes depending on how you want to structure your team, for example a boom or bust sort of player or a more dependable possession receiver. Your Defense should be solid, not give up many points and have the opportunity to create some turnovers (upside).
Now that you have an idea of how you want to build your team you do some research on what kind of opportunity each player offers. You narrow down your list to the players that fit your strategy and draft as many as you can. As the season plays out some of your picks will do better than others, some will completely fall apart and some new prospects will emerge.
Congratulations! If you have made it through a successful fantasy season, you have already done more than necessary to manage your own money.
In order to build a solid and successful stock portfolio you will need some of the following stocks:
-solid producing stocks in terms of consistency and upward momentum
-stocks with strong upside potential, but likely some higher risk
-stocks that are safer and less likely to go up or down quickly; pay dividends
You will begin to research companies you may work for or regularly use their products. You will begin to think about each company's future growth potential or lack there of. It is usually prudent to determine how strong their financial health is and most importantly you will need to observe and follow their recent stock price performance through looking at price charts.
Once you have narrowed your list to a few stocks that seem to be the strongest, you can then buy them and continue to monitor their progress. Just as in fantasy sports some of your picks will do well, some will do poorly and others will begin to attract your attention and you will research them. It really begins that simply. Buy stocks of companies you know and/or like, follow their performance, and adjust your holdings accordingly. With online resources it has never been easier to be a self manager of your savings. With my basic guidance and concept lessons you will know everything you need to begin to manage your own money safely and hopefully successfully.
We will cover many topics in further posts coming shortly; concepts that are very basic to understand. We will discuss how to identify strong buying opportunities through supply and demand. We will learn how to listen to what the Market is saying; we will not fear what some commentator on tv or the radio says. Most importantly we will learn how to manage risk in our portfolios. There are not many things in the market you can control, but the one thing you can control is how much you are willing to lose on a single stock. You set a limit and stick to it.
It really is very simple and requires no cost to begin the process of learning and following the market. I hope you will come with me on this path and learn what you can do for your financial future.
Friday, December 14, 2012
Welcome
Hi Everybody, Welcome to the markets as I see them! I hope you will follow along on my journey through the financial markets and the very fun and growing world of fantasy sports. I will be sharing my thoughts on overall stock market views, trade ideas, investment strategy and professional Football and Basketball analysis. This blog is meant to be a journal of my accounts of the stock market and lessons I have learned and am continuing to learn, plus some analysis of Fantasy sports player trends and valuation.
The blog will discuss the evaluation of the future values of stock trades and professional sports players. We will talk about risks, rewards, predictions and outcomes. I will also be discussing investing strategy, risk management, trade ideas and fantasy football/basketball (seasons permitting) opinions.
My primary purpose is to help educate people about becoming self reliant with their investments and have fun doing it. Then adding stuff involving fantasy sports and just general thoughts and ideas regarding these topics. Through my posts I also hope to solidify my own understanding of the ideas discussed and learn along with you.
Just know that I will not be offering direct buy/sell advice online as that is not my primary intention, I simply want to offer opinion about my current views about the markets and general economy along with teaching some simple trading techniques that can help you easily know whats going on in the stock market and how to manage your own accounts. Since this is going to be my trading journal now as well I will be discussing my current trades, stocks on my watch list, general strategy rules and lessons as they present themselves.
I very much encourage you to make comments and offer differing opinion if you have them. I intend on this to be a learning experience for everyone involved and look forward to you sharing in my journey.
-CFREE
The blog will discuss the evaluation of the future values of stock trades and professional sports players. We will talk about risks, rewards, predictions and outcomes. I will also be discussing investing strategy, risk management, trade ideas and fantasy football/basketball (seasons permitting) opinions.
My primary purpose is to help educate people about becoming self reliant with their investments and have fun doing it. Then adding stuff involving fantasy sports and just general thoughts and ideas regarding these topics. Through my posts I also hope to solidify my own understanding of the ideas discussed and learn along with you.
Just know that I will not be offering direct buy/sell advice online as that is not my primary intention, I simply want to offer opinion about my current views about the markets and general economy along with teaching some simple trading techniques that can help you easily know whats going on in the stock market and how to manage your own accounts. Since this is going to be my trading journal now as well I will be discussing my current trades, stocks on my watch list, general strategy rules and lessons as they present themselves.
I very much encourage you to make comments and offer differing opinion if you have them. I intend on this to be a learning experience for everyone involved and look forward to you sharing in my journey.
-CFREE
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