Quote for the day

"Trade What’s Happening… Not What You Think Is Gonna Happen." - Doug Gregory

Quote for the day

"You get paid in direct proportion to the difficulty of problems you solve" - Elon Musk

Quote for the day

"When something is important enough, you do it even if the odds are not in your favor." - Elon Musk

Quote for the day

"With a good perspective on history, we can have a better understanding of the past and present, and thus a clear vision of the future." - Carlos Slim Helu

Quote for the day

"Before you can become a millionaire, you must learn to think like one. You must learn how to motivate yourself to counter fear with courage." - Thomas J. Stanley

Quote for the day

"Financial freedom is available to those who learn about it and work for it." - Robert Kiyosaki

Quote for the day

"Being rich is having money; being wealthy is having time." - Margaret Bonanno

Quote for the day

"If a man is proud of his wealth, he should not be praised until it is known how he employs it." - Socrates

Quote for the day

"If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed." - Edmund Burke

Quote for the day

"When prosperity comes, do not use all of it." - Confucius

Quote for the day

"Try to save something while your salary is small; it’s impossible to save after you begin to earn more." - Jack Benny

Quote for the day

"Buy when everyone else is selling and hold until everyone else is buying. That’s not just a catchy slogan. It’s the very essence of successful investing." - J. Paul Getty

Quote for the day

"You must gain control over your money or the lack of it will forever control you." - Dave Ramsey

Quote for the day

"Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver." - Ayn Rand

Quote for the day

"He who loses money, loses much; He who loses a friend, loses much more; He who loses faith, loses all." - Eleanor Roosevelt

Quote for the day

"Many people take no care of their money till they come nearly to the end of it, and others do just the same with their time." - Johann Wolfgang von Goethe

Quote for the day

"It's how you deal with failure that determines how you achieve success." - David Feherty

Quote for the day

"Too many people spend money they earned..to buy things they don't want..to impress people that they don't like." - Will Rogers

What Trading Teaches Us About Life

Trading is a crucible of life: it distils, in a matter of minutes, the basic human challenge: the need to judge, plan, and seek values under conditions of risk and uncertainty. In mastering trading, we necessarily face and master ourselves. Very few arenas of life so immediately reward self-development--and punish its absence.

So many life lessons can be culled from trading and the markets:

1) Have a firm stop-loss point for all activities: jobs, relationships, and personal involvements. Successful people are successful because they cut their losing experiences short and ride winning experiences.

2) Diversification works well in life and markets. Multiple, non-correlated sources of fulfilment make it easier to take risks in any one facet of life.

3) In life as in markets, chance truly favours those who are prepared to benefit. Failing to plan truly is planning to fail.

4) Success in trading and life comes from knowing your edge, pressing it when you have the opportunity, and sitting back when that edge is no longer present.

5) Risks and rewards are always proportional. The latter, in life as in markets, requires prudent management of the former.

6) Happiness is the profit we harvest from life. All life's activities should be periodically reviewed for their return on investment.

7) Embrace change: With volatility comes opportunity, as well as danger.

8) All trends and cycles come to an end. Who anticipates the future, profits.

9) The worst decisions, in life and markets, come from extremes: overconfidence and a lack of confidence.

10) A formula for success in life and finance: never hold an investment that you would not be willing to purchase afresh today.

Source:http://traderfeed.blogspot.co.uk/

Quote for the day

"Treat yourself as you are, and you will remain as you are. Treat yourself as you could be, and you will become what you should be." - Ralph Waldo Emerson

Your Greatest Enemy is Yourself

“Your greatest enemy is yourself” is an ancient Chinese piece of wisdom. The only person you need to beat and conquer is yourself. How many entrepreneurs have proclaimed that they plan on creating the next Wal-Mart, only to work a few hours a week on their “epic” business idea? How many times have you said that you won’t give up, but in reality, run away at the first sign of trouble?

Investing is no different. Without discipline (let me say this as harsh as possible), you are A NOBODY. You can subscribe to the greatest investment newsletters. You can buy a library full of investment books. You can attend every single investment seminar in town. You can probably even buy a $3 million investment system, but in the end, you’ll find that you’re no better than the average Joe Schmoe if you don’t have the courage to discipline yourself. You may have immense amounts of knowledge about “how to” invest, but without that discipline, good luck with your futile attempts to apply that knowledge into decent investment returns.

Thus, your greatest enemy is yourself. Your greatest enemy is the weakness, laziness, and emotions inside you. In order to instill discipline in yourself and fight the “Satan” in you, here’s what you need to realize.

“Be greedy when others are fearful and fearful when others are greedy” is hard. Most investors are the “do as I say, not as I do” kind of preachers.

You’ve probably heard of this from the Buffett PR machine. In fact, almost every single investor preaches this line. But how many are able to talk the talk and walk the walk? The truth is, being greedy when others are fearful is hard.

Most people that preach “buy when others are fearful” end up selling with the crowd when a stock market crash comes along. It is only normal for one to feel fearful during times of market distress, as you are afterall human. But the successful investor conquers his/her’s fearful emotions, and buys into such a great opportunity.

Many also preach that one should “sell when others are greedy”. This is true, as you don’t want to follow the proverbal herd over the cliff and lose your shirt in the ensuing bursting of the bubble. But how many Americans are actually capable of doing what is preached? 99% of investors who preach the “sell when others are greedy” can’t control their own greed, and buy into the bubble, only to get killed in the ensuing bloodbath. It’s natural to feel extreme optimism and greed when the financial markets are rising day after day. But the successful investor controls his/her’s greedy emotions, and sells into the panic.

So instead of spending time preaching  "buy when others are fearful and sell when others are greedy", make sure you walk the walk.

Fight your “I don’t want to learn new things.’

Humans have a tendency to be lazy. We dislike learning new things, and prefer to use old methods that we already know to tackle new problems. The problem with is, often times we've lost a good chunk of our investment portfolio by the time we've realized that our old investment strategy doesn't work. A good investor always keeps an open mind, and is constantly on the lookout for an investment strategy that better suits the times than the strategy that they're currently using.

Fight your “I’m not wrong” attitude.

Nobody likes to admit that they're wrong. The reason why George Soros is such a successful investor is because he’s 100% willing to accept the fact that his investment judgement was wrong. 99% of people refuse to admit they're wrong. For example, most people refuse to sell after the bubble has burst, hoping that they're not wrong.

A successful investor is always ready to fight his own stubbornness and “I’m not wrong” attitude.

Fight your “This is too hard. I give up.” attitude.

Yes, we've all been taught since kindergarten that perseverance and persistence is the key to success. Far easier said than done.

This list can go on and on and on……. I think you get the point.

Source:http://investorzblog.com

Quote for the day

"Definiteness of purpose is the starting point of all achievement." - W. Clement Stone

Quote for the day

"Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws." - Plato

Quote for the day

"We are all self-made, but only the successful will admit it." - Earl Nightingale

Quote for the day

"In order to be knowledgeable in these changing times, we must pursue a constant program of self-improvement, a never-ending journey into new fields of knowledge and learning." - Og Mandino

Quote for the day

"Develop a passion for learning. If you do, you will never cease to grow." - Anthony J. D'Angelo

Quote for the day

"The goal of an emergency fund is to bail you from going to jail while your savings account is about buying you more options. The role of investing is to give you more time freedom." -  David Angway

Quote for the day

"Education is the passport to the future, for tomorrow belongs to those who prepare for it today." - Malcolm X

Why most Traders Fail

1.) Most traders never took the time to decide how they should trade

Most traders I know skipped the parts on learning about their own temperaments, their discipline issues, their execution performance levels and just go straight to learning about charts and fundamental research reports, without realizing they skipped the most important part- their own ability to psychologically execute the right market timing, and the discipline to cut when they’re proven wrong by the market, no matter the fundamental value of the company they’re trading upon.

While it may seem trivial to answer psychology questions to yourself, the reason why I find this most important is because knowing yourself determines your ability to follow your own system.

All traders echo that successful traders need to have a system, but how can you create a system for yourself that you can follow, no questions asked, without understanding your own personal capacity to follow rules? As a child, did you normally try to constantly challenge the status quo? How can you accept trading rules, when you’re told to follow only the price, and nothing more? How can one trade a system meant for day traders, when one’s inclinations are more rooted to analysis of companies, where position trading is more apt? How can you integrate your personal strengths and weaknesses in order to create a system which is successful, with a trading edge that can combat the markets, whether bull or bear?

Jeff Cooper once wrote this trading reality: "Hundreds if not thousands of books have been written about trade entry, but the important thing to understand is the personal psychology required to honour a protective stop and the discipline required to get out."

In truth, traders never really can skip this lesson. Whenever one trades without any system, and not according to the right precepts of good market timing suited to one’s temperament and ability to execute that system, one has to pay for the education.

2.) Most traders fail because money as a motivation isn't enough

Be honest with yourself and think about whether you are intrinsically motivated, or whether you are really only in it for the money.

Money is and remains a so-called extrinsic motivation, the level of which – in contrast to a person’s inner drive, their intrinsic motivation, cannot just continue to rise.

Implementing your strategies requires character traits such as iron discipline, indomitable will power and the patience of a saint.

It’s easy to think and say that you love trading and believe in your trading skills in order to achieve that great success, but making this vision a reality is a long and uphill struggle, as many of you well know.

Everyday you have to fight against being your own worst enemy. Everyday you put your wallet on the table and need to be mentally able to deal with the changes to its weight. You will experience a roller coaster ride of emotions ranging from shouting in triumph at having achieved extraordinary profits to the feeling of being sunk in despair during severe draw downs and long series of consecutive losses. The one thing you can depend on is that your love of trading will be severely tested by the markets. If money is the only reason why you’re in the markets, consider a different business. If you think it’s not a business, you’ll be closing your shop soon anyway.

3.) Most traders fail because of the lack of patience

Every time you have the urge to make an aggressive trade, especially out of emotion, take a step back and re-evaluate. The moment you get impatient, bad things tend to follow. In tough markets, stay patient and let others beat themselves in order to be ready and fully prepared to pick up the low lying fruit from the sheer destruction and capitulation from others.

The willingness to wait for the right pitch will make all the difference between a successful trader, and a trader wannabe. If you are patient, the market has a way of painting its picture for you. The essence of a good trader is to wait for your pitch, your ball.

4.) Most traders fail to keep and study their journals

You can tell me that trading is a numbers game, but lip service is never going to be enough in the markets. Your journals and your trades are the only basis to see whether you have understood the concepts right. If you don’t even keep a journal, that’s even worse, because you cannot measure how you’re doing in your trading. That’s similar to opening a business, without even reporting how much sales and operating expenses went throughout the day.

If you think this is minor, so be it. The devil is always in the small details. Simple advice: Have a journal, study your hit ratios, your profits and your losses. Bottom line is, if you can’t study your mistakes, you will never see yourself,and will have a false sense of trading “eminence” which will be quickly disproved by your account performance. Don’t be surprised if perception is not the same as reality. You've been warned.

5.) Most traders fail because they still blame the markets

You may think I'm exaggerating but I've heard a lot of traders crucify the Dow for being down again for the eight or ninth week. Failing traders blame their losses for most anyone except themselves. Traders who never look at themselves are a hopeless basket case.

6.) Most traders fail because they believe the market is rigged and that they need inside information to benefit from it

I believe in saying that these are the same types of people who blame the world why their marriages have failed, why the prices of good keep on rising, why everything else is moving out, except themselves. These people aren't going to get any better. If you’re one of these kinds of people, consider assessing why you complain so much about the world, but not do anything as simple as looking at your own self.

7.) Most traders fail because of their inability to understand the true concept of taking risks

There’s a difference as big as day and night between trading and gambling, but then again, even long time traders can’t distinguish both things. You’d understand what I mean, whenever I see a trader take a risk, whenever the reward’s measly. Whenever a trader chases a price point, and gets rewarded, one believes that one has made a good trade. The truth is, profits alone do not guarantee trading success for consistently long periods of time. Process trumps everything else in the long run.

Also, risk management isn't just about keeping losses down; it also means taking maximum prudent advantage of opportunities that present themselves. Many traders fail because they can’t limit their risk. Many others fall short because they lack the courage of their convictions. Somewhere between confidence and overconfidence lies the sweet spot for successful traders.

8.) Traders fail because they confuse their cojones into their trading

In the business of trading, you've got to decide if you want to make money or if you want to be right. To trade what is and not what we think should be, requires us to experience the market as it really is. Successful traders know when to cut losses if necessary. Don’t let your own desire to succeed be the enemy of good judgement.

There is no harm in guessing wrong, the sin is in staying wrong.

9.) Traders fail when they think they need to be right all the time

As a trader, you can make a great living if only half of the set ups you take are winners, sometimes even less than half. Dr Van Tharp once wrote that most of us grow up in an educational system that brainwashes us to think we have to get 94-100% correct to be excellent. If you can’t get at least 70% correct, you’re a failure. Mistakes are punished in school by ridicule and poor grades, yet its only through mistakes that we learn.

Indeed in the everyday real world, people have made millions on trading systems each with a reliability of only around 30-40%. This means that great traders have the resilience needed, and emotional maturity to weather the draw downs, and tough times when their systems yield consecutive cut losses. I'm sure you've heard this before but I’ll repeat the trader cliches. Yes. Trading truly is a numbers game.

10.) Traders fail when they forget there’s plenty of opportunities other than trading

Perhaps this is ironic, but I'm sure you've heard the trading mantras “Scared money never wins”. Every bet a trader does, once confused with many things such as tying up one’s own confidence capital, cojones other than the money involved normally loses. When you trade thinking that trading is the only avenue for your income, that’s when you will normally fail. Successful traders approach the markets without much emotional capital in every trade. Sometimes, successful traders do not even watch the screens. Less is more. You can just place your stops, put your position size and do anything you want such as exploring other markets (learning about private equity, venture capitalism, foreign markets, currencies, commodities or some other entrepreneurial endeavour that piques your interests). This may be counter intuitive, but trading while requiring hard work when it comes to preparation, is effortless when it comes to execution. Once you've entered the trade, the stops and the sizes, everything else is automated. You don’t have to worry about the intra day up ticks and the down ticks unless you are an intra day trader.

11.) Traders fail when have a false recognition that trading is a walk in the park, and is static

The market is constantly evolving and you need to be able to change with it. A good student of the markets studies continuously. Nicholas Darvas read hundreds of books before finding the system that best fit him, and he still continues to read even after trading millions successfully. He traded his box theory during the momentum markets very well, and kept on dancing during the market cycles he did'’t have a trading edge upon.

Successful traders know that no strategy works forever. At least no static strategy. You need to adapt your approach as the market changes. Some people think they can learn a couple of easy patterns and just trade using them the rest of their lives and they’ll be fine. If those patterns are adaptive somehow, then maybe. If they can work in calm markets and choppy markets and trendy markets and panicky markets then great. Perhaps you can use them forever.

People are easily attracted to fantasies, instead of realities. But no evil would be justified on the ground of expediency. It takes years to become a successful trader. There’s not much short cuts in most every field, and trading is the same.

___________________________________________________________________

I'm sure I can list many other reasons why so many traders fail, but I'd leave the readers to simply write their own reasons why. What’s most important is that one recognizes why one fails, and actively tries to address and fix the reasons, in order not to fall in the same debilitating failures every single time.

Hope the outline above helps.

Extracted article from http://facelesstrader.wordpress.com/

Quote for the day

"We know that advanced economies with stable governments that borrow in their own currency are capable of running up very high levels of debt without crisis." - Paul Krugman

Quote for the day

"Definiteness of purpose is the starting point of all achievement." - W. Clement Stone

Quote for the day

"Success seems to be connected with action. Successful people keep moving forward. They make mistakes, but they don’t quit." - Conrad Hilton

Quote for the day

"The swiftest way to triple your success is to double your investment in personal development." - Robin Sharma

Quote for the day

"One can choose to go back toward safety or forward toward growth. Growth must be chosen again and again; fear must be overcome again and again." - Abraham Maslow

Quote for the day

"Life's challenges are not supposed to paralyze you, they're supposed to help you discover who you are." -  - Bernice Johnson Reagon

Quote for the day

"We are made wise not by the recollection of our past, but by the responsibility for our future." -  George Bernard Shaw

Quote for the day

"Money is always eager and ready to work for anyone who is ready to employ it." - Idowu Koyenikan

Quote for the day

"The mind is not a vessel to be filled but a fire to be kindled." -  Plutarch

Quote for the day

"Common sense is not so common." - Voltaire

Quote for the day

"Don’t be afraid to give up the good to go for the great." - John D. Rockefeller

Quote for the day

"We need to accept that we won’t always make the right decisions, that we’ll screw up royally sometimes – understanding that failure is not the opposite of success, it’s part of success." - Arianna Huffington

Quote for the day

"The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge." -  Paul Tudor Jones

Quote for the day

"We think, mistakenly, that success is the result of the amount of time we put in at work, instead of the quality of time we put in." - Ariana Huffington

18 Things Financially Mature People Don’t Do

By Kyle Young

Jaws dropped during that classic scene in the 1995 movie Sabrina. Sabrina's father is revealed to be more than just a quiet chauffeur with a passion for good books. He's shockingly a millionaire! How did he accrue such wealth on a presumably modest salary?

 By imitating the investing habits of his prosperous employer. You too can learn from financially mature people. You can avoid costly mistakes by watching what they do – and perhaps more importantly, what they don't do.

1. They don't spend more than they make

A recent Yahoo Finance study found that “fewer than half of Americans are spending less than they earn.” This problem is compounded by high credit card interest rates. If you're finding it difficult to stick to a budget, try switching to cash as your currency. This will quickly stop the bleeding because once cash is gone the spending has to stop.

2. They don't wait until the end of the month to see how their money is doing

Credit card bills should be formalities, not surprises. Expense tracking apps(or a pen and paper) help you stay on top of your money.

3. They don't pay for subscriptions they aren't using

Gym memberships, magazine subscriptions, and season tickets to your favorite team’s games are great – if you actually use them. Spend some time going through your credit card statement and cancel a few forgotten subscriptions. Chances are, you won’t miss them.

4. They don't overlook small expenses

Small expenses add up. Look for opportunities to reduce them. Relax the air conditioning when you leave the house, turn off the lights in an empty room, use a refillable water bottle instead of buying a new case every week.

5. They don't automatically spend “surprise money”

Tax returns and birthday money don't have to be spent the day they're received. Put some in savings, or use it to pay off debt.

6. They don't use shopping to help them feel better

Shark Tank's Kevin O'Leary argues that “retail therapy” should be avoided altogether. But come on now. We're the species that invented sugarless candy – surely we can redeem the post-break up shopping spree? 

Here's an idea: When heartbreak or frustration beckons you to the mall, think of one item you actually need. Maybe it's a new pair of work shoes or a birthday gift for a friend. Set a “budget” for yourself and take only the CASH for that item. Then, enjoy a little shopping.

7. They don't gift shop at the last minute

It happens to the best of us. We remember a birthday or anniversary with mere hours to spare. Then we’re off the nearest store in search of a last-minute gift and in our panic, we buy something expensive to hide the fact that we don’t have a card and the gift isn’t wrapped. Gifts are given to express love and affection. Shopping a little sooner can help you find a thoughtful, less expensive gift that shows how much you care. 

8. They don't eat out every meal

A recent experiment conducted by the Boston Globe found one home cooked meal cost half the price of a comparable restaurant meal.

9. They don't waste leftovers

One of the easiest ways to make eating out more affordable is to simply save your leftovers. You can turn one meal into two.

10. They don't let purchased food expire

Throwing away food is throwing away money. If you struggle with stinky fridge syndrome, try making more frequent trips to the grocery store. Buy exactly what you'll need for the next 2 or 3 days, instead of “stocking up” for the week or the month.

11. They don't spend money without stopping to think

Have you ever examined an old purchase and wondered, “What was I thinking?” 

Financially mature people ask the right question: “Do I absolutely love this?” Skip this step, and you'll find yourself in need of a garage sale.

12. They don't buy clothes they won’t wear regularly

Closet full of clothes yet “nothing to wear”? Save space and money by searching for versatile pieces you can't wait to show off. Here's a minimalist who's happy to show you how (with photos).

13. They don't buy something just because it's a discount

An old episode of The Lucy Show poked fun at this common mistake. Lucy chided her friend for buying a 50lb bag of dog food. Her friend defended herself saying “that was half price.” To which Lucy hilariously replied, “You don't have a dog!” If you find yourself thinking “These shoes are half off, and they're not that bad,” take the money and buy a pair of shoes you actually like. You're more likely to get some use out of them.

14. They don't buy anything without asking the price

It's an old trick. Selling stuff without ever mentioning the price and it works, because we're often too embarrassed to ask how much something costs. We don't want anyone thinking we're poor, but we have it backwards. Poor is what you'll be if you don't ask the hard questions.

15. They don't avoid expenses that save them trouble and money in the future

Getting the oil changed may be annoying, but it's cheaper than a new car. Getting your teeth cleaned may be uncomfortable, but would you rather have a root canal? When you're trying to cut back on spending, trim from the fat, not the essentials.

16. They don't buy into get rich quick schemes

When people really do strike proverbial gold, they probably don't tell the world about it in a “business opportunity” seminar. Financially mature people know that wealth comes through hard work and good choices over time.

17. They don't forget to set financial goals

Without a clear goal and a doable plan, people tend to stay right where they are. Good goals illuminate the path between where you are and where you want to be.

18. They don't let past mistakes keep them from improving

Peek at the statistics and you'll quickly learn most of us aren't very good with money. With practice, patience, and persistence, you can grow into financial maturity. You just have to get started. There's an old saying. If you want a big oak tree in your backyard, the best time to plant it was 20 years ago. The second best time? Right now. 

Use these tips to start imitating the financially mature. Because let's face it. Life's more fun when there's some money in the bank.
http://www.lifehack.org/

Quote for the day

"Hard work compounds like interest, and the earlier you do it, the more time you have for the benefits to pay off." - Sam Altman

Quote for the day

"So many things are possible just as long as you don’t know they’re impossible." - Norton Juster

“Wealth is first a state of mind my friend.”

My Daughter Won’t Marry A Poor Man, Says Bill Gates
By Belove Olocha

Billionaire and founder of Microsoft, Bill Gates, has said he will not allow his daughter to marry a poor man.

The billionaire businessman made this known while attending a conference on Investment and Finance in the United States recently.

Giving responses during the question and answer section of the conference a man asked Gates a question that made everyone laugh.

He asked if Gates, as one of the world’s richest men, would accept his daughter to marry a poor or modest man.

The answer Gates gave, however, shocked everyone.

He said: "First, understand that wealth does not mean having a well-filled bank account. Wealth is primarily the ability to create wealth."

Example, someone who wins the lottery or gambling. Even winning 100 million is not a rich man: he’s a poor man with a lot of money, that’s why 90 per cent of lottery millionaires go back to being poor after five years.

You also have rich people who can’t afford it. For example, most entrepreneurs

They are already in the way of wealth, even if they don’t have money, because they are developing their financial intelligence and that’s wealth.

How are the rich and the poor different?

To be simple: The rich can die to become rich, while the poor can kill to stay.

If you see a young man who decides to graduate, learn new things, trying to improve continually, know that he is a rich man.

If you see a young man who thinks the problem is the state, and thinks the rich are all thieves and constantly criticize, know that he is a poor man.

The rich are convinced that they only need information and training to take off, the poor think others should give money for them to take off.

In conclusion, when I say my daughter is not going to marry a poor man, I’m not talking about money. I’m talking about this man’s ability to create wealth.”

He added: “Sorry for what I’m going to say, but most criminals are poor people. When they are in front of money they lose their minds that’s why they steal, rob etc…

To them, that’s grace, because they don’t know how they themselves could make money.

One day, a bank vigilante found a bag full of money, took the bag and went to deliver it to the bank manager.

People called this gentleman an idiot, but actually, this gentleman was just a rich man who had no money.

One year later, the bank offered him a receptionist position, three years later he was in charge of clients and 10 years later, he manages the regional branch of that bank. He manages hundreds of employees and their annual bonuses are beyond the value he could have stolen.

“Wealth is first a state of mind my friend.”

Source: https://newsbreak.ng/

Quote for the day

"In matters of style, swim with the current; in matters of principle, stand like a rock." - Thomas Jefferson

Quote for the day

"Intelligence without ambition is a bird without wings." - Salvador Dali

Quote for the day

"The only way to achieve the impossible is to believe it is possible." - Charles Kingsleigh

Quote for the day

"Intelligence is the ability to adapt to change." - Stephen Hawking

The 4 Key Things Warren Buffett Looks At

In the book “The Warren Buffett Way” by Robert Hagstrom, the author introduces four tenets that Buffett employs in his investment decisions.

While Buffett may not use all of them for every investment, these common attributes consistently surface as guidance for his choices.

The four tenets are: Business, Management, Financial and Market.

Business Tenet
As a long-term investor seeks to park his money in a business without having to worry if it’ll still be around tomorrow, it is crucial that he understands the business itself.

To quote Albert Einstein: If you can’t explain it simply, you don’t understand it well enough. A simple test would be explaining it to someone who knows nothing about the business.

The business should be consistently profitable. This can be checked by looking at its past financial performance for sustainable growth in its top and bottom lines.

More importantly, it should continue to be profitable. This will require judgement on the outlook of the industry as well as the company.

Management Tenet
In life, we surround ourselves with people whom are honest and sensible and we trust their judgement because we believe they have our well-being at heart. In business, the same concept applies when choosing a management team.

We know that all businesses go through phases of good and bad. While it’s easy for management to deliver positive news, it’s tough for them when the company is not performing. This is where candor is prized. A management team that is willing to tell you the truth, despite the difficulties faced.

We want a management team that is logical in their decisions, particularly if it goes against the grain of the general view, but is beneficial to the company in the long run.

Financial Tenet
Firstly, one key difference is the focus of profitability, the book suggests an emphasis on return on equity, over earnings per share.

As a company makes a profit, any balance after deducting dividend payments is kept as retained earnings in equity. This means that earnings base for next year has increased.

Buffett does not see anything phenomenal about a company that has increased its earnings by 10 percent, if its earnings base increased by the same amount. It’s akin to compounding interest in a savings account.

Return on equity on the other hand, shows how well a firm’s management is able to generate a return on its operations from the capital at hand.

Secondly, we fall back on the basic profit margins. Simply put, the higher the margins, the higher profit the company is able to extract out of each dollar of revenue.

Next, Buffett prefers owners’ earnings compared to cash flow. To calculate the former, we take net income, add depreciation, minus capital expenditure (capex) and additional working capital.

The difference between the two formulas is capex. Buffett argues that a company that does not make the necessary capex will surely decline. Thus, he views it as a critical component to assess the owners’ actual earnings.

Last in the line of financial tenets, we must question if the company is able to deploy its retained earnings profitability. If a company’s retained earnings go up by $1 per share, the market value should also go up by at least $1.

If the company is able to earn more than $1 on that dollar, the market will likely price it higher as well. If it is unable to do so, then the firm’s shareholders will be better served if the company pays out the earnings via dividends instead.

Market Tenet
Last but not least, we should derive an estimated value of the business. Value and price are not to be confused, value is what you get, price is what you pay.

Buffett, the star pupil of Benjamin Graham, the late father of value investing, stressed a need for margin of safety when purchasing a stock. This is the difference between the value and price of a business.

After all, overpaying for a business does not provide an investor with sufficient room for manoeuvre. Even if it satisfies the first three tenets, we must be ready to admit that we may be wrong and share price could go against us.

A large margin of safety allows one to exit the stock, hopefully, without much capital loss.

Next up, we’ll go through a case study by assessing a company using these four tenets.

Disclaimer: All information is credited to the book “The Warren Buffett Way” and its author, Robert Hagstrom.

Spurce: http://www.sharesinv.com/

Quote for the day

"Big results require big ambitions." -  Heraclitus

10 Warren Buffett's Rules to Riches

Quote for the day

"The credit belongs to the man who is actually in the arena; whose face is marred with dust and sweat; who strives valiantly, who errs and may fall again and again, because there is no effort without error or shortcoming." - Theodore Roosevelt

Quote for the day

"If one advances confidently in the direction of his dreams, and endeavors to live the life which he has imagined, he will meet with a success unexpected in common hours." - Henry David Thoreau

Quote for the day

"You can tell whether a man is clever by his answers. You can tell whether a man is wise by his questions." - Naguib Mahfouz

Quote for the day

"All things are difficult before they are easy." - Thomas Fuller

Quote for the day

"Try to learn something about everything and everything about something." - Thomas Huxley

Quote for the day

"The main purpose of the stock market is to make fools of as many men as possible." - Bernard Baruch.

Doug Casey’s 9 Secrets for Successful Speculation

As you read the list below, think about how you can learn more about each secret and adapt it to your own most effective use.

Secret #1: Contrarianism takes courage.

Everyone knows the essential investment formula: “Buy low, sell high,” but it is so much easier said than done, it might as well be a secret formula.

The way to really make it work is to invest in an asset or commodity that people want and need but that for reasons of market cyclicality or other temporary factors, no one else is buying. When the vast majority thinks something necessary is a bad investment, you want to be a buyer—that’s what it means to be a contrarian.

Obviously, if this were easy, everyone would do it, and there would be no such thing as a contrarian opportunity. But it is very hard for most people to think independently enough to risk hard-won cash in ways others think is mistaken or too dangerous. Hence, fortune favors the bold.

Secret #2: Success takes discipline.

It’s not just a matter of courage, of course; you can bravely follow a path right off a cliff if you’re not careful. So you have to have a game plan for risk mitigation. You have to expect market volatility and turn it to your advantage. And you’ll need an exit strategy.

The ways a successful speculator needs discipline are endless, but the most critical of all is to employ smart buying and selling tactics, so you don’t get goaded into paying too much or spooked into selling for too little.

Secret #3: Analysis over emotion.

This may seem like an obvious corollary to the above, but it’s a point well worth stressing on its own. To be a successful speculator does not require being an emotionless robot, but it does require abiding by reason at times when either fear or euphoria tempt us to veer from our game plans.

When a substantial investment in a speculative pick tanks—for no company-specific reason—the sense of gut-wrenching fear is very real. Panic often causes investors to sell at the very time they should be backing up the truck for more.

Similarly, when a stock is on a tear and friends are congratulating you on what a genius you are, the temptation to remain fully exposed—or even take on more risk in a play that is no longer undervalued—can be irresistible. But to ignore the numbers because of how you feel is extremely risky and leads to realizing unnecessary losses and letting terrific gains slip through your fingers.

Secret #4: Trust your gut.

Trusting a gut feeling sounds contradictory to the above, but it’s really not. The point is not to put feelings over logic, but to listen to what your feelings tell you—particularly about company people you meet and their words in press releases.

“People” is the first of Doug Casey’s famous Eight Ps of Resource Stock Evaluation, and if a CEO comes across like a used-car salesman, that is telling you something. If a press release omits critical numbers or seems to be gilding the lily, that, too, tells you something.

The more experience you accumulate in whatever sector you focus on, the more acute your intuitive “radar” becomes: listen to it. There’s nothing more frustrating than to take a chance on a story that looked good on paper but that your gut was warning you about, and then the investment disappoints. Kicking yourself is bad for your knees.

Secret #5: Assume Bulshytt.

As a speculator, investor, or really anyone who buys anything, you have to assume that everyone in business has an angle. Their interests may coincide with your own, but you can’t assume that.

It’s vital to keep in mind whom you are speaking with and what their interest might be. This applies to even the most honest people in mining, which is such a difficult business, no mine would ever get built if company CEOs put out a press release every time they ran into a problem.

A mine, from exploration to production to reclamation, is a non stop flow of problems that need solving. But your brokers want to make commissions, your conference organizers want excitement, your bullion dealers want volume, etc. And, yes, your newsletter writers want to eat as well; ask yourself who pays them and whether their interests are aligned with yours or the companies they cover.

(Bulshytt is not a typo, but a reference to Neal Stephenson's brilliant novel, Anathem, which defines the term, briefly, as words, phrases, or even entire books or speeches that are misleading or empty of meaning.)

Secret #6: The trend is your friend.

No one can predict the future, but anyone who applies him- or herself diligently enough can identify trends in the world that will have predictable consequences and outcomes.

If you identify a trend that is real—or that at least has an overwhelming amount of evidence in its favor—it can serve as both compass and chart, keeping you on course regardless of market chaos, irrational investors, and the ever-present flood of bulshytt.

Knowing that you are betting on a trend that makes great sense and is backed by hard data also helps maintain your courage. Remember; prices may fluctuate, but price and value are not the same thing. If you are right about the trend, it will be your friend. Also, remember that it’s easier to be right about the direction of a trend than its timing.

Secret #7: Only speculate with money you can afford to lose.

This is a logical corollary to the above. If you bet the farm or gamble away your children’s college tuition on risky speculations—and only relatively risky investments have the potential to generate the extraordinary returns that justify speculating in the first place—it will be almost impossible to maintain your cool and discipline when you need it.

As Doug likes to say; it’s better to risk 10% of your capital shooting for 100% gains than to risk 100% of your capital shooting for 10% gains.

Secret #8: Stack the odds in your favour.

Given the risks inherent in speculating for extraordinary gains, you have to stack the odds in your favor. If you can’t, don’t play.

There are several ways to do this, including betting on People with proven track records, buying when market corrections put companies on sale way below any objective valuation, and participating in private placements. The most critical may be to either conduct the due diligence most investors are too busy to be bothered with, or find someone you can trust to do it for you.

Secret #9: You can’t kiss all the girls.

This is one of Doug’s favourite sayings, and though seemingly obvious, it’s one of the main pitfalls for unwary speculators.

When you encounter a fantastic story or a stock going vertical and it feels like it’s getting away from you, it can be very, very difficult to do all the things I mention above. I can tell you from firsthand experience, it’s agonizing to identify a good bet, arrive too late, and see the ship sail off to great fortune—without you.

But if you let that push you into paying too much for your speculative picks, you can wipe out your own gains, even if you’re betting on the right trends.

You can’t kiss all the girls, and it only leads to trouble if you try. Fortunately, the universe of possible speculations is so vast, it simply doesn't matter if someone else beats you to any particular one; there will always be another to ask for the next dance. Bide your time, and make your move only when all of the above is on your side.

Extracted article from http://www.caseyresearch.com/articles/doug-caseys-9-secrets-for-successful-speculation-1

Quote for the day

"A handful of men have become very rich by paying attention to details that most others ignored." - Henry Ford

Trader Development Stage Model

Source: http://vixandmore.blogspot.com/

Quote for the day

"Remember that stocks are never too high for you to begin buying or too low to begin selling." - Jesse Livermore

Quote for the day

"Investing money is the process of committing resources in a strategic way to accomplish a specific objective." - Alan Gotthardt,

Trading Lessons from The Art of War

Revered the world over for centuries as the essential text for warfare and battle by the ancient philosopher and general Sun Tzu (544 BC–496 BC) explains the principles for dealing with war, personal conflicts, and achieving success in the battles of life.

Here are ten principles I believe we can translate to trading the markets.

“Appear weak when you are strong, and strong when you are weak.” – Sun Tzu, The Art of War

The markets can defeat us when it appears strong when it is extremely overbought and due for a reversal or it appears weak but is extremely oversold and due for a bounce. When a daily chart is at the 70 RSI, 3rd upper Bollinger Band, or 3rd upper ATR Keltner Channel it may appear strong but the odds are it is weak and ready to reverse lower. When a daily chart is at the 30 RSI, 3rd lower Bollinger Band, or 3rd lower ATR Keltner Channel it may appear weak but the odds are it is strong and ready to bounce.

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.” – Sun Tzu, The Art of War

A trader must know both their own weaknesses and strength and their trading system’s positive expectancy thoroughly. If you are self aware and know how your system works you don’t need to stress over the results of your next 100 trades.

“The supreme art of war is to subdue the enemy without fighting.” – Sun Tzu, The Art of War

A trader should not be trying to beat the market they should be going with the flow of price action.

“Let your plans be dark and impenetrable as night, and when you move, fall like a thunderbolt.” – Sun Tzu, The Art of War

Don’t talk about your positions and don’t try to make predictions and have strong opinions, just trade your strategy with focus and discipline and make money quietly.

“Supreme excellence consists of breaking the enemy’s resistance without fighting.” – Sun Tzu, The Art of War

Don’t fight trends that are taking place only enter at the moment of a new break out of a range.

“In the midst of chaos, there is also opportunity” – Sun Tzu, The Art of War

Extreme market moves and volatility can create some of the best trading opportunities.

“Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win” – Sun Tzu, The Art of War

Profitable traders first win by backtesing, doing historical chart studies, and creating a trading system with a positive expectancy model, then they start trading real money. Unprofitable traders just start buying and selling based on random opinions and hope to make money.

“Engage people with what they expect; it is what they are able to discern and confirms their projections. It settles them into predictable patterns of response, occupying their minds while you wait for the extraordinary moment — that which they cannot anticipate.” – Sun Tzu, The Art of War

Find repeatable patterns in the price action of the markets that you can use to create profitable trading signals for.

“Opportunities multiply as they are seized.” – Sun Tzu

A larger watchlist of stocks and markets provides more opportunities for profitable trades across additional charts if they backtest well.

“Thus we may know that there are five essentials for victory:
1. He will win who knows when to fight and when not to fight.
2. He will win who knows how to handle both superior and inferior forces.
3. He will win whose army is animated by the same spirit throughout all its ranks.
4. He will win who, prepared himself, waits to take the enemy unprepared.
5. He will win who has military capacity and is not interfered with by the sovereign.”
– Sun Tzu, The Art of War

There are five essentials for profitable trading:

1. There is a time to trade and time not to trade, you must know the difference to make money.

2. A trader must know how to trade in different types of markets, uptrends, downtrends, sideways, and volatile.

3. A trader must not let their emotions be moved to lose discipline by euphoria after wins or depression after losses.

4. A trader’s primary job is to have the patience to wait for their signals and not chase price action.

5. That trader who can follow their profitable system without being led astray by their ego or emotions will find success.

Source: www.newtraderu.com

Quote for the day

"Speculation is an effort, probably unsuccessful, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little." - Fred Schwed Jr.,

Quote for the day

"Games are won by players who focus on the playing field –- not by those whose eyes are glued to the scoreboard." - Warren Buffett

Quote for the day

"When money realizes that it is in good hands, it wants to stay and multiply in those hands." - Idowu Koyenikan

Quote for the day

"It is always the best discretion to let the market show us where it is going and just simply follow (this would be prudent), rather than predict where the market is going and place a position (this would be gambling)" - .Anne-Marie Beiynd

Quote for the day

"Patience is not simply the ability to wait - it's how we behave while we're waiting." - Joyce Meyer

Quote for the day

"Before you react, think. Before you spend, earn. Before you criticize, wait. Before you quit, try." - Ernest Hemingway

Quote for the day

"All the great things are simple, and many can be expressed in a single word: freedom, justice, honor, duty, mercy, hope." - Winston Churchill

Quote for the day

"When you face difficult times, know that challenges are not sent to destroy you. They're sent to promote, increase and strengthen you." - Joel Osteen

Quote for the day

"The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge." - Paul Tudor Jones

Quote for the day

"If you can believe it, the mind can achieve it." - Ronnie Lott

Quote for the day

"When you discover your mission, you will feel its demand. It will fill you with enthusiasm and a burning desire to get to work on it." - W. Clement Stone

The Nuts And Bolts Of Dividend Growth Investing

By Sree (thetaoofwealth.wordpress.com)


This post contains the keys ideas to understand and carry out dividend growth investing.

 

1. Dividends are distributions by a corporation to its owners. Usually, what is distributed is money… cash. Occasionally, dividends are paid in shares rather than cash.

2. Many companies increase their dividends every year. These are “dividend growth” companies. They are the companies you want to own if you’re following a dividend growth strategy.Many dividend growth companies are well-known names, what many would call “blue chip” companies. Stock prices are not an indicator of whether a stock is a dividend growth stock. Whether a company is a dividend growth company is a function of corporate policy and practice, not the market.Dividends are discretionary.How much to pay (if anything), and whether to increase the amount from last time, are decided by the company’s management and board, not by the market.

3. The 5-year Rule simply says that a company must have raised its dividend for at least 5 consecutive years before I consider it as a dividend growth stock. A 5-year track record is certainly not the only evidence you might seek, but it is an important part.If a company does not have at least a 5-year streak of raising its dividends, I consider it ineligible for consideration as a dividend growth investment. I won’t buy it.I want companies that are clearly devoted to keeping their dividend growth streaks alive and have the financial strength to do so.The 5-Year Rule helps me identify them.

4. Compounding means earning money on money already earned. Compounding accelerates the rate at which dividends accumulate, like a snowball rolling down a hill.The term for compounding dividends is “dividend growth rate”(DGR).The dividend growth rate is independent from the dividend yield.A company with a low yield may have a high DGR, and vice-versa.

5. A constant annual percentage increase in a company’s dividends causes your dividend income to increase at a growing rate. This is called compounding. This snowball effect is the first layer of compounding in dividend growth investing.You can add a second layer of compounding that accelerates your dividend stream even faster.You do this by reinvesting the dividends.Your dividend income, which is growing anyway, grows even faster if you reinvest dividends.

6. Yield is one of the most common measurements in stock investing. Do you know what it is? Yield is the one-year percentage return on your investment from the dividend.The formula is Yield = 12 Months’ Dividends / Price.Yield on cost is kind of like yield, except that instead of using current price in the equation for yield, we use the original amount spent. Yield on Cost = 12 Months’ Dividends / Original Price.So as the dividend flow increases, the yield on cost goes up relentlessly.

7. The myth is that when the market does badly, dividends dry up. It just isn’t true.The fact is that dividends and the market are independent from each other.Total Return = Price Changes + Dividends. There are at least three “softening factors” that you get from dividend growth stocks: steady incoming cash, smoother ride through bear markets and faster recovery times. All of these softening factors help you to hold on to dividend growth stocks during times of market turbulence.

8. It is very realistic and possible to create a portfolio that will return, in dividends alone, the historic total return of the stock market, and to achieve this in 10 years or less.This goal is known as 10 by 10: That means generating a yield on cost of 10% within 10 years of when you start the portfolio.The 10 by 10 goal is achievable because of two factors: The initial yields on the stocks you buy, plus the dividend growth rates of those stocks. For example, a stock yielding 5% when you buy it will reach 10% yield on cost in 10 years if it increases its dividend 7% per year.You can get to the 10% yield goal even faster if you reinvest dividends.All of the above is true even if the current yield of your portfolio flat-lines, as it probably will (due to the increasing dollar value of your portfolio). The yield on cost will continue to march relentlessly higher as your companies raise their dividends, and as you reinvest them.

9. The reasons why you should be a dividend growth investor are:

• Dividends bypass the market.Corporate dividend policies rarely go haywire.
• Dividend investing can relieve obsession over market volatility. You partner with your businesses, sharing in its success over the long term.
• Dividends are real cash. It’s cash in your pocket.
• Dividend investing provides ongoing feedback about your investment. A dividend increase can normally be interpreted as a positive sign that management has confidence in the company’s prospects.
• The best dividend growth companies are outstanding businesses.It requires an outstanding business to increase dividends for many years in a row. Weak businesses simply cannot do it.
• Dividends increases continue even when stock prices decline.
• You do not have to sell the stock to get the dividend.
• Dividend payouts rise over time.This is the most powerful aspect of dividend growth stocks.
• Dividend stocks tend to be less volatile.Dividends have gentle trends that are fairly predictable.
• Your principal can grow too.Both dividend growth and price growth come from a common source: earnings growth.If the company is committed to annual dividend increases, they can make those happen even if they hit a bad patch for a year or two on the earnings front.So the dividend stock investor potentially gets positive returns from both sources of total return: dividends and price appreciation.
• Historically, dividend growth stocks have outperformed the market in total returns.
• You can reinvest dividends to accelerate the compounding effect.This builds wealth at an accelerating pace.
• Rising dividends protect against inflation.
• It requires no more money to acquire a portfolio of stocks that pays a dividend stream of 4% than to acquire a portfolio of stocks that must be sold piecemeal to generate the exact same 4%.This  is the amount often recommended to be “safe” to withdraw from a retirement portfolio.

10. When you are a dividend growth investor, you receive quarterly dividends from each company (monthly from some). If you are retired, you can take that rising cash stream as income and use it to pay your everyday expenses. What most dividend growth investors do if they don’t need all the cash is reinvest the dividends.There is no “right way” to reinvest dividends. You can allow the dividends to accumulate to a certain predetermined amount and then invest it in a stock you consider fairly valued or undervalued in a selective manner. This allows you to buy undervalued stocks and to buy any stock rather than the same stock.You compound your money by reinvesting the dividends to purchase more dividend growth shares.

Quote for the day

"Throughout my financial career, I have continually witnessed examples of other people that I have known being ruined by a failure to respect risk. If you don't take a hard look at risk, it will take you." - Larry Hite

Financially Fit Test

Here are ten questions that can measure how financially fit you are in your personal finances.

Grading scale:

No = 0

I’m halfway there = 1

Yes = 2

1. You can pay off off your credit card debt any time you want to or have zero credit card debt.

2. You have three to six months of living expenses saved for emergencies.

3. You have at least two consistent streams of income.

4. You save 10% or more of your income each month.

5. You have a six figure net worth.

6. You own cash flowing assets.

7. You own your home outright or with a mortgage at a locked in rate.

8. You own stocks, cryptocurrencies, or investment real estate.

9. Are you compounding your gains in your investment portfolio by letting it grow or reinvesting dividends?

10. Do you have a career that gives you upside growth in income potential?

11. Do you work to learn and grow more than you work just for a paycheck?

12. Are you always looking for a better opportunity with a promotion or by changing jobs?

13. Is your goal financial independence from a job more than owning big houses and new cars?

14. Is your car paid off or do you have another form of transportation?

15. Do you have a written budget or naturally self controlled spending habits that are less than you make?

0-10 score you may not have financial peace.

10-20 score you are on your way to financial peace.

20-30 score you already have a high degree of financial freedom, keep going!

Source: www.newtraderu.com

Quote for the day

"Courage is what it takes to stand up and speak; courage is also what it takes to sit down and listen." - Winston Churchill

Quote for the day

"Trading is not for the dabblers, the dreamers, or the desperate. It requires, above all, one steadfast trait of dedication. So if you are going to trade, trade like you mean it" - Rod Casilli

Quote for the day

"It's not always easy to do what's not popular, but that's where you make your money. Buy stocks that look bad to less careful investors and hang on until their real value is recognized." - John Neff

3 Rules for Safe Trading Strategies

Rule 1: Never trade with borrowed money.

It's called "leverage" or "margin." Your trading strategies use money you borrow from your broker. Some people even max out their credit cards, or take out home loans. Don't do it!

It sounds so tempting -

*Put up only a little money. Your broker puts up the rest. * You make bigger profits. Get returns on the borrowed money as well as your own.

Until the roof falls in -

* Losses are multiplied as much as profits. If you lose, your loss is much bigger.
* If prices go down, the stock you bought with borrowed money is no longer worth enough to be collateral for the loan.
* Your broker can demand more money as collateral. That's a "margin call."
* If you don't have it, he can sell your stock.
* You lose almost everything.
* "Margin calls" can wipe you out.
* Meanwhile, you have to pay interest on the loan.

Buy shares with your own money, and you can ride out a price dip. Buy shares with borrowed money, and a price dip gets you a margin call. The added profit potential is more than canceled by the added risk.

Smart trading strategies are safe trading strategies. Don't use "leverage."

Rule 2: Always take part of your winnings off the table.

At a Las Vegas casino, if someone wins at craps, they might "let it all ride." They keep betting everything they have - what they came with and what they've won. You know the end of the story. They win big - until they lose it all.

Using trading strategies like a Las Vegas gambler is a recipe for disaster.

People think "big trades make big money." They want to do the biggest trades they can. So they pile all their winnings into their next trade.

* That works until they lose. Then they lose big because they "let it all ride."

But smart trading strategies are safe trading strategies.

* An investor's job is to lower his risk. The lower his risk, the closer he gets to safe money.

The best trading strategies grow your portfolio slowly.

* Re-invest part of your share trading profits. 50% is a good amount.
* Set aside the rest. It will keep you safe in hard times.
* Take 50% of your profits even if you don't want to close a trade.
* With a $10,000 profit, take $5,000 immediately, and leave the rest invested.
* The $5,000 you saved cushions you against a later fall in the stock.

Rule 3: Don't buy more when the price is falling.

What are your trading strategies when the price falls?

* Panic and sell at once - always bad.
* Hold on and hope - always bad.
* Stick with the Exit Strategy you decided in advance, and sell if and when the price falls enough - smart.
* Buy more - often bad.

Buying more when the price is falling feels smart -
* Lower your average cost.
* Get more of a good stock.

But remember that smart trading strategies are safe share trading strategies. Buy when the price is falling and you raise your risk.

* Increasing the size of your position raises your risk - automatically.
* The falling price gives you negative feedback about the stock even as you raise your risk.
* "Markets can stay irrational longer than you can remain solvent." ~ John Maynard Keynes.
* You assume the stock will bounce back soon. It may not.

Most people buy more of a falling stock because they don't want to be wrong. Don't let ego ruin your trading strategies.
Good - safe - investing.
By - Dr. Bob Rubin, Editor
Article Source: http://EzineArticles.com/6247454

Quote for the day

"Stocks are bought not in fear but in hope. They are typically sold out of fear." - Justin Mamis

The Safer Way To Average Down

If a share price falls, do you have a plan?

Many novice investors, and some experienced ones, have a tendency to "average down" on a stock that falls in price, on the basis that they are picking up additional shares at an "even better price". Yet most professional traders regard averaging down as a cardinal sin, amounting to throwing good money after bad.

The irony is that the trading (in the form of spread betting) method of betting "per point" can lead us in the direction of a safer way for investors to average down.

The lure of averaging down
If you buy £10,000 worth of a stock at 100p-per-share and it falls by 50%, you will need a subsequent 100% rise in order to take you back to break-even.

If you pick up another £10,000 worth of the stock at the lower 50p-per-share, you are holding £15,000 worth of stock which cost you £20,000. So you need only a 33.33% recovery to take you back to break-even on your combined holding.

This is why investors like averaging down, and when it comes to pound-cost-averaging into an index tracker... it might just work.

The problems of averaging down
The first problem of averaging down in this way is that, when making your second investment, you doubled your value-at-risk from £10,000 to £20,000.

The second problem of averaging down (specifically on a single stock) is that a share that has fallen by 50% can easily fall by another 50%; so then you have to do it again, and this particular stock becomes a magnet for funds that might be better deployed elsewhere.

Each time you invest an additional £10,000, it's another £10,000 that you stand to lose entirely when the company goes bust -- and lately, quite a few seem to do just that!

Pounds-per-point averaging down
If you place a £100-per-point spread bet on a stock priced at 100p-per-share, you are risking £10,000 as in the investment case. If subsequently you average down by placing the same size £100-per-point spread bet on the same stock, when it has fallen to 50p-per-share, you are risking only £5,000 the second time around. If it falls by 50% again, and you place another same size bet, this time you are risking only £2,500 more.

Personally I wouldn't go betting £100-per-point on a 100p stock, but it mirrors the investment case and demonstrates that pound-per-point averaging down incurs less additional risk at each turn.

Equal shares averaging down
What I've demonstrated, using the spread betting analogy, is the equivalent of investing in an equal number of shares (rather than making an equal monetary investment) at each turn.

With the stock at 100p-per-share, an investor can buy 10,000 shares for £10,000. When the price falls to 50p-per-share, the investor can average down on another 10,000 shares for just £5,000... and so on. The more the price falls, the less additional risk you are taking when you average down... if you purchase the same number of shares each time.

The downside of the upside
This is no Holy Grail, of course, because you are taking on less downside risk at the expense of lower upside potential.

Assuming just one round of averaging down, you will have bought 20,000 shares (now worth £10,000) for £15,000, so you'll need a 50% recovery to take you back to break-even rather than the 33.33% recovery required in the equal-value-invested averaging down.

The safer way to average down
So what if your profit potential is not so great? You still have more profit potential than if you hadn't averaged down at all, and by the third round I personally would rather have a total of £17,500 at risk than a total of £30,000 at risk. I would also rather have scaled into the position in this way than to have invested the full £17,500 at the original higher price.

The equal-number-of-shares (or equal pounds-per-point) approach to averaging down is an example of an anti-Martingale strategy, which is safer than the equal-value-invested approach to averaging down, and which in turn safer than the Martingale strategy of averaging down ever bigger amounts at each turn. I do hope you weren't considering the latter, as it can require infinitely deep pockets!

Foolish bottom line
Scaling into a position by averaging down can be more beneficial and less risky than investing all in one go. It can be made even less risky by purchasing equal numbers of shares rather than making equal-size investments in each round. This comes at the expense of lower profitability, but I did tell you that this was the safer way to average down and not the more profitable way.

I prefer the safety-first approach to looking after the downside and letting the upside look after itself. Why? Because companies can (and do) go bust, and then you've lost the lot!

BY Tony Loton
http://www.fool.co.uk/news/investing/2011/12/07/the-safer-way-to-average-down.aspx

Quote for the day

"There's no shame in losing money on a stock. Everybody does it. What is shameful is to hold on to a stock, or worse, to buy more of it when the fundamentals are deteriorating." - Peter Lynch

Quote for the day

"The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor." - Jesse Livermore

20 Golden Rules for (Day) Traders

Want to trade successfully? 

Just choose the good positions and avoid the bad ones. Poor trade selection takes a heavy toll as it bleeds your confidence and wallet. You face many crossroads during each market day. Without a system of discipline for your decision-making, impulse and emotion will undermine skills as you chase the wrong stocks at the worst times.

Many short-term players view trading as a form of gambling. 

Without planning or discipline, they throw money at the market. The occasional big score reinforces this easy money attitude but sets them up for ultimate failure. Without defensive rules, insiders easily feed off these losers and send them off to other hobbies.

Technical Analysis teaches traders to execute positions based on numbers, time and volume.
This discipline forces traders to distance themselves from reckless gambling behavior. Through detached execution and solid risk management, short-term trading finally "works".

Markets echo similar patterns over and over again. 

The science of trend allows you to build systematic rules to play these repeating formations and avoid the chase:

1. Forget the news, remember the chart. You're not smart enough to know how news will affect price. The chart already knows the news is coming.

2. Buy the first pullback from a new high. Sell the first pullback from a new low. There's always a crowd that missed the first boat.

3. Buy at support, sell at resistance. Everyone sees the same thing and they're all just waiting to jump in the pool.

4. Short rallies not sell offs. When markets drop, shorts finally turn a profit and get ready to cover.

5. Don't buy up into a major moving average or sell down into one. See #3.

6. Don't chase momentum if you can't find the exit. Assume the market will reverse the minute you get in. If it's a long way to the door, you're in big trouble.

7. Exhaustion gaps get filled. Breakaway and continuation gaps don't. The old traders' wisdom is a lie. Trade in the direction of gap support whenever you can.

8. Trends test the point of last support/resistance. Enter here even if it hurts.

9. Trade with the TICK not against it. Don't be a hero. Go with the money flow.

10. If you have to look, it isn't there. Forget your college degree and trust your instincts.

11. Sell the second high, buy the second low. After sharp pullsbacks, the first test of any high or low always runs into resistance. Look for the break on the third or fourth try.

12. The trend is your friend in the last hour. As volume cranks up at 3:00pm don't expect anyone to change the channel.

13. Avoid the open. They see YOU coming sucker

14. 1-2-3-Drop-Up. Look for downtrends to reverse after a top, two lower highs and a double bottom.

15. Bulls live above the 200 day, bears live below. Sellers eat up rallies below this key moving average line and buyers to come to the rescue above it.

16. Price has memory. What did price do the last time it hit a certain level? Chances are it will do it again.

17. Big volume kills moves. Climax blow-offs take both buyers and sellers out of the market and lead to sideways action.

18. Trends never turn on a dime. Reversals build slowly. The first sharp dip always finds buyers and the first sharp rise always finds sellers.

19. Bottoms take longer to form than tops. Greed acts more quickly than fear and causes stocks to drop from their own weight.

20. Beat the crowd in and out the door. You have to take their money before they take yours, period.

Source:http://www.tradingday.com

Quote for the day

"Investing is the intersection of economics and psychology." - Seth Klarman

How to Select the Best Stock

Selecting the best stock for investment is not a simple procedure. We will have to study and analyse a few facts before we invest in some stocks. It is too vast a subject to give a clear cut idea, the analysis of the following criteria will help you in selecting the best available stocks.

* Earnings Per Share(EPS) and PE Ratio
* Book Value Per Share
* Debt Equity Ratio (Divide Total Debt by Total Equity)
* Current Ratio (Divide Current Assets by Current Liabilities)
* Profit Margin (Divide the Net Profit with Revenue)
* Return on Capital Employed and Return on Equity
* Dividend History
* Profit Growth
* Cash Flow Details
* Business Segment and Growth Potential
* Size of the Company
* Competitive Advantage In the Market
* Brand Value and Product Differentiation
* Goodwill
* Market Scenario
* Economic Strategy of the Company
* Economic Atmosphere of the Place of Main Operation of the Company
* Political Influential Factors of the Country

These are the criteria that help you in selecting the best available stock. However, it does not mean that the all of these criteria must be favorable for a stock for being eligible. You can leave out some criteria or give more weight age to the other favorable criteria over the adverse ones, depending upon the time period you are planning to held the shares or how much risk you are ready to undertake.
Source:http://kevin-peter.hubpages.com