Month: July 2011

Note from Managing Editor Sara Nunnally: Everybody knows who Warren Buffett is… The Oracle of Omaha has amassed billions of dollars by buying up stocks at great prices. Sometimes he holds them for years before seeing a big profit.

As a billionaire, he’s got the means to do this. He can afford to have a huge chunk of money stay in the market for years at a time. Today’s investor, like you and me, has to be more nimble. We have to be able to take profits at a much faster pace.

In this environment, as our guest editor Zachary Scheidt says, “buy and hold” investing is dead. In this environment, we need to be traders…

Zach is the editor of Velocity Trader, and his service just saw a gain of 44% in a single day. Perhaps this is evidence that you should be investing like Zach, and not like Warren Buffett.

Read on! (And don’t forget to sign up for Smart Investing Daily and let me and fellow editor Jared Levy simplify the market for you with our easy-to-understand articles.)

Buy and Hold Investing Is Dead

In my previous position as a hedge fund manager, I had one particular client that I will always remember fondly. George was a retired oil driller who had been lucky enough to make some great energy investments, and smart enough to take some profits off the table.

George had a few million dollars invested in one of our funds, and a large position in a single drilling company that he had fallen in love with. What I really liked (most of the time) about George was his predictability.

You see, every Friday afternoon — without fail — George would call the office to count his money. A typical conversation would go something like this (keep in mind, George has a thick “Bahstahn” accent):

George: Hi, Zach! How’d we do this week?

Zach: Hi, George… Well, the fund is up about 1.8% for the week and we’re looking at a deal that…

George: ONLY ONE POINT EIGHT? C’mon Zach, you ghatta do bettah than that!

Zach: You’re right; we’ll try to do better next week. We’re tracking two different companies that have plans to…

George: What about Atlas (referring to his favorite drilling stock)?

Zach: Well, Atlas is down about 37 cents on the day.

George: What happened??

Zach: Not too much — the board authorized the second-quarter dividend and…

George: Can you print that out and fax it to me?

Zach: Sure, George. Have a great weekend.

George: (click)

It got to be almost humorous (except for the interruption to my research every Friday). George wanted to know everything about the company — down to the press releases for each well that was initiated. But he never actually traded the stock. He simply took his lumps when times were bad, and rejoiced when times were good.

The Difference Between Market Environments

During bull market periods, buy and hold works beautifully. Simply pick a successful company (it almost doesn’t matter which company) and enjoy the profits as the stock trades higher. The game is easy — nearly every stock rallies.

If you want better returns, pick more aggressive companies or use leverage (borrowing money to buy more shares). During a bull market, risk doesn’t matter. That’s because prices continue to tick higher and every pullback is just an opportunity to buy more.

But today’s environment is much different. As you should already know, our economy is facing serious risks from a number of different angles:

• Unemployment has been above “acceptable” levels for more than three years now.
• Housing values continue to plummet.
• Food and energy inflation is cutting into consumer as well as corporate spending.
• Emerging market growth is in danger of stalling.
• European debt could sink the global financial system.

And the list goes on… This is certainly NOT a long-term bull market, and the benefits of a buy-and-hold strategy are slim to none!

Trading Is the Answer

So what is an investor to do with this market full of risk?

In order to be truly successful in today’s market, investors need to adapt a more nimble approach. They need to become traders!

I’m not saying you need to fire up a high-powered computer and begin entering orders each and every day. You probably don’t have time for that. As a professional investor even I don’t have time for all that action…

Trading is much less about the amount of activity, and much more about the profit opportunity. To survive in our turbulent economic environment, you need to be able to capture the opportunity that markets present — and sit on the sidelines when the opportunities aren’t good.

For me, this means watching the price action and taking a few key positions each week. And it means trading in sync with the market, whether prices are rising or falling. I’m just as comfortable making money off a falling retail stock as I am buying a precious metal miner. I’m also just as comfortable holding a position for a few days as I am holding for a few months.

It all depends on the opportunity!

Take Sears Holdings (SHLD:NASDAQ) for instance. On June 22, I recommended readers of my Velocity Trader service take a short (bearish) position on Sears. The retail company has been under pressure and was primed for another wave of selling.

To our delight, the very next day Sears dropped sharply and our bearish bet was up 44%. As a trader, when I have an overnight gain of 44%, I like to take some of the profits off the table. It just makes sense to ring the register when the market gives you that much of an advantage.

But at the same time, I still believe Sears has much farther to fall. The company’s challenges are still in play, and investors are still likely to sell their shares and push the stock lower. So we only sold half of our position and let the rest run for much larger profits.

Volatility Means Opportunity

That’s how the trading game is played. You isolate opportunities, and then you execute. When you have profits, you capture them. You manage your losses and continually monitor the markets for new setups.

Being a trader gives me a distinct edge over “buy and hold” investors. You see, volatility is my friend. When stocks begin to make wild moves, that’s when I am able to step in and make a buy or sell transaction and see my profits begin to accumulate.

Buy-and-hold investors simply have to ride out the roller coaster. And watching your net worth bob up and down like a yo-yo is no fun at all… Just ask George.

You see, it does very little good to monitor every tick and tack of a company that you like — unless you are going to act on the information. As a trader, I continually monitor a watch list of about 85 to 100 stocks, and rotate which stocks are on my list based on what type of opportunities the market is giving.

Your Stocks, Your Decision

Would you indulge me in a quick exercise?

Write down the ticker symbol of the three largest positions in your account. (If you’re not holding any stocks, write down three trades you are interested in.) Now next to the ticker, briefly summarize why you like this stock and what you expect the stock to do.

Now keep that sheet next to your computer or in your top desk drawer. Look at it each day. Ask yourself if your reasoning for holding this stock is still valid. Ask yourself if it is still the best opportunity for your money. Ask yourself if it has already accomplished what you expect it to.

If you find that your stock has already served its purpose, or that your original investment thesis is no longer valid, then it’s time to move on. Sell that position and look for the next opportunity.

And voilà! You’re a now trader!

Editor’s Note: Zach is right. Buy-and-hold investing is dead. But it is not bad news, at least for Zach and his Velocity Trader subscribers. As a former hedge fund manager, Zach knows the tricks and techniques it takes to get ahead of the market.

He just released his latest report to his readers. The green light is flashing on a set of potentially huge trades. To read the details, follow the link.

Article brought to you by Taipan Publishing Group. Additional valuable content can be syndicated via our News RSS feed. Republish without charge. Required: Author attribution, links back to original content or www.taipanpublishinggroup.com.

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The People's Bank of China raised its one-year benchmark lending rate by 25 basis points to 6.56% from 6.31%, and the one-year deposit rate to 3.50% from 3.25%. The latest monetary policy tightening measures come after the Bank said on Monday that it would continue to implement a prudent monetary policy as inflationary pressures still remained high.  In a release on monetary policy the Bank noted the slow global economic recovery, and risk factors, as well as noting a continued commitment to rapid economic development, but with vigilance on inflationary pressures.

By CountingPips.com

U.S. Non-Manufacturing economic data, released by the Institute for Supply Management, showed that service-sector economic activity edged down in June but expanded for a 19th straight month. The ISM Report On Business index readings for economic activity decreased to 53.3 percent in June from a 54.6 percent level in May. The data failed to surpass economic forecasts which were expecting the ISM index reading to register a slight decline to 53.7 percent. A score in the index that is above 50 is considered to be growth and less than 50 is considered to be contraction.

Economic sectors tracked for June that showed increasing index scores were employment and inventory sentiment while new orders, business activity, supplier deliveries, inventories, imports, prices and the backlog of orders all had percentage point decreases for the month. The new export orders index showed no change in June but is in the middle of a 10 month trend of staying above a 50 score and expanding.

Forex Trading Update: US dollar higher today

The US dollar has been stronger against the other major currencies today in the forex markets while the US stock markets have also advanced. The dollar is higher on the day versus the euro, British pound sterling, Japanese yen, Australian dollar, New Zealand dollar and the Canadian dollar while trading virtually unchanged against the Swiss franc, according to currency data in the US trading session.

US stock markets are currently positive in the US trading session with the Dow Jones industrial average up by over 45 points while the NASDAQ is higher by over 5 points and the S&P500 is currently higher by 1 point.

In commodities, oil has edged down by just $0.20 to stand at $96.69 level while gold futures have increased by $14.20 to trade at the $1,526.50 level.

By Early To Rise

I don’t know how to say this any clearer: Most people are lazy. (Not you, of course. I am talking about other people.) Being lazy is part of human nature. A body at rest, stays at rest… A body in motion, yada, yada, yada…

Anyway, the reason I am bringing this up is that I want to know what you are doing today toward reinventing your career.

I know, you have family commitments… work commitments… people tugging at you. And sometimes you think you don’t have enough time to work on your personal goals.

But you know what? It’s not true. It’s just a matter of making better use of your time.

First off, you have to be clear about what you really want. Are you thinking of venturing out into a completely new career? Or are you thinking of reinventing yourself at your present job and getting more out of what you do?

Once you know what you want to accomplish, you can determine the actions you need to take to make it happen. Nothing will happen unless you take ACTION. But, of course, you have to prioritize those actions. What has to be done immediately… tomorrow… the day after?

Today, for instance, I have to finish work for a client and then work on promotional materials for my new book. The weather is gorgeous. And I’d love to go to the beach. But nnnnnnnnnnnnnno. I will NOT. Going to the beach is not a priority. Getting the work done is.

Prioritizing allows you to get the biggest ROI from your time and resources. In marketing, for example, if I do X and it does not bring me Y or Z (leads or income), I have to change X.

The same applies to your reinvention. If an action you take doesn’t pay off the way you expect it to, you have to redirect your efforts to get the results you want.

Whether you are reinventing yourself into a brand-new career or at your present job, the main thing to keep in mind is that you are in charge of your own time and resources. If your reinvention isn’t working, you have to re-examine your priorities.

Yes, you will have to make sacrifices in order to move forward with your reinvention. Reinvention takes time. There are steps you have to take. You will have to retool, repackage yourself, and perhaps learn new skills. But if you take small steps each day, you will not get overwhelmed. And you will soon see measurable results.

[Ed. Note: Peter “The Reinvention Guy” Fogel has worked on many TV shows, including Married With Children, Hope and Faith, and Whoopi. He transitioned from a successful stand-up comic to an in-demand freelance advertising copywriter/problem solver. He’s the author of the critically acclaimed books If Not Now… Then When?, Stories and Strategies of People Over 40 Who Have Successfully Reinvented Themselves, and the just-released Reboot Your Career: 27 Ways to Reinvent Yourself in the Workplace… If You Still Have a Job! Go here for more information.]

This article appears courtesy of Early To Rise, a free newsletter dedicated to creating wealth and success through inspiration and practical, proven advice. For a complimentary subscription, visit http://www.earlytorise.com.

By Carla Pasterna, DividendOpportunities.com

Yield-starved investors are wondering where they can capture high yields when a savings account pays 0.5%. A certificate of deposit (CD)? A 1-year CD pays 1.2%, according to BankRate.com.

That doesn’t even keep up with inflation.

Already we’ve seen bond prices surge as income investors scramble to find anything paying a remotely high yield.

And it doesn’t look like things are going to change anytime soon…

Recent soft U.S. economic data and what Fed Chair Ben Bernanke calls a “frustratingly slow” economic recovery have lessened the chances rate hikes.

The consensus among futures traders is that the Federal Reserve won’t raise rates until mid-2012. Even then, the July 2012 federal-funds futures contract is pricing in just a 30% chance the Fed will hike the funds rate to a still-low 0.5%.

Oddly enough, this low-rate environment is great for a group of securities I’ve been tracking. This asset class routinely provides yields of 10%… even 12% or more. And no, I’m not talking about distressed securities that give you gargantuan yields because the share price has plummeted.

On the contrary, some of these securities enjoy stable prices and even recent price gains.

So where can you find them? They’re called mortgage real estate investment trusts (M-REITs).

Unlike their better-known cousins that own real estate properties such as shopping centers or medical office buildings, mortgage REITs own no physical property. Rather, they invest in residential mortgages that have been bundled together into securities called mortgage-backed securities (MBS).

I think the best investments are those with portfolios filled with so-called “agency” loans — securities guaranteed by Fannie Mae and Freddie Mac — which are in turn backed by Uncle Sam. That backing lessens your risk.

How can these companies offer such supersized yields? Mortgage REITs profit from the difference, or spread, between interest rates earned on the mortgage loans in their portfolio and their short-term borrowing rates.

One M-REIT I found — Anworth Mortgage (NYSE: ANH) — earned net interest of 3.11% on its mortgage assets during the first quarter of this year. But it paid an average 1.39% to fund these assets. The difference of 1.72% is basically their profit.

These 1% to 2% returns don’t sound like much, but looked at in another way, Anworth’s $57 million of interest income for only $22 million in interest expense leaves a $35 million gain in just the first three months of this year.

These returns shrink or expand as mortgage rates or borrowing costs rise or fall.

Right now, mortgage rates are near historic lows, but M-REITs are benefiting from record-low short-term lending rates. They can borrow for next to nothing. That won’t last forever, but as I mentioned earlier, I think rates will stay plenty low for some time.

That means the high yields we’re seeing with this special breed of REITs should be secure for some time.

Certainly, risks are inherent in the M-REIT model, as with anything yielding double-digits. Some are built-in, such as future interest rate increases or consumer prepayment of mortgages. Others, such as congressional legislation affecting Fannie Mae and Freddie Mac, are more situational. But for a yield-hungry investor, securities such as these with a double-digit yield and a business model to sustain these yields, may be worth the risk.

Good Investing!

Carla Pasternak’s Dividend Opportunities

P.S. — There is plenty more to know about M-REITs before you invest. If you’d like to learn more, I covered them in depth in my July issue of my High-Yield Investing. To learn more about this advisory, which is enjoyed by more than 30,000 subscribers, I invite you to watch this presentation…

The US dollar index posted the first bullish candle yesterday after 6 previous bearish candles and a weekly bearish engulfing candle (see weekly chart below).

This daily bullish candle came as liquidity returned to the markets and on the back of Moody’s downgrade of Portugal’s credit rating.  The downgrade is the latest in the series of news referring to the Euro debt issues.  The EUR/USD failure to hold above trend line resistance and key 1.4500 level came after this news hit the market and has subsequently driven the dollar index.

A small correction is possibly overdue and risk sentiment combined with US data this week will determine whether this move has legs.  The Non Farm payroll figure on friday is the key event risk this week.

Please see further Forex Dollar Index and currency analysis.

Dollar Index Weekly Chart

With the rate of decline across the manufacturing sector these past two months, a bullish report from Germany on factor orders gave some cause for optimism amid a gloomy day of ratings downgrades and risk flight. While the EUR continues to get punished by a recent downgrade of Portugal by Moody’s, it saw a weak uptick immediately following Germany’s report on its demand for manufactured goods.

Though not likely enough to deter investors from seeking safety, the news does portray a region rebounding from a manufacturing slump that some feared would mute the recent rises seen across the global economy. One figure may not turn the tide, but the news is enough to have some investors awaiting further data before jumping ship.

Read more forex trading news on our forex blog.

The number of permits issued for the start of construction in Canada rose sharply in June, trouncing pessimistic market forecasts. The figure came in with a 20.9% rise, month-on-month; well beyond the expected 5.1% growth. The news is a clear sign that Canadians are seeking to invest in capital projects, likely to drive the value of real estate higher in the coming months.

So far, the Canadian dollar (CAD) has seen only mild growth, muted by a return of risk aversion this week. A decline in oil prices has also created some bearish pull on the Loonie, preventing the northern giant from profit from its bullish capital growth. Should we witness an investment flow into the housing market in Canada, the CAD could see some booming strength later in the year.

Read more forex trading news on our forex blog.

The British housing sector has posted several positive gains these past few trading days. This morning’s news out of the Halifax Bank of Scotland reaffirmed the trend with a 1.2% rise in its house price index (HPI), beating forecasts that called for a meager 0.1% growth.

Construction price inflation in the UK came in as expected Monday, leading several analysts to assume that housing may be stabilizing in Great Britain. A home equity withdrawal figure also came in above forecasts the same day.

The news bodes well for Britain which has been battling a structural deficiency in its labor market that has caused rampant downturns in the nation’s economy these past several years. As the housing market picks back up, traders may see heavier investment flows to the UK which should pick the help bolster the value of the pound (GBP).

Read more forex trading news on our forex blog.

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.