Tools and Techniques - According to the Wizard
A rising tide floats all boats
Like Charles Dow's theory, I look at the capital markets as a series of waves (that I try to interpret using a form of time series analysis). Comparing the market to the ocean is appropriate in that a rising tide floats all boats like a bull market sends all stocks higher unless they are fundamentally broken. I have also described this natural phenomena in trading action to be like a person (or a group) inhaling and exhaling. Whatever the metaphor, the market definitely exhibits a pattern of movement that, while irregular, is consistently ebbing and flowing...
Big picture buy/sell issues
You'll have to learn that being at the right place and time is usually not luck. Successful investing is due to the importance of overall market timing, which comes from strategic and tactical planning. Timing is crucial to meeting your goals with any type of investment; with conservative investments, it is not as important as with speculative ones, but is still an aid that can help you achieve extra profits and avoid unnecessary losses. When you buy a high-quality stock at a reasonable price, you will eventually make money. Good timing reduces the patience period...
The ten biggest mistakes made by investors
I truly believe that by understanding what the market is and knowing your place in it and then taking responsibility for your own decisions, you are on the road to success. You can outperform most of the so-called professionals on Wall Street. But it's not all roses without thorns. Let's take a look at the ten most frequent mistakes made by all investors -- even the smartest ones. Here are some: (1) Being over-influenced by others (2) Not focusing on the facts (3) Being The Greater Fool, and (4) Investing in money managers who have a terrible track record...
About compounding
Earning income on income (i.e., the continuous long-term reinvestment of income) is one of the single most important success factors in investing, especially for conservative or enterprising investors. Prompt reinvestment of all earnings can grow your assets at an astounding rate. To find how long it takes for your assets to double in value, at various rates of return, divide 72 by the yield (i.e., the rule of 72): e.g., at 6%, it is 12 years; at 8%, it is 9 years; and at 10%, it is 7.2 years. The long-term effect of inflation is a similar phenomenon, only in reverse...
About market cap
Cap is short for capitalization. A large-cap corporation is one whose stock is valued at over $5 billion, a mid-cap from $1 to $5 billion, a small-cap from $250 million to $1 billion, and a micro-cap at under $250 million. Market capitalization simply means market valuation of the corporation, which is the number of shares it has outstanding multiplied by current market price. If a corporation had 100 million shares outstanding and each traded for $5, "market cap" would be $500 million. If minutes later, the price was $5.50, the stock cap (not the corp value) would be $550 million...
Guidelines for maximizing profits
The Trader Wizard offers ten simple-to-follow guidelines to effective trading. If you know anything about the game of poker, you realize that cards in the hands of one player can result in dismal losses as they would in terrific winnings for another. It's all how you play the game. Here are three of my investor guidelines to help you trade more effectively: (1) Anticipate, don't follow (2) Think in percentages, and (3) Concentrate on industries or groups of stocks, not individual stocks alone. These and the seven other pointers will help you make profits...
Formula investing by dollar average plans
With formula plans, investments are made automatically. They are in two broad categories: (A) Plans where investments are made with fixed dollars and/or fixed time periods, and (B) Ratio plans where action is based on predetermined criteria to buy, sell or revise holdings. In my opinion, automatic investment, while it certainly has merit for the average investor, is an investment strategy primarily promoted by many mutual fund companies and investment advisors as a sure way to keep their client in the stable of a particular advisor or mutual fund distributor. Be wary...
Selecting stocks to short sell
In opening a short position, investors anticipate a decline in the value of the shorted stocks and, usually, a drop of the overall market. It hurts to be wrong. So, short-sellers go looking for indicators that help them be right more than they're wrong. These investors might be conservative, enterprising or speculative, depending on how they approach the market. In choosing stocks for short selling, most investors use computers to analyze economic, industry and corporate factors. Others, like me, rely mainly on interpreting the stock's trend and cycle price data...
