The Traders Journal

Gerald Loeb's Battle Plan for Investment Survival

Sometimes the things that need to be said can’t be said any better than they were said in the past.  I’m a big fan of Gerald Loeb (1899-1974), the man Forbes called the most quoted man on Wall Street.  I’ve written about this extraordinary investor before.

http://stockcharts.com/articles/journal/2013/05/gerald-loebs-timeless-wisdom-1899-1974.html?

These are the six elements of what Loeb described as his ‘Battle Plan’ for investment survival.  I believe we still have a lot to learn from G. M. Loeb.

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A Game of 21: 21 Investors / 21 Rules

I don’t know of any college in the world that offers you a higher return per unit of effort than the value of a proper investment education.  I believe a solid investment education is one of the most high leverage activities an individual can possibly do.  

Bold statement, yes, but I’ll give you some examples.  I’ve been running the bases, so to speak, teaching investors high probability trading for nearly 15 years.  What I mean by that is to reference the simple baseball paradigm I’ve used for years.  To get to first base, investors need information and knowledge.  To get to second base, they require investing tools and organization.  To get to third base, they must have an analysis methodology.  Finally, to get to home plate, they need to understand themselves and the “investor self,” and they must be able to take action.  Just as the Viagra advertising slogan says, “this is the time for taking action!”

After 25 years as a stock market trader, I’m able to vouch firsthand for witnessed some sensational stories of success.  I’ve witnessed firsthand as accountants, engineers, entrepreneurs, doctors, salespeople and many others who initially embraced investing as a hobby made the transition to investing full-time.  I’ve had the distinct pleasure of being involved in part of their journey.  And so, I thought it would be fitting and interesting to poll a number of them and ask them to share their favorite investment rule.  The following 21 rules are their contributions.

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You Do Want To Be A Type D Investor!

I have two things in common with Richard Sherman, the Seattle Seahawks’ Super Bowl star.  We both graduated from the same university and we both have two personalities.  Sherman articulated that fact nicely the other day when he explained to the press corps that he has his game face for interviews, team functions and on-field athletic efforts.  His game face is how he makes his living and what he shows to the public.  His other face is for family and friends, and he doesn’t care to share that side of himself with anyone outside of his inner circle.  

As an investor and trader, I, too, have both a game face and a private face.  For 6.5 hours a day, I’m in my stock market trader mode and it’s all about me.  I am wearing my game face.  I am one of the ‘haves’ – everyone else is a ‘have-not’.   It’s the selfish mindset that  I literally wear for those 6.5 hours, but hopefully only for those 6.5 hours, 5 days a week.  It’s most apparent when I’m actively putting on a trade or literally taking money off the table.

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Now Commission-Free Trades!!

Just announced:  Schwab, Fidelity and Ameritrade are offering all individual investors infinite commission-free trades!  Now that I have your attention, let me tell you that in actual fact they aren’t doing any such thing, but as an investor, you should adopt that “free” mindset.  The reality of today’s electronic market is that the average online brokerage fee is just $5.95.  Interactive Brokers, Inc. charges just $1 per stock trade, while the big three mentioned above all charge under $10.  Some brokerages, such as Vanguard, even offer 25 free trades every year if your assets exceed certain thresholds. 

The point I wish to hammer home is that the act of selling your equity position is a particularly episodic exercise because so many complicated emotions, events and indicators can influence your actions.  Yes, tax consequences matter and allocation decisions are also important, but what is most required at this stage is decisiveness and a firm response.  Anything and everything that might stand in the way of that – regardless of the size of the speed bump – must be purged, removed and completely banished from your trading psyche.  Worrying about commission costs or factoring them into the equations of your investing will just hurt you.  Unless, of course, you are a very high frequency day trader – then you might want to shop around a bit.

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How to Invest with Your Own Pit Crew

You wouldn’t ever try to change the tires on a moving car, would you?  You wouldn’t go to a dentist who hadn’t finished his dental degree, would you?  Yet investors every day seem to do exactly the equivalent by investing in the stock market with little or no groundwork or preparation.  Without common sense and some basic readiness, they approach investing with a carefree unsuspecting attitude.  If you disrespect the markets to that degree, the markets will disrespect you right back.

Imagine how a NASCAR race team would do if they entered a race without a pit crew.  Yes, Mr. Investor, you do need your own pit crew.  You may need to assume all ten roles for each of the crew members, but that’s fine.  The point is that you need all ten.  You can’t do average here and go for seven out of ten.  Close enough is not part of the vocabulary in this game.  If you forget to hire a crew member to fill up the gas tank, you will not finish the race.  

Precisely the same is true with investing.  You need your investing pit crew and all ten of them must have practiced together, worked together and focused on the same objective.

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My Top 12 Takeaways from ChartCon 2014

It was wonderful to see so many familiar faces this past weekend at the ChartCon 2014 Conference.  I know I walked away a more energized trader with a handful of new tactical options and strategies and a number of tradeable ideas I’m presently working through.  

Listed below are some of my favorite takeaways from the conference.  They are by no means a greatest hits list of the conference, but just what I personally found interesting.  If you couldn’t make it this time around, I would wholeheartedly encourage you not to miss the next ChartCon event.  Enjoy!

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Evidence-Based Trading for Dummies

Robin Griffiths, the renowned technical strategist, once opined that “Trading is a traffic light system.  At a traffic light, you wait for it to turn green and then you go.  You don’t try to predict when it’ll go green.

Unfortunately, far too many investors believe that to achieve success in the stock market one must become supreme master of the crystal ball by creating a complex methodology that will predict where the market is headed.  In reality, this is the absolute antithesis of what market wizards will tell you.  For that reason, I think Robin’s metaphor is spot on.

At a traffic light, you sit patiently with your foot on the brake; when the light turns green, you hit the gas and off you go.  It’s straightforward, and the average Joe who drives generally follows this program.  You don’t try to predict when the light will change; you simply respond appropriately when it does.   

There you have it – my trading methodology in a nutshell.  Occasionally, I do remind myself that I’m not in the business of trying to divine the market’s direction.  I’m in the business of reacting to it.

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How I Get Re-Energized as an Investor

Donald Trump was quoted as saying “Get going.  Move forward. Aim high.  Plan a takeoff.  Change your attitude and gain some altitude.  Believe me, you’ll love it up here.”

I will admit that in the middle of summer, my passion for the markets ebbs.  As I talk to my trading friends, I know I am not alone with respect to a  summer slump.  It’s just human nature.  My solution to this personal seasonality has been to participate in some sort of investment conference or seminar that will let me network with other investors belly-to-belly and help kick-start my investing goals for the fall when I once again amp up my trading activities.  Over the years, this “it takes a village” approach to investing has worked well for me.  

I’m reminded of a humorous quote by Zig Ziglar.  “People often say that motivation doesn’t last.  Well, neither does bathing—that’s why we recommend it daily.”  Much like bathing, I read Investors Business Daily every day.  This morning for some reason, my eyes gravitated to their regular feature entitled “10 Secrets to Success”.  It’s a shame but I often breeze past this feature in my quest for tradeable news.  Today, however, as I’m working on my two ChartCon presentations, I read the column in detail and it was a catalyst that re-energized me.  I thought I’d share this morning’s “10 Secrets” in the hopes that they have a similar effect on you.

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Tradeable Insights from the Past Quarter: Tensile Trading ChartPack Update #4

One of the highest leverage activities – if not THE highest leverage activity – that investors should focus on is to organize their routines, analysis and portfolios in a manner that maximizes tradeable opportunities.  Some investors will bump about for decades before they achieve a system that effectively analyzes the markets and identifies the best high probability trades.  The major benefit of reviewing the Tensile Trading ChartPack is that it will literally jump-start your organizational paradigm and save you years of trial and error.

This update is the fourth since we released the Tensile Trading ChartPack (note all ChartPacks include free updates for one year), and I must admit that my own trading has profited in unexpected ways.  For example, the simple routine of systematically reviewing each and every one of the 40 Fidelity Select Sector Funds to identify the equities that this Wall Street powerhouse has purchased and sold over the past quarter continues to yield tradeable insights.

In this update, Fidelity portfolios GR-420-12 through GR-420-88 show all the new equities Fidelity accumulated over the past three months for all 40 Select Sector Funds.
For your ease of use, new equity additions to their top 10 holdings are starred with double asterisks (**) next to their names.  The previous quarter’s new purchases were starred with a single asterik (*).

It is my opinion that all investors, regardless of skill level, would profit immensely from an analysis of stocks both purchased and sold by the mighty Fidelity portfolio managers.  By reviewing the last quarter’s activity or months April 1st through June 30, 2014,  
the charts literally teach you how Fidelity executes accumulation buying campaigns and distribution selling campaigns.  

I would encourage you to do your own analysis of the stocks that are double starred (**), but I will share ten of my own observations.  Make the effort and you’ll find the lessons and insights of real value.

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Bob Farrell: 10 Timely Reminders from a Wall Street Legend

As markets make new highs, investors often befriend a dangerous new companion.  He’s the greedy little devil that sits on your shoulder and whispers in your ear – assuring you that this market will make you wealthy as he coaxes you to buy more and ignore the naysayers.  

As I write this blog, the S&P 500 has soared nearly 300% since March of 2009 while other markets are also hitting new highs.  Without entering into a debate about market timing, I feel it might be prudent to revisit the sage advice of Wall Street legend Bob Farrell who had a front-row seat to a number of epic go-go markets in the late ‘60s through some brutal bear markets until he retired at the end of 1992.  These are ten of Farrell’s most famous observations:

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