The Traders Journal

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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Memory Tricks for Investors

As Oscar Wilde aptly said, “Memory is the diary that we all carry with us.”  It’s July 4th, and I’m coaching kids about timing and firecrackers.  Not too different from coaching investors about timing and selling equities.  Most grownups have learned from experience -- perhaps some more than others – that once you light a firecracker, there is a certain period of time for which it is safe to hold it before tossing it off.  Exceeding the safe holding period will cause all sorts of pain.  

My point is that kids have to learn this timing thing.  Many will push the holding envelope and at some point be caught with an exploding firecracker in their fingers.  At this point, memory comes into play.  Next time, most kids will remember to toss it off sooner rather than later.  By the time you are an adult, your memory tells you when to safely hold, light and toss a firecracker.  

Your equities demand much the same timing.  I strongly suggest you use the same timing memory for investing.  Granted as you mature you begin to appreciate memory for the gift that it is because you start losing it.  With diminished skills in this area, your timing will suffer and therefore your profitability as well.  The best antidote to these senior moments, I believe, is threefold.  

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The Most Important Question Every Investor Must Answer!

Have you ever met a famous investor at a cocktail party or event, taken his or her advice on a stock and lost money?  You are not alone.  It may have been a sensational timely trade and the famous one made a 30% gain in four weeks while you held it an entire year and lost money.  Therein lies the crux of the problem.  Same equity but two different trading timeframes.

The reality is that we all are comfortable with investing on different time horizons.  Ask yourself this question:  “How many trades do you generally execute in a day, a week, a month, a year or every decade?”  My point is that while a conversation between a day trader, a position trader and a long-term investor may be academically interesting, it will not be profitable for any of the three parties.   They are simply not on the same timeframe page.  

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The Probability Buster Chart: Improved & Strengthened

A powerful profit-enhancing tool has just been refined and put on steroids.  Back in December of 2013, I wrote a blog titled “Possibly the Single Best Visual Analysis Chart Ever.”  Bill, my good friend at Stockcharts.com, is an exceptional developer, and he figured out a way to make this tool easier for us investors to use while at the same time bolstering its clarity and visual value.

In lieu of rewriting the previous blog, I’d just encourage you to reread it.  The beauty of the new syntax is that saving this chart in template form to be used again and again becomes a breeze.  We no longer have to look up symbols for sectors or industries because the program does this for us.  Simply type in “$SECTOR” or “$INDUSTRY”, and voila!   If you pull down the “Legends” menu and click on “Verbose”, the charts give the full label descriptions, too.  Very cool.

The chart below illustrates a top-down analysis strategy, beginning with the market and working down through the sector, industry, and to the individual equity.  The objective is to align trends by putting the winds of probability at your back.  Your likelihood of achieving a profitable trade increases significantly when the equity’s sector is outperforming the market, its industry group is outperforming its sector, and the stock itself is outperforming both its industry group and the market overall.

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Invest Like You Drive & Put $$$ in Your Pockets

I spent the weekend with my friend Dan, a prison chaplain, who always seems to have unique and useful insights.  This visit was no exception.  Yes, understanding the parallels between prisoners and investors will put money in your pockets.  Here is his insight on decision making amongst the two populations.  

He observed that some of the first time prisoners he sees are people who make a poor choice or decision, end up in jail and are subsequently scared straight – meaning that they learn from their mistake and don’t make bad choices again.  The repeat offenders, to the contrary, are people who continually make bad decisions and don’t seem to learn from their mistakes.  It’s as if they’re driving down the highway of life and looking only at the car in front.  Seemingly, they see each decision and event in life as independent, stand-alone occurrences when in fact all decisions inevitably have ramifications.  Think of this in terms of drivers on a highway.  Most reasonable drivers are looking four to five cars ahead so that if a sudden problem occurs, the red lights of car #5 ahead will issue an early warning before brake lights ripple down to car #4, #3, #2, #1 until finally demanding their car come to a stop.  Repeat offenders in the prison system don’t seem able to grasp consequences of today’s actions because they aren’t looking ahead down the road of life, so to speak.  

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How the Markets Have Changed Me Over 25 Years: Part II

“It is good to have an end to journey toward; but it is the journey that matters, in the end.”  -- Ernest Hemingway

And quite a transformative journey it has been.  Previously, I shared a number of the key lessons and changes I’ve experienced as I’ve evolved through all five investor stages – from novice, to advanced beginner, to competent investor, through proficient trader and finally emerging as a self-disciplined expert trader. Below you’ll find nine more observations.   As American entrepreneur Jim Rohn aptly said, “Discipline is the bridge between goals and accomplishment.”

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This Could Change Your Life! How You Can Mimic Wall Street's Best & Profit Handsomely: Part II

This is a continuation of last week’s popular blog about how individual investors can outperform institutional money managers.  For many novice investors, it’s all about their egos.  For us seasoned investors, it’s all about stocks that can make us money.  We’ll use any and every advantage we can find.  So if Fidelity offers us this sort of advantage, we’ll take it.  It’s important to remember that many of these institutional managers are in essence trying to maneuver the equivalent of a battleship – one that has an enormous turning radius.  They may point in the direction where they want to go, but it will take them a fair amount of time and effort to execute the turn.

On the other hand, we individual investors have an immense advantage in that we are in a virtual canoe and our nimble trades will seldom move the market.  We look, we turn, we execute the trade.  

You’ll get more out of this blog if you take a few minutes and read last week’s Part I (if you haven’t done so already).  These are insights from my updates of Fidelity’s Sector Funds for the past three quarters as I adjusted the Tensile Trading ChartPack to reflect what Fidelity was buying and selling each quarter.  

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This Could Change Your Life! How You Can Mimic Wall Street's Best & Profit Handsomely:Part 1

This should be illegal.  If I was a hedge fund or mutual fund manager, I’d be thoroughly upset, but since I’m not, let me show you a unique and powerful advantage that exists for us individual investors.

You may be familiar with a new breed of ETFs that mimic top performing funds.  For example, Global X Guru ETF (GURU) has outperformed the markets nicely in its young two-year life.  This is possible because regulations require money managers with more than $100 Million in assets to disclose their holdings each and every quarter.  It therefore makes it possible for GURU to assemble a basket of stocks which are the most commonly owned by a prescreened group of the most successful hedge funds.  Their logic is sound, but you can execute it better.

I had employed a similar “back door” strategy for my own equity purchases over the years, but only with the release of my ChartPack did the full potential of this approach actually make a significant contribution to my profits.  

In November of 2013, when the ChartPack was made available to StockCharts.com users, I included portfolios for the 40 Fidelity Select Sector Funds, as well as their top 10 equity holdings in each of these funds, as reported by Fidelity in the most recent quarter.  

Here’s where the fun begins.  In February of 2014, I updated the ChartPack as well as these 40 portfolios to reflect Fidelity’s most recent purchases and the new additions to their top 10 equity holdings for each of the funds.  The transformational insights from this exercise struck me immediately.  More specifics on this later.  

In May of 2014 with Version 3.0, I once more updated the portfolios in the ChartPack to reflect Fidelity’s most recent purchases and sells as well.  These fresh insights made it obvious to me that I had a tiger by the tail.  

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Key Take-Aways from the 67th CFA Annual Conference Part II

In a previous blog, I labeled the four-day Global Chartered Financial Analysts event in Seattle as the ‘gold standard’ of conferences and seminars I’ve attended.  In this Part II blog, I want to share with you more key investment-related insights from the impressive slate of conference speakers.

 

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Key Take-Aways from the 67th CFA Annual Conference: Part I

ImagesDuring my investment life, I’ve attended well over 100 different conferences and seminars.  The Chartered Financial Analysts four-day event in Seattle last week was the ‘gold standard’.  With over 1800 attendees, the CFA Institute brought together a stellar collection of speakers, including my former professor, William F. Sharpe, a Nobel Laureate in Economics.  There were far too many highlights to present a comprehensive review, but in the limited space here, I will share a few with the hope that you’ll investigate these items deeper on your own.

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