The Traders Journal

News Flash: Fundamental Investors Joining Chartist Investors, New Powerful Visualized Dividends

I have three objectives for this blog.  First, to invite and encourage fundamental investors to embrace the value of visualized dividends which can now be plotted on a chart along with price.  Secondly, to nudge all investors to consider allocating a percentage of their portfolios to dividend yielding stocks, both domestic and international.  And finally, to compare three dividend yielding options, ETFs, individual stocks and mutual funds and to consider which might be the best option for you.

The first objective is to show fundamentalists how they benefit in four distinct ways by bravely wading their big toe into the visual investor pool.  As an example, I’ll use Wells Fargo (WFC) which is one of the “dividend darlings” in my ChartPack (ChartList 640).

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Yes - Successful Investors Must Be Like Loving Parents

As any accomplished trader will tell you, investors should think of their equity positions as their children.  They should act like parents who love all their children equally, nurturing each and every one with care.   My trading journal seems to suggest that I’ve been a bad parent at times.

The truth is that my investment management style is often more akin to a screenwriter for the Downton Abbey television series.  Each character (i.e. equity) has its own storyline which must be regularly nurtured and developed, but the reality of the situation is that there are certain leading characters (i.e. equities) that simply require – indeed demand – more care and feeding based on their importance to the series (i.e. portfolio) as a whole.  All our portfolios are no doubt populated with these high-maintenance characters for a whole host of unique personal as well as market reasons.  

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Former Wall Street CEO: Guest Blogger

For over fifty years, Harvey Baraban has been an active stock market investor.  For over twenty-five years, he has been my mentor, friend and trading buddy.  Drawn together by a mutual shared passion for the markets, I am grateful to Harvey on many fronts, not the least being that he was the one who encouraged me to start teaching the investment classes that I’ve now done at Bellevue College for over fifteen years.  Harvey himself was an adjunct professor for many years at Golden Gate University in San Francisco. 

By background, he is a Duke engineering graduate who partnered in the 1970s with billionaire investor, Gerald Tsai.  Tsai was famous for starting the first publicly-sold Fidelity growth fund.  He also started the legendary and highly profitable Manhattan Fund which was one of the earliest proponents of concentrated momentum investing when the prevailing wisdom of the day advocated extremely broad diversification.  This entrepreneurial spirit rubbed off on Harvey Baraban as he, too, became a widely respected pioneer in the securities industry. 

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The Birth of a New Investor

General George Patton once said, “A good plan implemented today is better than a perfect plan implemented tomorrow.”

I just had a front row seat for the birth of a new investor, and the experience was not at all what I expected.  Few births probably are.  Before I lose you due to graphic visions of a hospital room, let me say that the investor birth involved my middle-aged sister finally transitioning from employing a full-service broker to grabbing the bull’s horns and managing her own retirement investment account. 

Over the years, I had tried to coax, cajole and beg her to do this, but all my pleas passed with no success.  I had approached the subject with the usual refrains: “be adventurous,” “learn something new,”  “be your own CFO” and everything in between.   Her steadfast reply was always the same:  “life is what’s happening while your money is being managed by someone else.”  What finally tipped the scales, however, was a combination of shame, performance and costs. 

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A Big Trading Mistake I Made So You Won't Have To!

I’ve learned that you have to be very thick-skinned to be a trader or a blogger.  Many of my blogs are lifted directly from the pages of my old trading journals, and as I write about these former trades, I am very conscious not to sugar-coat it or make it look better than it actually was. 

This week, I’ll describe how I slipped right into a rather expensive trading mistake.  At the same time, I’ll also tell you that I paid my tuition to the market, that I only did this misstep once and that I’ve learned from this mistake.  I’ll explain what happened in detail, but let me also add that despite this specific instance of being tutored in the mutual fund arena, the lesson has been carried over to the stock arena and ETF arena as well.  More on that later.

Let me take you back to the years 2003 – 2006.  The market had a strong, 85%-plus run, and in April 2006, it hit a high followed by a normal 8% pullback.  By late October of 2006, it took out the April high and was moving strongly into November.  I fell prey to an overly-excited state of mind and made a bad, impulsive decision during open market hours.  Normally, my strategizing is done when the markets are closed, which I’ve found offers me more clarity and tension-free reviews of my data points, information sources and charts.  On that day, my mistake was rushing a sizeable mutual fund buy without doing my normal due diligence and preparation.  Then pow… four days later, I received a humongous distribution which resulted in a pretty nice gift for Uncle Sam.   By investing at the wrong moment, I essentially was handed back a large portion of my investment as taxable capital gains with an untended large tax liability.

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Youthful Investors versus Grizzly Veterans: Beer versus Wine

At a recent seminar, I was asked by a sharp young investor how much trading rules had changed since I began trading way back in 1905.  He didn’t actually say 1905, but the tone and cadence of the question gave him away.  By pure chance, I had just picked up William Eng’s 1990 book, Trading Rules, off my bookshelf and had flipped through the pages again as I ate my lunch.  The young man asking me the question was not unlike a young athlete because after all, depending upon the sport, one statistically hits one’s prime in one’s 20s or 30s.  I answered with a knowing wink that serious investors are much more akin to an exceptional bottle of wine – such as a Domaine de la Romance, Conti Grand Cru – something that just keeps improving with age.   He stared back at me with a puzzled look as only a young beer-drinker can with no appreciation for what he was missing.

Most all dedicated investors get better with age.  It doesn’t take biceps to trade better.  It doesn’t even take extraordinary amounts of gray cells.  But it does take experience and intuition which is cumulative.  For every purportedly sensational youthful portfolio manager you present, I can offer up two grizzly veterans my age who’ll kick their derrieres. 

But I digress.  Back to Eng’s trading rules.  As he says, “an expert market mind is only acquired through careful analysis of many successes and failures.”  The other part of the equation deals with the reality that the market’s primary fuel is human emotions which have not changed in centuries.  Without getting into commentary on each of Eng’s fifty rules, I thought I’d simply list a dozen that illustrate, for my young questioner, that trading is timeless, experience matters and serious dedicated investors do significantly improve with age.  It’s simply a victory of fine wine over beer.

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Over 150 Fresh Tradeable Insights: The Tensile Trading ChartPack Update 6.0

For both existing ChartPack users as well as investors who have not yet downloaded the ChartPack – or perhaps don’t fully understand the many benefits of how to maximize its use – I’m pleased that a free video and user manual is now available for your review.  Grab a cup of coffee, put your feet up, and check it out!

Free Video & User Manual:
Recorded at ChartCon 2014, my 60-minute presentation steps through the powerful organizational structure and each of the 90-plus ChartLists that comprise the ChartPack.  All StockCharts.com users will benefit from the many organizational ideas.

http://store.stockcharts.com/collections/stockcharts-com-chartpacks/products/tensile-trading-chartpack-by-gatis-roze

As a full-time trader, I have been using this ChartPack personally for over a decade.   About five years ago, I began sharing my ChartPack with my Bellevue College class investors.  In November, 2013, I started offering the ChartPack and quarterly updates to my StockCharts.com friends, users who now number into four figures.  

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My Methodology Allocation Beats Asset Allocation

From what I’ve seen of most investors’ asset allocations, it’s a maze.  My personal asset allocation is better described as a labyrinth.  Unlike a maze that attempts to make you mentally confused and physically lost, a labyrinth provides a path towards inner calm and mental clarity.  My labyrinth allocation is in fact more accurately described as a methodology allocation and is built upon three foundations:  diversification, correlation and methodology.  Let me explain. 

Diversification means different things to different types of investors.  In my portfolio, this plays out as a lifetime mantra of distributing assets across a very wide array of buckets – classic diversification.  Some buckets are relatively uncorrelated, while others are negatively correlated (all the time acknowledging that in times of crisis, correlations tend to rise amongst all assets).  Basically, I’ve avoided the strategy of, for example, buying a dozen rental properties in one neighborhood.  These are all correlated assets and diversification is non-existent.  My point is simple.  Avoid putting all your eggs in one basket is not just a cliché but a truism as well.  But then also make certain your eggs are somewhat uncorrelated.  

My third foundation is methodology.  Here is where I differ from the sea of asset allocators because I factor in my own personality, skills and trading style.  As a trader, I buy individual stocks based on strength, relative outperformance and momentum.  I cover this base or asset bucket myself.  I don’t look to ETFs or mutual funds to do this for me.  Conversely, as a trader, I also know myself and acknowledge that I am not emotionally capable of buying deep discounted equities or distressed securities.  Those are what asset allocators label as ‘value stocks’.   

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My One and Only New Year's Resolution

Every January, investors throughout the world pledge to improve themselves and their financial management efforts.  Only a select few truly succeed in these eager commitments.  Let this be your nudge to join the ranks of those select few.

In past years, I’ve often fallen into the trap of making long lists of New Year’s Resolutions.  I’ve taken on towering tasks to weed out negative beliefs or unhealthy emotions, to become more personally accountable and action-oriented, or to seek answers from within rather than trying to place responsibility elsewhere.  While some of these resolutions have fallen short, many others have fortunately stuck to varying degrees and have grown into permanent staples of my routines.  The most prominent example is my personal Trading Journal, which began as a goal to document my behaviors, emotions and thoughts throughout each trade.  Most significantly, my journal has come to shape my definition of success by changing the way I classify winning and losing trades.  

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Only the 58 Navigators Matter

Of the approximately 6,000 stars visible to the naked eye, only 58 are considered navigator stars.  Since antiquity, these essential stars have guided mankind to many new horizons.  This wisdom came to me on a brokerage house Holiday card.

If you have ever stood atop a mountain at night or lay on your back in a country field as the stars came out, you will not dispute the overwhelming vastness of the heavens.  The stock market can be nearly as vast and overwhelming.  Much like the heavens, it’s most important to focus on the bold stars and forget about the faint stars.  It’s impossible – indeed harmful – to spread your gaze across all 6,000 stars.  Just because you see light in the heavens or the markets doesn’t mean it will get you where you want to go.

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Academics Prove that Trading the Markets Contributes to Your Longevity

Yes, the fountain of youth really does exist, and academic research is increasingly proving it to be found amidst your investment portfolio.  A growing body of scholarly research shows that, in many ways, life can get better as we get older and being an active investor can contribute in significant ways.

As I write this, I’m 62 years young, and without a doubt, I’m a far more profitable trader today than I was 10 years ago.  I expect to be even more skilled in another 10 years as my expertise deepens.  It’s as if the “intuition gap” that separates me from the market continues to narrow.  I’ve worked all my life to make that gap smaller and smaller.  I chose to believe that is why they refer to them as the ‘golden years’.  Without getting too metaphorical, it’s like the distance between me and the market has become a relatively narrow space such that I can nearly reach across the chasm and touch the other side.

Before you dismiss this stay-young-by-investing thesis, consider the investment track records of some mature money managers such as Warren Buffett, John Templeton, George Soros, Shelby Davis and Philip Carret who all practiced their craft for at a minimum of 38 years.  Some are still going strong beyond 55 years.  

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