by phil - December 27th, 2014 8:25 am
Sometimes we forget the basics.
In our video series, there's a lesson called "The Secret to Consistent 20-40% Annual Returns on Stocks" and I hope you've seen it. While the low implied volatility of the market has made it a rough year for option selling, we were still able to scratch out just under 30% profits in our long and short-term portfolios. We also cashed out out Income Portfolio with a 20% profit earlier in the year and we did it by following the BASIC strategies we teach at Philstockworld, not by gambling!
Not that we're adverse to gambling, gambling is fun – but fun means fun, which means it's a small part of our total investing portfolio while the vast bulk of our money is SENSIBLY INVESTED in safer strategies that are designed to grind out consistently good returns over many years. Two weeks ago we discussed the long-term advantages of compounding annual growth in "How to Get Rich Slowly" and now we'll begin discussing some basic strategies that can generate those consistent annual returns.
In the "7 Steps" video, we're discussing a basic covered call strategy and we delve into the Fundamentals of stock selection. At the time (Sept 2013), we were using ABX, which was trading at $19.15 and we sold the November $19 calls (45 days out) for $1.30. The simple instructions were to wash, rinse and repeat to make up to 40% a year by simply selling calls against the stock.
As you can see, ABX has dropped to $10.58 since then, down about 40% BUT, had you followed through and kept selling calls, we had a lovely 12-month period in which it stayed in our range and that would have given us 8 opportunities to collect at least $1 for $8 back before the stock turned down in September of this year. That would have dropped the net outlay below $10 and stopping out at $15 would have been a 50% gain for the year – even as the stock dropped 22% (from $19.15 to $15).
by phil - December 13th, 2014 7:53 am
Do you want to be a Millionaire?
Sure you do, why not. $1,000,000 is a nice amount of money – even at 5% interest in retirement, it's enough to drop $50,000 into your bank account each year to supplement whatever else you may have coming in. So let's agree that it's nice to have a Million Dollars.
Now I'll say something you may not agree with – if you are not on a path to have $1M in the bank by the time you retire – it's probably your own fault.
Yes, I'm sorry but it's true. It's really not as hard as you think to save $1M and I'm going to teach you how and, as long as you are under 50, I can show you how to get on the path to turning $50,000 into $1M in 25 years. If you are under 40 – it's going to be a piece of cake to save $1M by the time you are 65 - as long as you can follow our plan.
First I need to convince you of the value of SAVING YOUR MONEY – this is not something most people are good at – especially young people. Unless you accept the VALUE of saving your money, you will not be able to make the wise choices you need to make to get on the path to saving $1M.
This is a compound rate table. It's a mathematical fact. If you start with just $10,000, even at 10%, you will have more than $450,000 in 40 years. I'm 51 now and I can tell you that 30 years ago, I could have bought a cheaper car after college and saved $10,000. I could have gone to 20 less concerts and saved $2,000 and 20 less fancy dinner dates for $2,000 and taken one less ski trip for $2,000 – you get the idea. I was young and I was successful but I didn't know at the time that EACH $10,000 I spent in my 30s would cost me $450,000 in my 70s.
by Single Comment - October 15th, 2013 6:59 am
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October 14th, 2013 at 3:55 pm
1. Discipline Is All Or Nothing
One cannot be disciplined up to a certain point and yet call themselves disciplined. It’s all or nothing. Either you are going to be a trader or you are not. Discipline needs to be exercised at all times and not sometimes only. This doesn’t mean you focus 100% of your day on trading – that would be crazy – but that you are 110% committed to becoming better over time.
2. Losing Is Welcomed To Learn From
You will lose money – and the sooner you accept this fact the quicker you move on. Since everyone losses money, the thing that separates great traders from bad ones is that great traders learn from the losses. Welcome the opportunity to advance your strategy or adjust your trading plan after a loss. Here’s an example of one that happened to me recently.
3. Never-Ending Student Of The Markets
The markets are changing every day and you need to fully understand how it works. As it’s changing you have to learn to evolve and change with it. Sometimes this requires adjustments on your part. The moment you engage to learning new things, there will always be good opportunities which will be opening up.
4. Unique Trading Personality
You are an individual and your trading should reflect that. Trading has a way of uncovering the personality of individuals by making them trade outside their comfort zones. So it is very crucial to match your personality with the right kind of trading.
5. Can Separate News Hype From Reality
It is a crucial trait for you to know how to think for oneself without being influenced by the media and the
by phil - September 21st, 2013 8:32 am
From the Education Archives at www.Philstockworld.com:
by phil - March 27th, 2011 1:43 pm
Thank God for Atheists!
If there is one place in society where philosophy and science are still debated with great verve it’s in the realm of Atheism blogs. However you feel about God, or the lack thereof, what we do need in this world are better rules for discourse and JT from Atheismresource.com is the originator of the chart that’s been making the rounds in the blogosphere that is both funny and extremely well done.
It is, unfortunately, a testimony to the very irrational prejudices and poor manners that still plague us all that most versions of the chart we see on-line have been altered to remove the original attribution because apparently – knowing that an Atheist may have drawn up the rules for having a rational discussion will somehow invalidate the concept.
Perhaps that’s true. Perhaps the very people who most need to read and follow these rules are the very same people who won’t read past the the title on the top left of the chart and the dreaded word "Atheism." If you are one of those people, please consider: Is it really possible that a concept is invalid just because you don’t like the source? I will say that, as soon as I can get our site hosted on IBM’s Watson, I will hardwire these rules into the system so we can kick out all those conversations that aren’t going anywhere. Well, a guy can dream, can’t he?
by phil - December 19th, 2010 7:04 am
“Markets can remain irrational longer than you can remain solvent” – John Maynard Keynes
At the beach, many people stake out spots near the water but, as the day goes on, the tide gets higher and the people move to higher ground. Some people go much higher and some people move just a little but there’s a certain point where the water crests up onto the beach and sends everyone scurrying for higher ground in a mad dash.
Then it goes the other way!
Just when it seems that the water is going to go higher than it ever went before (and, thanks to global warming it does!) and just when you start to think the next wave will wash over the top and soak everyone, it suddenly stops and an hour later you can’t believe you ever thought the water would get that high as it seems so impossible as you watch it pull away from the beach, exposing sand that hadn’t been seen since the morning .
“The markets are like that. Frothy highs and "impossible" lows and lots of investors scurrying back an forth trying to guess where the next wave will stop (day traders) while others stake out medium-term positions (deck chair people) and still others make substantial long-term plays (beach house owners) and are willing to ride out even the harshest storms. While I have fun playing in the waves I guess I have to think of myself as a shell collector, looking for the opportunities that are uncovered once all the excitement dies down. Let the other people get soaked trying to guess the waves – we can do very well renting deck chairs in any market!
Rolling Options to Ride the Waves
by phil - October 5th, 2010 6:44 pm
We are hopefully going to have the Wiki project up and running soon (call me Kwan!) and then we can make a more interactive version of this as well as other strategy stuff.
For now, here’s some notes on JRW’s strategy taken by Augrusot, who has been kind enough to share. I’m sure JRW can add some comments (or maybe edit the post) to make it more useful over time. I’ll be linking it into the Education Section as well – Phil
My lines, 14,3,3 Stoch, RSI at 14, volume, Momentum also at 14, and pivots, with an overview from DeMark analysis.
[click on chart to enlarge]
Sep 20, 2010
You must plug my lines into your chart; Pivot points are also significant as is the 200 SMA, but I play off my lines (usually). When between lines the safest thing to do is WAIT until we reach a line and see which way we’re going from there to take a position. You can use the 3 min chart and a cross of the 8EMA for conformation (if your wrong, get OUT) !! Reverse above for exit strategy.
Also I usually post entries and exits, or intentions, so you can just follow me but my posts are about 2 minutes delayed from the trade.
And remember, do NOT get sidetracked while in a position (like eating lunch, you can go broke quickly)
(Jun 23rd, 2010)Confluence occurs when you take Fibonacci projections off of multiple trends and get the same number and strengthens when it corresponds with other technical advents such as gaps, swing high/lows, chart indicators crossovers (MACD, RSI, Stochastics, etc.), trading congestion, etc. The more confluence, the more significant the level. I really take notice when I get two or more fib #s (say a 38.2% and 61.8%) to correspond with a gap in the chart or a swing high. Confluence is very powerful as it combines multiple technical analysis techniques to arrive at the same conclusion, and should be relied on accordingly. I post the levels every morning. (Sig Rune links in the June 23rd post)
by phil - July 25th, 2010 11:15 am
As I said in our last 5% Rule Update, way back on May 5th, I’m not a big fan of TA. We have our 5% rule and it serves us well enough but that’s a statistical analysis, not a technical one. The only TA I put a lot of stock in is Fibonacci Retracements but that, also, is really statistical science and has nothing to do with trying to predict the movement of squiggly lines on a chart.
The 5% Rule does NOT tell you which way the market is going. It does tell you where the resistance points will be. Of course, knowing that and knowing what kind of bounces to expect and knowing where a proper breakdown or break-out occurs is kind of useful and, when it coincides with the tea leaves that are read by the "real" TA guys – you can really have something good to go by!
Unfortunately, the 5% Rule is not really a RULE because it requires a cynical background in statistics, especially regarding aberrant values or "outliers" and a general understanding of market history as well as current market events because all need to be taken into account in order to give you accurate "consolidation levels" from which we base out chart movement.
The great Harry Houdini used to enjoy amazing audiences with demonstrations of the supernatural, especially when he would pull back the curtain and reveal the frauds that others were passing off as reality. That’s how I feel about TA - we can use these very simple scientific "tricks" to project the movement of the market and others can paint their charts and dress them up in whatever language they wish to make it unique but, to me, it still all boils down to the fundamentals with the underlying movement governed by normal regression patterns influenced by capital flows and sentiment.
Whatever you want to call it, here’s our chart from May 5th, where I said: "So what lies ahead? Most likely a retrace back to 1,100 (25% of our run) but if that holds and we consolidate a bit, I will be downright bullish. I will also be impressed if we hold 1,145, which was our last breakout line but, for now, we have a 3.75% drop from 1,218 but a poor bounce yesterday indicates we are likely to get down to a 5% pullback from 1,218 to 1,157 and…
by phil - June 14th, 2010 5:28 pm
I mentioned my Microwave Oven Theory this morning and I didn't realize it was hard to find so here it is again:
Last Thursday, I mentioned that Jim Rogers said:
I am as confused as anybody else (about the level of bearishness on the Euro). Usually that indicates a rally… Once a technical rally starts, who knows where it can go from that.
Don't you wish other people would be that honest with us? It's very hard for people who give opinions for a living to stand in front of an audience and say: "I don't know." Somehow they seem to feel that they HAVE to know and, what's worse, once they force themselves to make a decision, they somehow feel obligated to defend it, even if new evidence comes out to the contrary.
This is exactly what's wrong with financial reporters and analysts, especially the clowns on TV (as well as pretty much anyone who makes a living giving you their opinion). My Members are familiar with something I'm going to share with you now. It is a Nobel Prize-worthy theory that I feel helps make me a better trader and I thought this would be a good time to share it with you:
People love to make random decisions and stick to them like they were directly given it as a commandment!
How does this relate to microwaves? Well, aside from the fact that our brains are constantly being fried by the things every day (ever drive on the highway and see one of those dishes aimed right at you? Do you know birds die if they fly too close to them?), this is what I observe:
You put something in the microwave, say pizza, and you put in a time, say 3:33 (or maybe you are a whole number person and do 3 or 4 minutes). Now, unless you are a chain store pizza buyer your pizza slice is probably not always the same size or maybe it has different toppings etc., but you probably put in the same number every time.
Theory number 1: People tend to repeat behavior, especially if it was successful in the past.
by phil - March 27th, 2010 8:28 am
Option Sage Submits:
Just a couple of decades ago it would have been almost unfathomable for the retail investor to consider generating consistent returns above 20% per year. Indeed, those who competed in arguably the most competitive financial market place, the stock market, were considered gurus when they beat the S&P 500 year in and year out.
Others, such as Jerome Kohlberg, Henry Kravis and George Roberts made a name for themselves in private equity as did Peter Peterson and Stephen Schwarzman with the Blackstone Group. Gains in the stock market for Joe Public were subjected to a limiting factor – the inability to leverage substantially. Joe Public was also limited in participating in private equity investments; they were the domain of the rich – the insiders. These days, private equity still remains the domain of the rich, but leveraging is possible through the purchase of equity derivatives. And the sale of those same equity derivatives can be highly profitable too.
Whereas it would have been unthinkable years ago to consider making big profits year in and year out on a stock that doesn’t move much – because the only source of income, dividends, tended to be in the low single digits in percentage terms - these days options afford us the opportunity to sit tight and profit while holding stock positions. This can easily be achieved through the sale of short call options against stock holdings, otherwise known as the Covered Call strategy. While the Covered Call strategy may appear straightforward when first encountered, many applications may be employed. In this article, we will consider the application that Stock and Option Trades labels: 7 Steps to 40% per year!
Step 1: Wait for a selloff
Ok, so you want to skip this step and move on to Step 2. Wait!
One of the great quotes in investing comes from Jesse Livermore and pertains to this concept of patience. In Reminiscences of a Stock Operator, it is stated:
"It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were