What separates the 10% that make money from the 90% that don’t?
10,000 hours.
In his recent book Outliers: The Story of Success, Malcolm Gladwell describes the 10,000-Hour Rule, claiming that the key to success in any cognitively complex field is, to a large extent, a matter of practicing a specific task for a total of around 10,000 hours. 10,000 hours equates to around 4hrs a day for 10 years. For some reason most people that ‘try their hand’ at trading view it as a get rich quick scheme. That in a very short space of time, they will be able to turn $500 into $1 million! It is precisely this mindset that has resulted in the current economic mess, a bunch of 20-somethings being handed the red phone for financial weapons of mass destruction. The greatest traders understand that trading much like being a doctor, engineer or any other focused and technical endeavor requires time to develop and hone the skill set. Now you wouldn’t see a doctor performing open heart surgery after 3 months on a surgery simulator. Why would trading as a technical undertaking require less time?
Trading success, comes from screen time and experience, you have to put the hours in!
Education, education, education.
The old cliché touted by politicians when they can’t think of anything clever to say to their audience. The importance of education to success in trading cannot be placed on a high enough pedestal. You have to learn to earn, the best traders work obsessively to…
These days, the idea of retirement seems like either a bad joke or a utopian fantasy. I’ve already covered some main reasons the US economy is screwed, but here are 8 reasons why the US has become a nation of indentured servants:
1) Stagnant wages
Are you partying like it’s 1999? That’s because you’re earning money like it’s 1999. Over the past 11 years, the median household income has been flat as a corpse’s pulse.
If everything gets more expensive over time but no one gets a raise, workers will afford less goods and services. This means people will either work the same amount for less stuff, or work harder for the same stuff. Either way, it’s a shitty deal.
2) Dual-income Nation
We’re a country of family values, right? Wrong. We’ve built an economy that requires two incomes to attain middle class status. It has even become a luxury for one spouse to stay home to raise children! (But that’s more of an existential issue …)
The graph above illustrates one of the most basic tenets of economics: if there is twice as much cash floating around the economy, the cost of things simply rises in direct proportion. In this case, adding an extra worker per household has increased household income. As a result, sellers of houses, child care, health insurance, cars, etc. have upped their prices to take more of our dollars.
3) Energy and Food Inflation
Remember $4 gas? Well, we’re back to $3 (double last year’s low). Every time a car ride costs more, that’s less money left over for things other than getting from point A to point B. As oil prices continue to rise with global demand (and diminishing supply), we will spend more hours working just to get to and fro.
Food is the ultimate necessity. So, when prices rise, there’s not much to do if you don’t care for the taste of cat food. It’s harder to notice 20-30% food inflation when a $2 item jumps to $2.40. But
Nowadays a newspaper cannot be opened — or a TV turned on — without one being subjected to anti-teacher misinformation. The anti-teacher hysteria looks diverse on the surface, but underneath, this public controversy seeks to dislodge teachers unions: the right-wing trashes teachers’ unions outright, while the “liberal” media takes a more subtle, sophisticated approach, blaming the state of public education on “bad teachers” who must be fired and replaced. Both styles are the same in essence.
The bi-partisan goal is to undermine and dismember public education, so that public funds may be instead channeled into paying debts racked up by multiple wars and corporate bailouts. Also, as public education is gutted, rich investors parasitically benefit from it by opening for-profit “charter schools,” curriculum corporations, or the bevy of new companies that "certify" teachers for a fraction of the cost or time of universities, ready to serve at the new corporate McEducation institutes.
Obama’s Race to the Top campaign enshrines these odious goals into governmental policy, picking up where Bush’s anti-teacher union policies left off, and racing frantically in the same direction, to the bottom.
The schools that Bush’s No Child Left Behind labeled as “failures” are to be shut down under Obama’s Race to the Top. These schools are almost entirely in poor neighborhoods, where the social disease of poverty is an easy predictor of a child’s poor test scores.
But Obama ignores this obvious fact and blames poor grades and test scores on the teachers, exclusively.
Thus, Obama cheered when every teacher at a Rhode Island “failing” high school was fired. He praised the past closures of dozens of public schools in both Chicago and New Orleans as examples for others to follow. Indeed, Detroit and Kansas City each have plans to close dozens of schools, while California is set to fire thousands of teachers. Under Obama’s plan, federal money is awarded to states that fire the most "bad" teachers and close the most “failing” public schools.
Students at the University of California’s flagship Berkeley campus took to the streets on Friday night, vandalizing university buildings, burning trash cans and clashing with police in the latest expression of frustration over cuts to the educational budget in California.
In November, the University of California Board of Regents voted to raise tuition by 32 percent. At the same time, professors were asked to take pay cuts or be furloughed, classes were eliminated and class size increased. Protests erupted across the University of California system, particularly at UC Davis and UCLA.
Every year, tens of thousands of college students and graduates stop making payments on their student loans.
For more than a decade, that loan-default rate was in decline because the federal government toughened penalties for schools with high shares of defaults. Now, the rate is increasing again and not just because of the economy.
The problem is particularly acute in Arizona, which has the nation’s highest overall default rate on federal student loans: 9.8 percent in fiscal year 2007, the latest figures available.
But more than default rates, it is the high levels of debt that are provoking alarm among consumer advocates. That has heightened scrutiny of for-profit schools.
Tuition at for-profit schools can easily top $10,000 a year. The average loans for a student who earned a bachelor’s degree totaled $32,650 in the 2007-08 school year, compared with $17,700 at public universities. At community colleges, the average for two-year degrees was $7,125.
In Arizona, for-profit schools are booming. They have more than doubled the number of students they serve in the past five years, and more students are at for-profit schools than all three of the state’s public universities combined.
Last school year, for-profit schools enrolled nearly 468,000 students, according to the Arizona State Board for Private Postsecondary Education, a state agency that licenses and regulates most for-profit schools. About 55 percent were from Arizona, and the rest lived elsewhere and attended school online.
In December, the University of Phoenix settled a whistleblower lawsuit in federal court for $78.5 million
The results of a new study examining the use of options in a collar strategy (both active and passive implementations) on the PowerShares QQQ™ exchange-traded fund (ETF) show it provides superior returns to the traditional buy and hold strategy while reducing risk by almost 65%.
The Options Industry Council (OIC) is pleased to note the study reaffirms the risk management potential of equity options, finding that during the entire 10-year study period, including the sub-periods around the tech bubble and credit crisis, collars significantly outperformed the QQQ, providing much needed capital protection.
“Loosening Your Collar: Alternative Implementations of QQQ Collars,” by Edward Szado and Thomas Schneeweis, looked at data from March 1999 to May 2009. It concluded that over the entire 122 month period the passive collar returned almost 150%, while the QQQ lost one-third of its value. The active collar outperformed both strategies and returned more than 200%.
Additionally, the study simulated a collar on a small-cap mutual fund. The return of the active mutual fund collar was four times the return of the fund, while the standard deviation was about one-third lower. The study was conducted by the Isenberg School of Management’s Center for International Securities and Derivatives Markets (CISDM) at the University of Massachusetts.
Typically, you want to employ a collar to protect a dividend-paying stock from losing value. We employed this strategy successfully in our last $100K Virtual Portfolio with KMP, who pay a healthy 7.6% dividend but had fallen 35% in 6 months in March. As we were re-entering the position back at $40 (with a 10% dividend), we were happy to be in it just for the premiums.
The study makes for a very interesting read. We do not employ full collars very often but they are a very useful strategy to know as you can "lock down" your positions when the markets get rough and it’s also a great way to vacation-proof your virtual portfolio without having to alter your existing positions. Also, as noted in the study, an active management approach – like the one we employ in our buy/writes (rolling the short positions along) leads to the greatest benefits over time. As the OIC says about the strategy:
This strategy offers the stock protection of a put. However, in return for accepting a limited upside profit potential on his underlying shares (to the call’s strike price), the investor…
The mainstream media is gleefully hyping "the recession is over, the recovery is underway." Nice, except for everything that’s missing in action.
"The recession is over, the recovery is underway." Exactly what will be driving this fabulous "recovery"? Let’s check in on the usual forces which have powered previous recoveries:
1. Autos/vehicles: missing in action (MIA). Annual sales have plummeted from 17 million vehicles a year to about 9 million a year, and the U.S. probably contains about 30 million surplus/lightly used vehicles ( a number snagged from economist David Rosenberg’s latest report). Modern vehicles can easily last 15-20 year, so the "need" to replace vehicles is rather low. Actual "necessary" replacement might require as few as 5 million vehicles a year.
With unemployment at 16%, assets down by $10 trillion and the FIRE economy (finance, real estate and insurance) in disarray, where does anyone think the consumer borrowing firepower will come from to finance an extra 8 million vehicles a year?
2. Housing/real estate: missing in action (MIA). Let’s see: new home sales down from 1.4 million a year to 350,000 a year and the headlines are screaming "recovery in housing" even as house prices are down 50% from the bubble peak and still declining. The Case-Shiller index just came in at a year-over-year decline of 17% and the market is cheering because it’s a few tenths of a percent "better than expected."
The U.S. has 18.7 million vacant homes and even if you bulldoze a couple million in shrinking rust-belt cities we still have 16.7 million vacant dwellings, plus thousands more foolishly being constructed every year.
Furniture sales and auctions of old furniture are in the ditch; ditto draperies, carpeting, hardwood flooring, etc. etc., much of which is still manufactured in the U.S. No wonder the manufacturing sector is still contracting as well.
The bubble in commercial real estate has yet to pop but the needle is currently being inserted into the balloon. Too many malls, too many strip malls, too many office towers, too many CRE buildings everywhere.
3. FIRE economy: missing in action (MIA). Finance, real estate and insurance were the boomtown industries in the housing bubble. They’re diminished and will never come back; the consumer must save now to avoid a retirement in…
Finding investing education advice for stock options trading can be a frustrating endeavor at times. New traders often share with me that it feels like the options trading community is a very tight-lipped community with a high price of admission. I’ve been through that process so I’d like to offer you some advice.
Learning to invest your own money is a journey, not a destination. It takes time, patience, and education. It’s a proactive journey for those who no longer desire to be a victim of the so called experts.
Over the years I’ve made enough mistakes and have had enough successes to know that the ability to master your money is not something that just happens. It takes a bit of work on your part.
Increasing your investment IQ is a key part, especially when you’re dealing with stock options. You have to find a qualified and trustworthy source for investing education. There’s quite a bit of hype out there so you have to filter out all the "noise".
You may have already searched online for information on stock options, or read a few books. Most people are drawn to options trading by the potential to create large sums of money in a short period of time. Here is my forewarning; having a great deal of head knowledge about stock options doesn’t necessarily mean you’ll be a great trader. It’s going to take some real world practice.
Most of what I’ve learned about investing did not come from a classroom or a book; it came from real world experiences. I found people who were willing to give me unbiased investing education and I applied the knowledge through practice and a bit of trial and error.
Investing Education is your Financial Road Map
Investing education has a purpose in our lives like a map has a purpose to a traveler. A map can take you from point "A" to point "B" when you’re traveling. Investing education can take you from school loans, credit card debt, and no budget to debt-free with money to burn. It’s your financial map so to speak.
You could try to figure out options trading on your own, but if you’re smart and value your time you’ll find a map that can get you to your destination quicker. It’s extremely rare for me to meet someone who doesn’t want…
In it we discussed several strategies for hedging existing positions, moving them into neutral positions ahead of a time when you would be going away and not able to keep your eye on the markets. As we cashed out last week, it hasn’t been much of an issue coming into this long weekend but some of you still have long postiions that need protecting and Sage has been kind enough to provide us with access to a free on-line seminar on the subject through his educational platform at www.MarketTamer.com.
I don’t recommend many services but Sage was an original member who went on to write many of our educational posts over the years and went on to develop an on-line trading education system that is very, very good for learning stock and options trading. PSW members get a special offer of $99/month, which is 1/3 the going rate AND he will give you that $99 back if you are not satisfied after the first month! So check out the link above, there are 3 free lessons there and read through the article. If you plan on going away with positions open this summer in this crazy market – I think it will be time well spent…
Those of you who know Sage have probably already linked over but for those of you who didn’t get a chance to meet him when he was on-line with us all the time, here’s a copy of Market Tamer’s recent press release, which tells you a bit about Gareth and the company he’s been building:
Taming The Market
A shockingly simple yet amazingly powerful concept has been ignored by major hedge funds, mutual funds, and retail traders alike. On their quest to outperform the market, Wall Street’s best often get sucked into a single style of investing or trading: long only, long/short, distressed, diversified and the list goes on. They use a single approach to exploit a changing market. And often a single approach works – for a while. Bill Miller of Legg Mason was regarded as one of the stars on Wall Street until his virtual portfolio suffered substantial losses during the crisis of 2008. Victor Niederhoffer was once acclaimed as the number one hedge fund investor in the world until his fund blew…
What with the word "next"? Also what's with the words "could be"? Without a doubt student loans are in a bubble and have been for many years. The source of ...
The 2012 rally slowed last week as the average gain of our basket of eight markets dropped from 2.01% the previous week to a flat finish of 0.06%. Geographic rotation was the dominant pattern, with the world leadership moving from Europe to the Asia Pacific. Thus, the top performing Nikkei 225 had been the worst performer at the end of the previous week, while the three European indexes were demoted from stellar to cellar. The S&P 500 again finished near the middle of the pack, but in the spirit of the overall slowdown, a finish near the middle was a week-over-week close (fractionally) in the red.
The adjacent table shows the 2012 year-to-date performance of our gang of eight. Three markets have maintained their double-digit gains at the end of six weeks, with the BSE SENSEX overtaking the DAXK (i.e., the DAX ex dividends) for the lead with the Hang Seng in...
(Note - I got an invitation from Tyler this morning to contribute to ZeroHedge, which completely made my day. I've got a little blog called the Slope of Hope, wrapping up its 7th year. I hope to become a regular here over at ZH; thanks, Tyler!)
Most of you have probably already seen the bullgasm happening over at Barron's. Here's their cover for the week:
Top 5 RisersStockRatingAnalysisICABUYThe projected value for Empresas ICA is still rising quickly even though past earnings have already improved significantly.XBUYThe projected value for US Steel is still rising quickly even though past earnings have already improved significantly.FEICBUYProjected value continues to rise for FEI while long term increases in earnings growth are also becoming more widely expected.ASBCBUYMany analysts are expecting higher than previously expected long term growth from Associated Bancorp, and its near-term earnings outlook is also improving....
The following are the M&A deals, rumors and chatter circulating on Wall Street for Friday February 10, 2012:
Actuant Acquires Jeyco Pty
The Deal: Actuant (NYSE: ATU) announced Friday that it has acquired Jeyco Pty Ltd (“Jeyco”). Headquartered near Perth, Australia, Jeyco designs and provides specialized mooring, rigging and towing systems and services to the offshore oil & gas industry in Australia and other international markets. Additionally, its highly engineered products are used in a variety of applications for other markets including cyclone mooring and marine, defense and mining tow systems. Jeyco generates annual revenues of approximately $20 million.
Actuant shares closed at $27.33 Friday, a loss of 0.18% on average volume.
A little flurry of buying in the closing 5 minutes tacked on 2 S&P points and took the major indexes off the lows. Only the Russell 2000 finished with a greater than 1% loss (1.4%) as it has been relatively weak versus the senior indexes for the past few sessions. While today was the "worst day of the year" – it was quite a low bar as the previous biggest loss on the S&P 500 was -0.57%.
The S&P 500 held well above the 10 day moving average (didn't even really touch it) and did not even attempt to fill the gap from last Friday's employment report. The teflon market rolls on for now. Specul...
Greece was “saved” for less than 24 hours but now major ETFs around the world skid into the weekend on Greek fears
After wangling for a week or more, Greek took their new deal to the European Ministers meeting, only to have it promptly rejected and so as we go into the weekend, major global markets and ETFs have again hit the skids on Greece.
After two years of wangling, the European zone is demanding yet more and deeper cuts for Greece to qualify for the next round of bailout loans that will keep the country from going bankrupt on March 20th.
Major European and United States ETF responded negatively to the new developments:
To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...
Reminder: OpTrader is available to chat with Members, comments are found below each post.
This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.
To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here
Here is a quick update of past trades and our current position.
AA Money
No trade this week as we wait for AA to settle. Phil remarked last week that AA seemed overvalued. In the meantime, it looks like we might have to roll our Feb 9 calls. Good thing we sold only 5 of them against our position.
Last week P&L - 310.00
We lost ground last week, but we still have 11 months to sell premium!
FAS Money
Very good week for FAS Money as we benefited from the large amount of premium sold the previous week. We covered most of the shorts in advance of the Fed speech, but sold another set of options on Wednesday after the speech - 2 FAS calls that expired worthless on Friday, 2 FAS put that we are still holding and 2 FAZ put that we bought back for a profit on Friday. A late stick comparable to last week's almost gave us problems at the end of the day though!
Last week P&L - $4277.00
IWM Money
A decent week in this virtual portfo...
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Finding new and exciting Biotech companies that target novel mechanisms is like trying to find a needle in a haystack. Sure there are many companies working on cutting edge science, but investing in those companies to reap the rewards of their work is a very dangerous game. More often than not, companies fail because the mechanism does not pan out, the compound(s) do not have pharmacokinetics (get into the body or last very long in the body), or an adverse event happens that knocks years off a development timeline. In addition, the stock can be manipulated by market makers so investors don't know which way is up. I approach investing in biotechs as a long term prospect. I continue to like our current portfolio of biotech companies (join in chat for many of those plays), and we continually add/subtract shares and sell/buy options on ...
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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Contact Ilene to learn about our affiliate and
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, Malcolm Gladwell describes the 10,000-Hour Rule, claiming that the key to success in any cognitively complex field is, to a large extent, a matter of practicing a specific task for a total of around 10,000 hours. 10,000 hours equates to around 4hrs a day for 10 years. For some reason most people that ‘try their hand’ at trading view it as a get rich quick scheme. That in a very short space of time, they will be able to turn $500 into $1 million! It is precisely this mindset that has resulted in the current economic mess, a bunch of 20-somethings being handed the red phone for financial weapons of mass destruction. The greatest traders understand that trading much like being a doctor, engineer or any other focused and technical endeavor requires time to develop and hone the skill set. Now you wouldn’t see a doctor performing open heart surgery after 3 months on a surgery simulator. Why would trading as a technical undertaking require less time?
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Investing Education is your Financial Road Map
A couple of years ago, Option Sage (Gareth) and I put up a very popular article titled "
Taming The Market 
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(