DECEMBER, 2001 ARTICLE:
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If you got one of the John Murphy Year 2000 Charting booklets
at an AAII Chapter or other SIG meeting recently, please bring
you copy to the December CI SIG meeting.
We have only a limited supply left. Reusing a copy would help
ensure that we have enough copies for everyone. Thanks!
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LAST MONTH: Perhaps the last of months of vacation for me, as Stuart, Gene, Atul and Bill continued their months of providing important, well presented and interesting features on the market, charting and investing. Gene's been talking about the changing economic pattern as well as introducing us to his good, cheap, on-line information sources as well as how to use them. Atul has helped out in several ways including his two big Candlestick charting series of 2001. And Stuart has been telling us his views of the market, some tricks in his personal system as well as providing critiques of stocks we suggest. Newcomer Bill Park has shown us some clever programming, splendid presentation techniques and most of all his critical appraisal of T.A. and it's validity. He and Stuart have lead some fascinating group discussions on the Pros and Cons!
It's been a great fall, especially as I could sit back and enjoy splendid presentations, discussions and critiques along with you.
So, at year end, let us give a big hand to our Volunteers.
Their efforts should commend volunteerism to all of you. So make a new years resolution early - plan to support your CI SIG during Y2002 with a special presentation of your own. Short on topics? Well, take a look at the John Murphy handout this month, check a favorite magazine or web site or merely report an interesting application for a technique you've heard mentioned. If you need suggestions, technical support (like charts) to make a good presentation, just contact Don Lee, any of our top speakers of me.
DART BOARD: If the Wall Street Journal can run a dart board contest, so can we! To prove Gene Perronni is no fluke, emulate his work in a small way. Bring a 3 x 5 file card to the meeting with two of your investment picks for 2002.
Pick your one best winner for Six Months (CI SIG June 2002 meeting) and 12 months (CI SIG December 2002 meeting). Assume you have to buy one share of any listed securities and hold it for the duration of that contest. Gains/Losses will be calculated on percentage basis. There will be no commission and tax costs. Short selling is OK as we will do the calculation on the same basis. It's OK to use exchange traded funds, iShares and the like as long as it's something with a published price. No Options
Also list on the card WHY ("Stochastics Buy confirmed with RSI". "hot tip from Uncle Max". "Anticipated merger" or whatever.......) Perhaps there will even be a prize for not only the highest gainer but the most creative reasoning (if it works). No reward, but possible "fame" and publicity for the biggest loser.
We'll price entry and exit points based on listed closing on the Friday before this Decembers meeting and the meetings in June and December. The winner will get considerable acclaim, perhaps a modest or a silly prize plus a round of applause.
ON TAP FOR DECEMBER: Lots of leftovers lead to simple planning in the following month. And planning the December meeting is no exception. Virtually everything is from the "spare presentation closet". And true to tradition, we try to use up as much of the accumulation as possible in December to get a clean start in the following year.
So here's a November tip off on what to look for at our December CI SIG meeting. Subsequent updates will be posted on the AAII Philadelphia Chapter Web Site:
* RSI INDICATOR: Continuing our recent video series, at about 9:30 AM, we'll tackle the RSI indicator. It's a favorite among the pros, but most of us know only a little about it and how to best use it. After this tape, and perhaps a practical usage demos of it, we'll move on to the Classroom presentations.
* A GOOD CHARTER LOVITH DEM INDICATORS: Gene Rawdin (and others) have noticed some of the popular indicators are talking in this trending market. (Is that because we all love dem trending indicators? But, hey, what about dem non-trending ones? Do we ignore them?).
Gene's going to highlight indicators he likes, really productive ones. Then he'll show them how they can be used to advantage together. For confirming indicators are what it's really all about....
Gene's promised to bring a few historical charts along to drive home the message. And do we love charts, especially those that make us money.
* JOHN MURPHY on Technical Analysis: We've got a few copies of John Murphy's Year 2000 top reports reprints (bring yours, if you already have a copy) which we intend to use as a base for our December meeting. At barely 30 pages it is dwarfed by his 400+ page Technical Analysis of the Financial Markets book. Yet in those 30 pages are a host practical charting demonstrations of John's favorite charting techniques right out of the bigger book.
As you know, John likes straight and Spartan in his charts if not in his explanations, too. So we're going to look at techniques in his book and try to see how they work with real charting software and our large stock price data base.
* ROCKET SCIENCE III: Or more likely IVb. John Ehlers Rocket Science book project even includes two Trading Systems plus ideas for a few more. One is a day trading system. So we plan to look at the one end of day system, see how it works and then try to modify it for better results. (Since I don't have intraday data, we might see if the one clever Intraday system has promise using EOD data.)
Time permitting, we will also look at some of the Rocket Science indicators we have not yet covered. If not, expect some in the Lab sessions or at the January meeting.
* ROLL YOUR OWN: If you've got a simple trading system concept you'd like to see tested, bring it along. If we have time in the Lab session, we'll try to roll one or two on the spot, test them and enhance them. If not, we'll do some in an early 2002 meeting.
After 11:00 we go to the less formal LAB session. Typically we ask Stuart to give us an Art of the Chart presentation plus his thoughts on the market. This month, we will also try to cover opportunities from Year End selling and a possible New Years small cap bounce.
We'll also fit in some "homework" from the two main presentations and even look at a few of our members stock picks.
* THE HOLY GRAIL: Atul mentioned in November that "there is no Holy Grail for investors". If there were, we'd conduct CI SIG meetings via satellite from the decks of our Yachts or the patios of our far-off Villas. Yet, on the way out of the building, he asked "Why don't we have one, a Holy Grail". By that, I hope he really meant "a gold standard"; template for T.A.
Think about that - is there a Most Reasonable Way to utilize T.A. to find good stocks? Or are we all hopelessly doomed to wander our separate ways about the market. What criteria, tests and approaches would form a top T.A. check list for successful investing? One that we could all agree on.
Think a bit about how you approach a chart for the first time. For me, it starts with a reasonability check. There are just some stocks that "don't chart well". Usually these are the market orphans with sporadic, low volume, often low-price trading (Try ATRI, BINX for example). Can you find a reason for the recent BINX bounce?). Foreign stocks often have difficult patterns due to non-overlapped trading on both their home markets and in New York (try LEON, DCX, AEG). It seems true even when there are large US holdings in the firm (take Daimler Chrysler - DCX). It's not unusual for a European stock to almost totally stop trading when the home market closes some six hours before New York. Asia is another story, as there is NO trading overlap.
[An aside. Do you know the correct GERMAN pronunciation of the name of the Stuttgart auto firm behind the DCX symbol?
It's "Daimler", the "Chrysler"; is silent.]
Certainly, there are a lot of heavily traded stocks where the mere fact that a lot of people are charting it makes it likely to exhibit good charting patterns much of the time (try Intel, CISCO and kindred spirits). Experienced chartists want a good record of patterns and reasonable daily volume. For low volume can make it hard to get in or out at a reasonable price, especially with a very small or very large order.
But what can we agree on for the next step? I suspect it's got a lot to do with your own personal approach to investing and your trading interval. But expect us to talk about this a few times in the next few months to see what we can agree on - and what we can't.
* EOY: Usually I post something about end of year financials in November or December. But what can you say to this amazing down and, now, up year. Perhaps it's a bit late for tax loss selling. Most funds now close their year early, so they've already done most of what tax loss selling there is to do. More likely what they are now doing is "tax gain selling" - trying to take some quick last minute profits on stocks that have run up since September to disguise the fact that they've already managed to rack up some large losses earlier in the year.
Likewise, perhaps there won't be much tax lost selling by individuals - for to get a tax loss you need also a taxable gain. Those are surely harder to come by this year than in the '90s.
Remember, (unless you qualify as a professional trader for tax purposes) losses can only be deducted against like gains and are subject to a $3000 annual overflow deduction. If you have really big loss and no counterbalancing gains, it's painful to take only $3000 of it this yea; then spread the rest over several years into the future until either you have some profits to balance against or the $3000 annual whacks cut down the carryover.
So it's to your advantage to ensure that tax loss carryover provisions are not part of your future. Do a rough capital gain - loss calculation to see where you stand. If it's far one side or the other of neutral consider some offsetting trades to manage your tax liability. Also, consider doing some dead wood pruning. I've found it therapeutic to do the following:
* Round of a few of those "I should have sold" stocks and sell them, Target stocks you once though were the road to recovery but now appear to be on what looks more like a cow path to nowhere or even a wilderness. Making them disappear now might be a good idea except for the ghosts of defeat and loss they leave behind.
* Do it sooner, rather than later. The last days of the year can really knock down laggards.
* Quickly roll that cash into some better positioned investments with real potential. Consider perhaps purchases of stocks that are sound but where last minute selling has overly depressed them. [If you are inclined to take a real risk, consider some of the depressed telecom-broadband stocks (for example, GX, WCG). I mean really, don't you want a broadband connection NOW. Widespread bandwidth burning in 2002 could be a godsend to those companies.
[Remember the Wash Loss sales rule - no fair sell/buy or buy/sell pairs within a thirty day window (either way) if you want to use that tax loss. But this only applies to "substantially identical securities". For example, two bonds of a different issue but from the same company are NOT substantially identical. And surely, two stocks in the same industry aren't either.] It is even possible to find shares in what might be a substantially identical company that can be treated as different companies. For example, tracking shares and the host company. If you trade options, the rules are tricky but there are some plays that are really clever to avoid the wash sales rule.]
The advantage of this approach is that you can more readily transfer your allegiance to the new stocks. Another advantage is that, even if you waited too long and got you sales caught in a tax loss selling downtrend, you will likely pick up your new purchase at a similar discount. It is amazing how many year end buys can become Short Term Capital Gains only weeks into the new year. And these jumpers often don't hold gains well - so be careful.
AN ASIDE ON BANDWIDTH BURNING II: Speaking of burning bandwidth, consider my recent experience phoning Dell's technical support. Dell farms out a lot of it to outside contractors. This week I found out how far they really farmed it out, far out. I kept getting connected to service representatives in places like India, and elsewhere in Asia. (Yup, I asked them.) My tip-off there; electronic "sitar-like" music, a very, very British accent on the ever-repeating "We value your call, but ....." announcements and rather noisy backgrounds. My, my, fiber optic bandwidth from Global Crossing is so cheap that a 25 minute on-hold call half way around the world is no longer a cost factor.]
NOVEMBER, 2001 ARTICLE:
HOW DID WE DO?: A lot of the November meeting material will be answering how well challenges from Atul Govil and Stuart Shapiro did. In their two presentations, each provided us with a list of stocks that promised good performance if the criteria they developed in their presentations were right. In November, each will lead a review to see how and why the list performed - and on the down side, the story there, too.
Check the lists on the AAII web site for these two lists and prepare your own assessment for the meeting.
.. AND HOW DIDN'T WE DO: Because we had so much material to cover in October, several presenters deferred their presentations to November. Here's some primary material to be covered (see past months write-ups for details):
* Gene Rawdin deferred his presentation on his favorite investment techniques to this month. Look for it sometime between 10 and 11 AM
* John Schott has a charting tutorial based on using a donated set of John Murphy's Year 2000 Chart alerts and tutorials (Thanks to Greg Morris of www.MurphyMorris.com for the generous donation.) If you can't come to the meeting but want to see Murphy's postings, check out the web site at www.murphymorris.com and sign up for two free weeks of his daily service. You'll be able to read from 1 to 5 timely and informative multi-page postings with good charts on most market days.)
* John's also got a report and follow-on analysis on techniques from "Rocket Sciences for Investors" by John Elhers. Included will be an exploration of a pair of Ehlers system trading models - how they perform and how they can be modified. We also thank Mr. Ehlers for tutorial and educational support, including the excellent free material on his web site, www.mesasoftware.com.
With all of that, you can be sure that some overflow will remain for December and even 2002.
...... AND MORE: Naturally there will always be new topics to cover during both formal presentation and discussion. As a diversion, we will be having a video tape segment discussing a popular indicator, by a noted Industry Guru. Come and be surprised, amazed, and, most of all, educated.
SPEAKING OF AMAZING: Could you have predicted the action of the stock market after the "911" tragedy. Here is one of those world shaking events that promises to change our conformable view of the world for a long time. Yet, after a predictable, but modest dip when the market reopened, we had several weeks of stellar market performance. While it's fading with the bad economic news as this article is being written in late October/early November; who would have predicted that the market would have recovered so well and held onto most of the recovery. Is this a sign of the market looking ahead (as it often does) to better days in 2002? Or is it a sign that we've all been so seduced by the salad decade of the '90's that we can't shake off the old habits. Some called it "Irrational Exuberance".
HUNKER DOWN or NOT: If you look at the sad story from the Airlines industry, traffic is down from before "911". Look more closely and you will see that it was trending down before that date. But that's something it does every year after Labor Day. The vacationers have gone back to work and haven't started their fall business travel. While there was an additional sharp dip for several weeks, a chart I saw last night showed traffic is "only 80%" or so of the pre-911 load.
Funny, nobody (like those airline folks with their hands out to congress) mentions that it's always down sharply at this time of year.
Surely, there are a lot of travelers who are driving, railing or merely putting of their trips lately, And I'm not suggesting business travel isn't going to remain sharply off for months due to the economic slowdown and post "911" stress. But one can make the case that with or without "911", business travel will be off forever. The internet and telecommunications make training seminars and conventions costly alternatives to on-line experiences. True, salesmen need face time to effectively sell and close deals. But a lot of what passed for needed travel in better times is going to have a hard time getting past corporate "bean-counters" (Who, you will note, seldom get to travel themselves.).
But the world is not going to stop (we hope). People might substitute a driving holiday or even a set of virtual experiences (say DVDs and an X-Box) for that Florida or Island flying trip this winter. While a nice fire in the fireplace may help, that won't substitute for WARM, which is the goal of many winter vacationers (or COLD for those skiers).
But what about investors. Already some are hunkering down with low yielding CASH or a hi-yielding REIT or risky Preferred issue. CASH is KING - at least it's safe and provides funds for eventual bargin buys. But with the latest rate cut and dropping 30 year bonds, the government is saying CASH IS TRASH.
A BOTTOM: In Spring 2001, we heard the bottom was NOW, COMING or at worst EOY. Predictions of the bottom are invariably to soon rather than too late. Now we hear it's the usual "Six Months Away plus a few months more for caution. EOY 2002 ". With a whole "list of troubles" (read from Afghanistan to Argentina to Anthrax) longer rather than shorter might be the case. If you factor in a massive world financial drop, an east-west conflict of decades long and more and you can paint a really bad story where CASH is indeed KING.
The bottom is usually where most investors say all hope is lost and throw in the towel. But we've had only a taste of that this summer. Now we are in a (pseudo-)recovery which may lack sustained power. So when does the road up really start. In uncertainty lies opportunity.
SUZE-LA-RUSSE or MARX WAS RIGHT!: In one of our afternoon sidewalk post meeting meetings one member said "Marx was Right. Capitalism sows it's own seeds of destruction.". Look about the world and see that things are starting to become a bit frayed. The have nots (and a lot of the almost haves) start fighting over what's left of the pie. Before they had confidence that more pie was coming for them.
I've had a different take on that. It all began for me years ago in Suze-la-Russe, a tiny agricultural village in southern France. Suze is more of a crossroads than a village, but of there is the giant S-L-R Wine Cooperative. As we shall see, it's not the home of Frances finest vintages either. Surprising for France, things were hopping there that Saturday afternoon. So I pulled in to snag a bottle of wine for some countryside lunches. While I did manage to get a (rather nice, too) bottle for about $1.40 USD; the main action was at the low-test (while), mid-range (rose) and high/ultra grade (two reds) pumps.
Yup, they were dispensing from these miniature filling station style pumps (complete with liter and cash-due displays) into whatever container the locals brought in. Bottles, jugs and enormous glass containers that could not be lifted from the pickup trucks. Supply came from hoses which snaked back to 8M (25 foot) high wooden barrels in the warehouse. And pumping they were! Wine, unlimited wine, at prices from $0.21 to $0.45/liter. Cheaper than coke, much cheaper than local gasoline! Signs of supply exceeding demand!
And so it has come to pass. The world is now capable of delivering high quality goods in a quantity exceeding the demand (and the ability of many) to buy. A whiff of deflation is in the air. Folks, it's time to pay real attention to your investments
OCTOBER, 2001 ARTICLE:
FEAST or FAMINE?: Is CI SIG on a roll or not? Our two summer sessions had zing. Last months PACS opener continued famously. Several fine presentations lead to one great interactive discussion during the Lab Session. If you missed it, the outline following is a sniff of our feast. In difficult market times, it's hard to keep good a perspective to retain confidence in your objectives and strategies. So now, not the good times, is when CI SIG is the place to restart the thinking and rebuilding you'll need to dig out of today's holes.
COMING UP: Yup, it's feast time. Lots of leftovers from the September meeting, several entirely new presentations plus a few things from earlier months still unfinished. As of late September, here's the likely October meeting line up. (Check out the AAII Philadelphia Chapter CI SIG postings by linking to our chapter web site via www.aaii.com (or go direct via www.voicenet.com/~jschott, then click on the link there) for any subsequent updates:
* THE ECONOMY: Gene Rawdin, plus Stu and Atul, will comment briefly on what's happened since mid-September to the economy and the market. While Gene's economic Gurus could not have foreseen the September 11 disaster, they'll earn their keep if they can divine strategies for the future. Stu and Atul, both students and observers of the daily market, can give us the perspective from a traders viewpoint.
* BURNING THE CANDLE: Atul Govils' spring "Introduction to Candlesticks"; presentation beat even the high standard we have come to expect from him. In October, Atul plans another on advanced candlestick techniques he's learned since. So now that you understand candlesticks, it's time to see how a pro would use them.
Atul (and Stu) note that, for themselves, doing a CI presentation is a top learning tool. A lot of what they do for us is really intelligent self-improvement. Preparing a presentation makes you learn, understand and organize your thoughts far better than listening to a lecture or hitting the books on your own. Your audience forms a sounding board for your concepts. Expelling, defending and supporting that concept refines and fixes your understanding in a way passive learning can't. In short, they gain more from doing than you do from listening. So sit on your hands and be our ginny pig or join in for self betterment! Present soon!
RANDOM THOUGHTS: William Parks great September presentation was completely different from the Power Point copy he'd slipped me a month earlier. It was more elegant, refined and informative than the earlier one, reflecting his subsequent independent work. But I've asked him to present some of the material from his earlier workup to background the ideas he presented.
Bill made it clear we must differentiate the two thoughts:
1.) Randomly Generated 'Stock Patterns' look amazingly like real stock price patterns -forming many well known technical patterns just like real stock price variations do.
2.) Then, are not, real stock trading patterns essentially random?
He emphasized that a truly random pattern generation process, by it's very nature; guarantees that each data point is generated with NO regard for preceding data point history. That is, up is as likely as down, momentum as likely as reversal. It's hard to perceive (especially after mid - September) that every day of the stock market is not influenced by previous days action.
If this correlation were true, then T.A. (which relies on predicting the future from the past) would have no investment value. No value, maybe no CI SIG!
Bill and Stu lead a fascinating, impromptu afternoon discussion circling that very question; while also talking about investing techniques and philosophy. It's apparent that there is a great deal of quasi-random noise in most market data. (Remind me about Ehlers innovative Signal/Noise Ratio indicator.) Market students do point out that for a great deal of the time, stock actions really do seem random. Perhaps less than 25% of the time is there a real tradable pattern. As Stuart points out, he starts with hundreds of stocks, only to pare the list down sharply during his Friday night evaluation. Most weeks 10%, 5% or even less (in some fearful weeks - ZERO) display promise worth continued study. In the end, Stu will settle for less than a handful of prime targets for actual investment.
* OUT OF THE BAG: We have a bag full of presentations that never finished or even started. - Ideas from Pring, Murphy, the Money Show and original thought. You can count on a little bit of this slipping in each month. Most, like audio and video tapes I have are too long for a continuous presentation - but in snippets, we have months of useful topics to cover.
* GROUP GROPE: Over the last three months, we've rediscovered the benefits of audience participation. Face-to-face discussion during our summer refreshment breaks, the unplanned hour our September, others to come all benefit us. We're looking for more ways to ensure some free form group talk in future meetings. Please pass along your ideas on how to do this (topics, having a prescheduled time with no topic, or what).
* GREAT IDEAS: During the 11 AM Lab session, we'll have Stu Shapiro as usual. During Septembers great discussion and general comments from Stu, we didn't have time to get in many chart reads. So, we'll be looking to Stu for a "read of the tea leaves" he's seen during the hopeful rebound occurring now in early October. We'll also show examples from what we learned in September from Chris Manning and John Ehlers ideas. That is, we'll look at Mannings sell signals on real stocks and John's new indicators in application in the next few months. Pring, too. Remember, this isn't a cooking class, it's a feast of ideas and stocks to really enjoy.
* DOCTOR'S IN: Gene Rawdin will be commenting on two topics (as yet untitled). One is his usual Guru review. With the surprise fed rate cut as well as news from the September 11th and an already weakening economy, expect new Guru-takes. Gene hopes to finish up on his summer data source analytical techniques presentation. Update what you learned this summer - or catch-up if you missed us then.
HOMEWORK: My September "Selling" brief outlined techniques suggested by Chris Mannings during his recent Money Show appearances. Several CI SIG members essentially asked "How good are these ideas in practice?" While Manning says these are time tested ideas; I confess, I was acting merely as a reporter. I couldn't "score" the ideas effectiveness (much of which lies in the savvy application by the practitioner, not the author). Some seem good to me (especially enhancements to established indicators we all know work well). Others, I don't really know.
But the real purpose of presentation was to give you new ideas gathered at the Money Show. Moreover, Manning loves and uses TC2000. A lot of us have a copy, too. That means I expect to hear from you in a specific way. Select one of his examples, backtest it on your copy of TC2000; then report what you have learned. Let's make this a cooperative research effort.
If you don't have a copy of TC2000, just call Worden Brothers at 1-800-776-4940 or log into their TC2000 web site (www.TC2000.com). They'll send you a copy absolutely free. What you will get is the fully functional TC2000 charting program plus a large historical stock data base (going back as far as 10+ years for many stocks). Naturally, Worden uses this a lure to get you to subscribe to their daily data update service.
But nothing stops you from experimenting with the free package(s) using the historical data. So fire up that TC2000 copy, get out your meeting notes, pick a technique and give it a try. Backtesting (which is what you will be doing) is always done to validate techniques and try new approaches by serious T.A. students. Pitch in, help us validate there new tools. If you lost your notes or didn't attend the meeting (shame on you) drop me an e-mail and I'll give you a technique to try out.
[NOTE: There is also a similar data/charting package trial from competitor Quotes-Plus (at www.qp2.com or 1-800-627-9637).]
MAMA: No, not what most babies around the world are prewired to say as their first word, it's Mother of All Moving Averages. It's one of the published Ehler's indicators I had not been able to get working on my own in time for the September meeting.
John Ehlers (author of "Rocket Science for Traders";) has kindly provided me help to get his sensational set of high-tech indicators working. Now I have them working; all except several trading systems. The first one I tried was his favorite, M.A.M.A. As I suspected, it looks like nifty advance in Moving Average indicators, a good one. Likely as good or better than his Optimum Predictor we saw in September.
This family of "Rocket Science" indicators, really is. Advanced Math, and yet, so simple we can all learn from seeing what they do. Take advantage of Johns generous trove of free papers and Power Point presentations posted on his web-site (www.mesasoftware.com), read his TASC articles, and buy his book (avoiding the first printing). Don't be put off by the heavy duty math. He's already done the heavy lifting and provides non-technical tutorial material you can study. Yet, you can skip it and concentrate on his clear non-technical explanations and the use of the indicators themselves. Warning, these are programmed for use with costly TradeStation, yet I've seen some modified for MetaStock, and all can be converted to Excel, and perhaps other charting programs.
TRADING UP: Mike Murphy (California Technology Stock Letter) taught me a psychological stock market technique last year. (And he should know, since his technology lists have done poorly the last two years while his biotechnology stocks prospered.) Near year-end 2000, he suggested:
* Dump those real losers,
* Capture the tax loss write
* Immediately move the money something more promising.
This isn't some clever market strategy. Rather it's a trick to make you feel better while recognizing an ugly truth and upgrading your portfolio in the process. It's a lot like the old story - if you have an accident jumping a horse, diving a dive or whatever - the best action is go get up, dust yourself off; then plunge right in to try it again.
Start by making a list of all those losers you should have sold. They're the ones about which you say "If only I could get near what I paid, I'd sell." while knowing that a snowball has a better chance in the warm place that you do of getting even soon. Make a card up listing each, with what you can get for it today. (Except for tax reasons, you don't need to mark down how much the stocks cost originally. For a stock, like real estate, if worth now only what you can get for it today or in the near future.) Now do your triage (er, "biage"). Sort them out according to their potential for a substantial recovery from their currently depressed price. Mark down a realistic, hardheaded ecovery price goal
Your goal is to move money from truly bad prospects into much better ones. If you have even better recovery candidates you don't already hold, create cards for them too. If you can manage to move money from the permanently crippled to the temporary, you've upped the quality of your portfolio, captured the tax loss and eliminated a lot worries.
It took me weeks to get up the courage to try this experiment. By then, year end 2000 tax selling had depressed the whole bunch even more. But that only meant that I "sold lower and bought lower", so the number of shares didn't change much. As there was a substantial January effect rise in almost all of the stocks 5 or 6 involved, I soon had an almost quadrupling of the price of the one stock (BRIO) I elected to keep and add shares to. Now if I only mastered selling at that point!. Even so, it still remains an outperformer of what I sold. But that's a topic for later (and the CI SIG fall sessions, too).
This year is surely different. They'll be lots less tax loss motivated selling, as most investors have meager capital gains to offset against losses. Remember too, many funds are not on a calendar tax year. For them, the tax year closes as early as September. That means they are tax loss selling already. But if the market if finally approaching a bottom, the possible benefits of an immediate swap are still there. So it's a useful trick to use at any time.
Thinking taxes, you can write off long term losses against long term gains and short term losses against short term gains. Then, you can write off up to $3000 a year against ordinary income. Any excess must be carried over to future tax years. It isn't tax efficient to have a large tax loss carryover. Yet, it's a tolerable strategy if you upgrade a weak set of holdings in the process. Then try to make enough capital gains to use up the carry forward loss in the coming year.)
AFTER SHOCK: While the terrorist activity was a shock to the market masked the fact that there was a lot of deteriorating economic news for September anyway. For example, September is always a bad month for the airlines. Leisure travel falls off (bargain hunting retirees excepted) and business travel plans haven't been made by vacation returnees. So a large part of the bad news would have come along anyway. Businesses just find it expedient to blame it on September 11th, tossing in some "insurance" layoffs and write-offs. What's interesting is that the market dipped, not crashed. By early October, it's recovered quickly despite weak economic news. Yet if you look at the market action since the reopening, there are a lot of "V" bottoms. That's a bad sign!
For "V" bottoms are not quality bottoms, but emotional bottoms. So plan for a retest and hopefully a slower, rebuilding bottom. Check back on support levels and see if it's not true (another topic for budding presenters to take on).
WEAVING THE WEB SITES: From time to time, we'll report on new (or old, renovated or just finally discovered) web sites for investors. Look here for a few every month or so. We'll add brief commentary and let you do the assessment yourself. Again, do your duty, support the group, do a brief report on your favorite web site discoveries, books or magazine articles. This months site-topic: Options. Many of us overlook the possible uses of Options , thinking that options means speculation and risk. As members of our OPTIONS SIG know, that's only one of the many ways options can be used. For Options are a form of portfolio insurance, as well as a tool for speculators. As one leading Options authority says "I can devise an intelligent options scenario for any stock investment situation and purpose, no matter how bizarre the investment". (If you are a real pro, it's the ones for the bizzare cases that really prove your skill.)
As another Options savant observed - there are so many people playing options using the seat of their pants, that a little knowledge beyond the basics confers a substantial advantage on the possessor. So to increase your trading knowledge, drop by:
* www.OIC.com,
* www.cboe.com, and
* www.ScheafferResearch.com,
* plus www.nasdaq.com, the most intelligentently designed site by any of the exchanges.
Here, you will find not only current options market data and information but useful educational and tutorial material. The Options Industry Councel site (OIC) offers fine educational material for download or snail-mail delivery.
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