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Last month you said if the vix goes over 40 - get out of the market.
1) Does that apply to the positions in the gone fishing portfolio (GFP) as
well as single stocks?
2) For the single stocks, does that mean sell immediately at market --
or would it still be OK to watch your trailing stops and not sell if
the trailing stop limit for an individual stock is not passed?
The first sign of danger is always a break in the long term trend. This is because the VIX doesn’t always give you fair warning. You can use a simple technical tool like a moving average cross over.
Alternatively you can use a more advanced tool like Gecko Software’s Bulls n’ Bears (BNB).
The BNB indicator is AMAZINGLY accurate at tops and bottoms on the weekly chart over a number of years. The weekly chart widens your vision so that you can see the big picture more clearly.
Notice in the chart below how the BNB clearly signals a top where you would have covered but the VIX was still low in 2007 on the break?
So to REALLY use the VIX you need to incorporate a long term trend-line where…
- If the VIX is over 40 and the market is still in a strong uptrend as both were in 1999 then you get out or protect with long puts. In this case you would leave your GFP portfolio intact but would protect with a corresponding number of puts all of your GFP equity funds or ETFS.
- If the market has clearly broken into a downtrend and the VIX is high wait on the sidelines until the market breaks its strong down trend.
- To add real predictive power incorporate the BNB technical indicator which you can get at http://www.trackntrade.com/futures/bnb/ paying very close attention to the S&P 500 contract.
For single stocks you would trail stops tighten them up a fair bit if you see a break in the major trend on the long term weekly chart. Please let me know if the chart and this explanation helps more. The initial explanation I gave of the VIX is that it signals tops or signals bottoms when over 40. I didn’t expect so many questions concerning the VIX and didn’t give you the trick of incorporating a trend line on the weekly chart for a break in the major nor the BNB signal.
If you really want to understand the VIX you need to read Prof. Robert Whaley’s article. You can get it at www.TradeMentors.com
Again, please let me know if this helps,
-Scott
What is the most effective way (site) to locate high dividend stocks?
Just by chance, I located IRL, paying around 40%.
How can I determine if that is a safe stock to hold. Would a high dividend stock, such as this, be a good year in, year out stock to hold, and reinvest, as long as the dividends remain high?
There is a wide fluctuation in the IRL price; Should I apply a Trailing Stop if the dividends are that high?
Dividend stocks are no magic bullets. You also have to have underlying price increases. IRL looks great at first blush but when you pull up the chart you’ll see it’s in a strong downtrend. If you would have bought on the BNB up arrow and sold on the break of the trend or down arrow you would have done nicely…maybe.
I say maybe because the volume is very low in this thinly traded stock.
The best place in my opinion to search out dividend paying stocks is http://www.dogsofthedow.com/
Here you have high dividend paying stocks with companies trading on serious volume. Then you can look for stocks with the highest dividend yield. Same goes here. Look for a BNB up arrow as a buy signal. Sell when the stocks upward trend breaks down and look for another good dividend yielding stock about to enter a new up-cycle.
Again, to do this you will need the BNB indicator and the TNT High Finance platform at
http://www.trackntrade.com/hf/stocks/index.html
Take a look at GE. The stock is now entering a new uptrend as you can see in the BNB indicator. So you would buy this stock and wait for a BNB down arrow.
Now look at Bank of America. It is in a clear downtrend so you would NOT buy it. You would simply wait for a new up arrow to buy. You could make great returns doing nothing but trading the Dogs of the Dow this way! Notice how both of these stocks have VERY high volume.
Dear Investment U Staff / Dr. Brown,
…I would like to ask you to specify your answer regarding the possibilities to apply
your course for int. stock-markets. e.g.: Do you mention in your course specific sources for information for US stocks which one would have to adapt for int./European stocks? Or how about the probably different protocols for IPO's and to identify the "Hot-IPO's" from them? Different ways to identify the various stock types according to your classifications (momentum stocks, mispriced sec., takeover candidates, etc. ?)
In general how to find the proper information for these different markets and every other
difference that comes to your mind.
The problem with international stock markets is that there is not as much information on stocks on the web. You will have to very specifically focus in certain exchanges. For instance if your are earning money in EUR you will have to focus on the European exchanges I mentioned before, Frankfurt,
Avoid stocks trading on any of the PIGS exchanges (
The good news is that the very large banks in
Again, the problem is that other countries do not have as stringent reporting requirements in the
Furthermore I'm interested in your comments/analysis about the US Dollar.
Examining the chart of the EUR/USD exchange rate I agree that there seems to be a cycle of about 6 to 7 years underlying it. (1995-2001: falling=strengthening and 2002-2008: rising=weakening)
Also we might therefore be at the beginning of another strengthening cycle, but for an e.g. european investor that might be a problem in the long run if one buys an
But we will have to see if this trend really develops like this, since there are many issues that could keep the
On the other hand, if the exchange rates between the
http://www.bloomberg.com/apps/cbuilder?ticker1=DXY%3AIND , it would be in favor of european investors, but would change the mentioned 7-year cycle.
So, if the US$ actually manages to strengthen it will be good for the
Which I actually believe is a real possibility, since I can not quite believe that the
My concerns with the possible gain of strength of the
With an unemployment-rate far above the official numbers, the disastrous zero-interest policy of the Fed, the still looming credit-crisis, a national debt that would make every economist run for his live (http://www.usdebtclock.org ), the decline of the strength of the
It will clearly take the current administration a long time to even begin to clean up this whole mess, which I think was for the most part created or at least knowingly ignored by the last administration, but that's a discussion for another time and place and does not
help us with the discovery of some good solutions for the future.
With this situation in mind I believe every int. investor should be really careful about any investment in stocks which depend (direct or indirect) on the
So, after this explanation of my point of view from across the big pond I would like to ask you again if you have some ideas or suggestions how an int. Investor could avoid/minimize the risks and problems of a falling (=strengthening) dollar if one should choose to invest in a stock linked to the
of course. I know that's a long letter with a lot of questions, but I would really appreciate it if you would find some time and try to clear some of all this up for me.
Thank you very much for your time and efforts.
The best way to deal with the problem of a strengthening dollar is to trade in a USD denominated account in a large European bank or brokerage or in a US account even though you're in Europe.
You can also buy currency options such as those traded across the PHLX here:
http://www.nasdaq.com/asp/currency-options.asp
Just make sure you study the option contract carefully to know whether you need puts or calls. Alternatively, since it sounds like you’re a bit more advanced you could also trade forex in a mini account. The very best way to spot the long term trend in currency pair is using the BNB indicator on the TNT Live Forex platform you can get here:
http://www.trackntrade.com/forex/live/
Look at the chart below and you’ll see how the BNB indicator gives a clear signal of trend change on the weekly chart:
Most people get currencies wrong because they think they understand macro economics. I don’t know a single Ph.D. in macro economics who studies currencies who understands why exactly they move. So even though the economy in the US is REALLY BAD it doesn't mean the USD will weaken...in fact quite the opposite could happen just as easily and as you noticed the USD is due for a new strengthening cycle.
All I can say is that the trend on the
Sooooo…I see no valid argument for an ongoing collapsing dollar. This is especially so in my contrarian view since all I hear is sensationalist garbage about the collapsing dollar that "experts" say MUST continue collapsing because of fiscal deficits, and so on that are not directly related to currency values!
Dr. Brown, I am studying your program & I have a question. I have an established portfolio I see that I exceed your recommended 3% of portfolio value max. What is the best procedure to reduce the share quantity to meet your recommended share balance.
Your instructions are easy to follow & absorb with the exception of some of your math. Thank you,
Do you mean 30%? I assume you mean no more than 30% of your portfolio in individual stocks. Just keep an eye on the excess and as you get stopped out (hopefully with a profit) roll it over to a core passive portfolio like the Gone Fishin Portfolio, etc.
If you did not mean 30% please clarify for the next Q&A and I will readdress your question.
Nonetheless, I don’t want students allocating more than 30% into single stocks because it’s too easy to make mistakes and lose in a big way with single stock trading. By keeping most of your money in a core passive portfolio you are protecting yourself from yourself.
Dear Dr. Brown,
I have attended many of the lectures that Karim Rahemtulla has given on Deep in the Money Covered Calls. He has always presented these as an income opportunity not for leverage. The first meetings he recommended $15,000 for the covered calls portion of the portfolio. In April of last year, the base was $70,000, in a time of much greater volatility. I would like clarification on this; his goal was income while you seem to classify DITM covered calls as leverage.
You asked about my feelings about the course. I read the two course books in the first week and a half. I had read many classics on value investing and investments in general, including The Intelligent Investor. I was an officer and member of a very successful NAIC Investment Club for about eight years. The club was headed by Dick Dwyer, the head of the DC Metropolitan Chapter. Dick was working with me individually on technical indicators. He died at age 58. The women I met at the NAIC Investment Conferences were the most wonderful and interesting women I have met--and the most knowledgeable about investing. The NAIC strategy ignored focus on non-correlated assets. It focused on foreign investments only through investments in major companies with a global exposure. Moving to the Oxford Club investment strategies was easy.
Your course material is not new to me except in the area of options. I am interested in the options material but do not plan to trade options except DITM covered calls recommended by Karim Rahemtulla, or covered call options recommended by Agora Financial investment advisors.
The most important aspects of the Oxford Club membership for me has been:
- The discounted books, materials and training purchased as Chairman's Circle member, including the book The Gone Fishing Portfolio
- The Communique portfolio and all the Alerts offered to a Chairman's Circle member
- The strategy to invest in non-correlated assets
- The strategy to hold 70% of one's portfolio in core passive investment vehicles
- (combined with multiple successful core passive investment vehicles) as you have presented. This saves a great deal of time for me while ensuring that my funds are invested with minimum risk for the long term.
- The weekly Oxford Insight which offers a top notch synopsis of the weeks news and Communique recommendations.
- Access in person and to writings of top-notch financial advisors including Louis Basenase, Keith Fitz-Gerald, Karim Rahemtulla, Lee Lowell, Martin Hutchinson and Rick Rule, and
- The new website.
Your course is excellent. I have travelled all around the world and have only two trips that I am still eager to take. My college major was International Relations with enough credits for a major in Russian Area Studies if one had been offered. My graduate area of specialization was Economics of Underdeveloped Countries. I travelled to
I do not identify with the Million Dollar goal for the portfolio. If I were recommending a goal for each son and his wife, I would recommend setting a long-term goal that is much higher, with a short term goal based on values and priorities. Young professionals will need much more for college education for children, health and retirement.
My goal while a member of NAIC and more recently was to have my investments professional managed. At the time I was working for IBM and travelling each week. In the early nineties, when working for IBM, I had a portfolio manager from Merrill Lynch analyze my investments for the short term and long term. IBM had committed to limit my work week to 38 hours when I was hired. From the first week I worked far more hours. If I continued to work at IBM, the broker said my insurance and benefits would reduce my investment needs. Since I had been told by a doctor to expect ovarian or endometrial cancer around that time, before my sons graduated from college, the Merril Lynch financial advisor recommended a goal of $1,000,000 if I left IBM.. My sons have graduated, and I have yet to be diagnosed with cancer. Thus the one million goal is simply not meaningful to me.
I think that it is awesome that you have taken a stab at producing an investment book. I find your monthly presentations wonderful. I use your comments and the Communique issues to evaluate my portfolio that is professionally managed. I then write a review of the manager's strategy and performance for the boys in case anything happens to me.
Thanks again,
If you look hard at the portfolio math I gave you you’ll notice that I don’t’ recommend trading any more than 6% of your portfolio in these derivatives. Prof. Tim Crack (Ph.D. finance MIT 2000) was highly complementary of my recommendation to this fixed limit.
That means that in order to trade the lesser amount you would need $15,000 / 0.06 = $250,000 in portfolio size of which $175,000 (30%) should be in a solid core passive strategy like the GFP. If Karim raised the recommended buy-in to $70,000 you would need a portfolio of 1.167 Million to trade DITM covered calls safely.
I really enjoyed your comments and am very pleased you are enjoying the course!
-Scott
Hi Dr Brown,
In the InvestmentU's newsletter #1127 Karim Rahemtulla had the following advice:
"When the VIX is high: Any time the VIX hits 50 points or higher, it usually signals that investors are fearful, or panicking. This is the best time to buy stocks." and you arre recommending to that we get out of the market when the VIX hits 40 points.
Could you clarify the contradictions?
Second question is, what is the difference between the 401k and the ROTH. I have my contributions in a 401K but this are the savings from companies I worked with in the past.
To reiterate from above...
- If the VIX is over 40 and the market is still in a strong uptrend as both were in 1999 then you get out or protect with long puts. In this case you would leave your GFP portfolio intact but would protect with a corresponding number of puts all of your GFP equity funds or ETFS.
- If the market has clearly broken into a downtrend and the VIX is high wait on the sidelines until the market breaks its strong down trend.
- To add real predictive power incorporate the BNB technical indicator which you can get athttp://www.trackntrade.com/futures/bnb/ paying very close attention to the S&P 500 contract.
A Roth is another kind of defined benefit retirement plan but it’s also available to you outside of your company. With the Roth you pay taxes on your income, contribute to the plan, and then don’t pay taxes when you withdraw in retirement.
The standard IRA is where you don’t pay taxes when you contribute but you do when you retire.
You should always roll your old 401(k) plans into a standard IRA. Just don’t let them send you check directly. In fact, the best thing to do is let the IRA department of a good online brokerage like TD Ameritrade do it for you.
Here’s some information…
http://www.tdameritrade.com/faq/transfer.html
Disclaimer...
http://www.tradementors.com/disclaimer.htm
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