--Alex Green,
Hey Scott:
- What is your long-term evaluation of the current market - Bullish or Bearish ?
- Should we take this time as an opportunity buy Precious Metals or Gold Stocks and sell put options to the one we should acquire?
- This is a very turbulent time, should we sell all equity position and hang on to the cash?
- Alex Green is the only one I know who is positive on the dollar? I value his recommendations in that case should we be negative on Euros - any comment on EUR!
Q1. When watching the long term trend of the stock market first look at a weeklychart then drill down to a daily chart. I always watch the S&P 500 futures contract (CMEGROUP: SP). I look at…
1. The major trend itself on a weekly chart.
+Pit+2010H+-+Mar.-WEEKLY.png)
2. I watch for a down arrow on the Bulls n’ Bears technical indicator (the best technical indicator I have ever found). See http://www.trackntrade.com/
3. Then look at the daily chart. Here the BnB indicator gives you a feel for the direction of the minor trend.
+Pit+2010H+-+Mar.-DAILY.png)
4. finally, always check the VIX indicator. Right now it’s trading in a normal range of 23.14. See http://finance.yahoo.com/q?s=^vix
Q2. God no! The minor trend on Gold is bearish! Market is at extreme high and ALL news is bullish. See chart below…
When extreme markets break the major trend they often drop fast!
Q3. God no! The S&P futures market is still strongly bullish. Investors should be in for the long haul. If you are in single stock positions you should let your trailing stops take you out of the market.
Q4. Alex Green is not the only bull on the dollar. I recommended a selling the EUR/USD pair back on December 10 to my www.tradementors.com Forex students. A $100 margin on a mini Forex contract has yielded $719.00 thus far. Here there are various factors that led me to conclude that the cycle is over for a strengthening EUR versus a weakening USD. First burgers are too expensive in
Second, the trend on the current account balance is strongly up. This means that the trade balance is reversing toward exports. This puts greater demand on the USD.
This means that the recent strengthening of the EUR was a reaction to the major down trend. When it comes to Forex remember that if the EUR/USD is $1.33971 that this means that one EUR can buy $1.33971. Hence if the exchange rate drops to say $1.25000 this means that one EUR buys less USD.
For that reason a downtrend on the EUR/USD actually means that the USD is strengthening. http://www.trackntrade.com/forex/live/
Is it recommended that our investment accounts be in the form of self-directed IRA's?...if not, how do we lessen the tax impact of any gains at the end of the year?
The trick to dealing with tax is to invest in very long term buy and hold strategies in your personal investing account where you would be due taxes for any equities sold. Then trade single stocks and stock option strategies in your standard or Roth IRA.
| Account | Strategy |
| Personal Investing Account | Gone Fishin’ Portfolio, BRKB, BRKA |
| Standard or Roth IRA | Single Stocks, Stock Options, ETF Options |
Dr.Scott Brown,
I am thinking about getting into the million dollar portfolio strategy program, just a question I have here, are you making the picks and leting us know what they are, or do we have to figure them out. We are retiring this coming May, and I wish I could say were are retiring well, but with the economy , it has eaten a good hole in my savings, so I can't really afford to just jump at every offer that comes my way. As an
I NEVER give you stock recommendations. The whole point of my course is to teach you to think for yourself. I also recommend a 70/30 strategy where 70% of an investors portfolio is the Gone Fishin’ Portfolio or another solid set it and forget it strategy.
That said I am in the process of submitting an exciting study I performed with Prof. Eric Powers, Ph.D. and Prof. Jose Julian Cao, Ph.D. Professor Powers is a professor of finance at the University of South Carolina who holds a Ph.D. in finance from Massachusetts Institute of Technology. Professor Cao holds a Ph.D. in econometrics from Cornell.
We analyzed the returns to investors in Alex Green’s Insider Alert and found an astounding 28% return in the second year without filtering with trailing stops. This is a real testament to the incredible stock picking ability of Mr. Green.
The other Oxford Club staff member that has a very solid intuition is Lou Basanese but I have not tested his newsletter returns.
Hence if you are going to trade single stocks I strongly recommend looking at Alex Green’s and Lou’s newsletters as a first pass on your research. Then use what you’ve learned in my course to identify the best prospects.
Also, I am in the process of using the BnB indicator on the TNT High Finance platform to see if it will help filter better buying points once Alex and Lou have identified the stock. This is still a nascent idea. http://www.trackntrade.com/hf/stocks/
I have a question for Dr Scott Brown.
I understand that step 6 recommends the Oxford Club's Gone Fishin' Portfolio as a base. Vanguard requires $3000 minimum investment for each index fund. I do not have the $30,000 needed to start. What do you suggest?
Any online brokerage such as TD Ameritrade will allow you to purchase on a per share bases. http://www.tdameritrade.com/welcome1.html
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A few months back read a Daily Wealth article by Steve Sjuggerud http://www.dailywealth.com/archive/2009/oct/2009_oct_02.asp http://www.dailywealth.com/archive/2009/oct/2009_oct_02.asp> outling a passive portfolio of ETFs like Alex Greens Gone Fishin’ Portfolio that didn’t suffer from major drops by adding quantitative technical analysis to move into and out of asset classes. This is kind of a smart trailing stop system . So I got the book mentioned, Ivy Portfolio from the library and read it. I enjoyed it so much, I called the authors, Meb Faber and Eric Richardson. We hit it off and made an appointment for lunch. Meb claims that using moving averages as an indicator can keep you in the market for most of the upside while missing most of the down side. Do you think this approach as merit?
I have been following Mark Skousen’s debate with Alex Green where Mark infers that Alex is a closet market timer. Seems to me that even trailing stops is a form of market timing. Where so you stand on using quantitative indicators to move in an out of asset classes?
Yes I do… if the investor is adequately skilled in technical analysis. For instance Alex Green’s Insider Alert recommended on October 13th of 2009 to “Buy Enterprise Products (NYSE: EPD) at $29.25 or better. And place a sell stop at $24 for protection . Speculators might want to take a look at the March $30 calls (EPD-CF). But don't pay more than $0.95.”
However there are much more powerful techniques than a simple moving average crossover. One is the MACD which means moving average convergence divergence. Notice how nicely the MACD picks out market tops on the way up.
But the MACD also gives a lot of false signals.
A much better indicator is the Gecko Software proprietary Bulls n’ Bears system. Notice how it gave only one false signal on November 2. You would have ignored it, however as your (1) trailing stop was in place and (2) the market was back up two days later. Here's another Insider Alert recommendation...
The BnB indicator gave a definitive sell signal today that would net the Oxford Club member a clean 10.57% raw return that converts to a 102.54% Annualized return.
http://www.trackntrade.com/hf/stocks/
Skousen is kinda-sorta right. The conventional market timer is a pure technical trader that endeavors to pick the exact low and exact high. This type of person is usually a braggart and quite arrogant.
Most importantly market timers tend display sever overconfidence.
Alex is extremely good at analyzing business in terms of factors that make them attractive to the stock market. He’s also in tune with factors that affect the general level of the stock market. He’s so good that his analysis often coincides with tops and bottoms.
He’s been around the markets so long that he has a solid intuitive feel for what’s going on beyond the common practitioner. Think of the expert fighter pilot who is simply the best in the air.
The reason that Alex is uncomfortable with promoting market timing is that it shifts you from working with the market to trying to dominate it. It also promotes cognitive errors such as over-confidence. That’s why you simply should not try to do it.
However, if Alex identifies a stock that has rock solid fundamentals then applying intelligent (and few people intelligently apply intelligent) technical analysis has great merit as I showed you in the chart above.
In evaluating newsletters it’s always hard to get performance numbers. When will you publish the results of your study on the performance of the Insider Alert. Have you considered having your students as a project to run performance numbers on Oxfords other VIP services, not to mention other newsletters. Thanks,
We are about to submit to the top academic journals of finance. If we circulate the article it would destroy chances of publication. As soon as we have acceptance I will make it available immediately to the Oxford Club membership services.
That said, if I get a sufficiently motivated Ph.D. student this year I will encourage a longitudinal study across the other services. Thanks for the research idea!
To whom it may concern:
I purchased the “How to Build a Million Dollar Portfolio” course last month.
Due to my reading and homework of the smaller book entitled “The 7 Golden Steps to Financial Freedom”, I have a couple of questions:
1. The 20% savings benchmark on the Financial Fitness Ratio- can Health Savings Account contributions, SEP IRA contributions, and 401K Contributions be considered for this category? We put roughly $4000 per year in a HSA for the tax deduction- our insurance premiums draft directly from this account- we also have debit-cards linked to this account for doctor’s bills.
2. The “write a thank-you check” to your bank to pay down your principal on the mortgage section- we refinanced two years ago to a 5.5% 20 year fixed mortgage. This eliminated $320,000 of interest payments over the life of the old 30 year loan while my payments stayed exactly the same due to the interest rate reduction. Should I still write a big thank you check once a year?
These are two very powerful question I will answer generally. However, I strongly recommend that you attend the 2010 Investment U conference since you may have specific individual factors that change the answer concerning your mortgage. I am always amazed at the knowledge of personal finance of our members and experts who attend each year so please do try to attend.
http://www.oxfonline.com/IU/IUConf0809.html
First, I generally recommend that investors pay off all of their debt. There are a few exceptions that are generally rare. The simple act of sending in the thank check is a form of forced savings.
Second, congrats on the smarts to run your HSA. I don’t want you to consider it part of the 20% though because the HAS secures your NEEDS expenses. I know that raises the bar on your savings but you’ll thank me later.
For students who don’t know what an HSA is here you go…
Some employers offer consumer-directed health plans that go one step beyond a flexible-benefit plan such as the HRA and HSA. These plans give you a high-deductible health insurance policy with a tax-free health reimbursement account (HRA). So, this is a plan funded by employers for each participating employee.
When the account is used up, you have to pay the remaining deductible of the health insurance policy before insurance begins to pay. If you don’t use the money by the end of the year, you can “roll over” the amount. After several years of rolling it over, you can build up a lot of cash to pay for medical expenses. But if you change jobs, the money stays with the employer.
The Internal Revenue Service considers employer contributions to HRA medical reimbursement accounts to be tax-free income!
The Health Savings Account
Something similar is the health savings account (HSA). The HSA is also a tax-free account, but the money is funded by employees, employers, or both for routine medical costs. An HSA is also combined with a high-deductible insurance policy to pay for catastrophic care in case of major accident or illness. It can be rolled over each year.
The monster advantage is that if you change jobs, the money in your HSA belongs only to you and is yours to keep!
first of I would like to say that I hope all of you had a merry Christmas and
a great start into 2010. Again, I wish all of you and every participant of your
course a great and successful 2010 and beyond. ... And I hope you will help
all of us get there. ;)
Second, I want to inform you that your course has finally turned up and I
already started to bury myself in your materials.
I sure am curious how this book is going to end. ;)
So, one last time I am going to bother you with my take on the USD/EUR
and your views on this topic. Views, I might add, which I now have mostly
adopted for myself.
When I sent you my last question about the USD/EUR and the monetary
base, etc. I already had a hunch that you would say what you did, but I
wanted to make sure. ;)
Especially the monetary base made me a bit uneasy, but in the end I agree.
The only thing that really matters is what really happens at the exchanges
and the charts and not what someone says SHOULD happen.
I guess that's the gist of it...
btw... Byron King and his OI service is a member of the Agora Financial
Group and said to be a specialist for precious metals, energy and such
(as is Jeff Clark, just not for Agora), but I guess he should stick to these
subjects and leave the currencies to you and other experts in this field. ;)
Oh, and I can assure you that I do not attend cocktail parties and even if I
would, I would definitely not listen to any financial advice I would get there
from some big headed guy/woman. ;)
But I would definitely like to hear more from you about the developments
in the
would be very much appreciated by all off us if you e.g. happen see a special
development (up or down) somewhere in these big pictures.
Also, I am eager to hear if you (and the IU-staff) have already negotiated a
special deal with TnT for their services (including the BnB indicator!) or how
long you estimate this is going to take (...or if it is going to happen at all).
I really hope you will be able to pull this of.
Thank you very much for your help and insight so far.
Be assured that I will be in contact again and you will get my "European"
perspective on (many) occasion(s).
I hope one day to meet you as I really enjoy your questions! ;-)
I’ve analyzed all of this at the beginning of this talk so simply review. I will try to talk with Julia and Jenifer about a TNT package in March when we are all at
Send an email to Investment U as a course student asking for the package and that will put pressure on your side (which is most important).
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If you don't have more than 500.00 to invest, can you start there, and build it up quite a bit?
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Start…just start… just start! That’s always my advice even it you start with one penny! When you take action after studying this course you put into play the cosmic habit force of saving, investing, and stewarding your wealth.
So start today!
dr brown: i heard your answer to the 30K portfolio, but i have just a 10k " to play with" along with a small ira. which newsletters might be helpfull for ideas. i sometimes catch stocks moving due to news now and usually know when these are done rising and ready to fall which is how i have built up my small account. i don't expect to find a "tasr" in any of these. thanks ill catch you in january.
Alex Green’s and Lou Basenese’s newsletters are the cream of the crop when it comes to single stock investing.
Dear Dr. Brown,
The questions and topics covered during last night's seminar were great. The focus was largely on options and concerns related to timing the market. I rely on Alex Green's recommendations rather than time the market. My purchases are almost entirely from the Gone Fishing Portfolio and other Investment U portfolios. I follow the OS recommendations: my analysis is focused on maintaining a balanced portfolio based on OC recommendations for buying and selling. One exception is selling covered calls for income (<>
o When the market soars and the stock is expected to continue to soar with it, far greater than the strike price
o When the market tanks and my cost basis of the stock in the failing market is 20% less than when I purchased the stock. The market is expected to continue its freefall but the analyst's opinion is for the stock price to continue to grow rapidly
o When the market tanks and your cost basis of the stock in the failing market is 20% less than when you purchased the stock. There is no consensus on the market direction, and there is great volatility in the market. Over the next year or two, however, the stock price and market share is expected to continue to grow rapidly
o When the market tanks and your cost basis is less than half the price of the stock when you originally bought the covered call position. The stock price and market share are expected to soar over the new few years but many analysts predict prices for the commodity to tank at some point before soaring again in the long term.
Happy New Year!
I've seen a couple of approaches to trading stops. One says to monitor end of day trading and invoke a trading stop sell the day after the trading stop is hit at the end of the previous days trading. The other says to just enter an automatic trading stop, which would be hit when it is hit, and trigger a sell. What is your advice on this?
For students who don’t know a covered call is when you own the stock and sell a call against each share. You take in option premium on the call and hope it will expire worthless. An at the money option has a strike (the call buyers guaranteed price to buy) at the market price. Since the probability that the market will go up or down is 50:50 the delta is 50%. A call gives the investor the right to buy and can make money in a rising market. That means that if the stock price goes up a dollar the call will increase 50 cents in premium value.
An in the money call is where the strike price is below the stock price. An out of money call is where the strike price is above the stock price. A far out the money call is where the strike price is very far above the stock price.
If you sell a covered call for $2.00 premium and the stock goes up quickly you can find yourself in a situation where the call is priced at $3.50 and you face a potential $1.50 loss since you only took in $2.00. This is so because the option buyer could immediately resell the option for $3.50 that cost him $2.00.
Two key factors are the option’s delta and theta. Delta is the amount that each unit move in the stock translates into option price. Theta is time decay that erodes the value of the option as it gets nearer to expiration since less time means less probability the stock price will move as much.
As options get close to expirations delta drops so low and theta so high that the market can move a good deal and not affect the option price.
When you deal with written (sold, naked) options such as a covered call timing is everything. The ideal scenario is one where the stock price slowly rises offset by time decay of the option.
This means the call would expire worthless but the investor has a profit on the stock position. So if you have just put on a covered call and the stock shows signs of a potential fast rise then you should consider closing out the written call.
Technical analysis of the stock market is very useful in each of the four examples.
Close out the call>>> When the market soars and the stock is expected to continue to soar with it, far greater than the strike price.
Initiate Covered Call But Close Call Write On Sign of Technical Strength (See BnB indicator in chart below) >>> When the market tanks and my cost basis of the stock in the failing market is 20% less than when I purchased the stock. The market is expected to continue its freefall but the analyst's opinion is for the stock price to continue to grow rapidly
Initiate Covered Call But Close Call Write On Sign of Technical Strength (See BnB indicator in chart below) >>> When the market tanks and your cost basis of the stock in the failing market is 20% less than when you purchased the stock. There is no consensus on the market direction, and there is great volatility in the market. Over the next year or two, however, the stock price and market share is expected to continue to grow rapidly
Initiate Covered Call But Close Call Write On Sign of Technical Strength (See BnB indicator in chart below) >>> When the market tanks and your cost basis is less than half the price of the stock when you originally bought the covered call position. The stock price and market share are expected to soar over the new few years but many analysts predict prices for the commodity to tank at some point before soaring again in the long term.
As far as stops go you reall need to do a lot of
For instance the Track and Trade platform can also link technical indicators to a stop strategies instead of a 1:1 trail. Stops are tricky. Some of the best trades need room to breath. For that reason some traders move the stop to breakeven when there’s lots of profit and then shoot for getting out at a target profit or sign that the market is topping out.
Your first example is a mental stop the second is a true stop. I never recommend mental stops.
Talk again in February,
-Doc Brown
