Daily Updates

10 Trading Thoughts – That Should Not Be Thought

Posted by Tyler Bollhorn - StockScores.com

on Monday, 8 March 2010 15:49

Stockscores.com Perspectives for the week ending  March 7, 2010

In this week’s issue:

Weekly Commentary
Strategy of the Week
Stocks That Meet The Featured Strategy

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You can not expect to do well in the market if you look at investing in a normal way. By definition, being average is doing what most other people do and since investing is largely a psychological game, doing what other people do is only natural. Average results come from normal people acting in normal ways.

To beat the market, you have to be different.

Not necessarily in a straight jacket bouncing off padded walls different, just a little off.

Here are 10 things that may help you be a better investor, some ways to think differently from the crowd in that pursuit to achieve market dominance.

1. Do not think about making money, think about losing money – the first step toward success is accepting that losing is part of trading. You will not be right all of the time, you can not always trade your way out of a bad situation. There will be times when you simply have to walk away with a loss. The key is to keeping the losses small and manageable. When the market proves you wrong, take the loss.

2. Do not think you can average down to win – it is a logical idea, add more to a losing position with the expectation that the market must eventually go your way. Many times this strategy will work but, when it does not work, the loss may be insurmountable. The market does not eventually have to go your way.

Draw on March 13th! Just enter the Money Talks Special Olympics Trading Challenge and automatically be eligable to win a $3995. Three Day Live Trading Class with Tyler Bollhorn. The  Challenge is an engaging and educational way to participate in the stock market without risking your capital. Over $25,000 prizes!

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3. Do not think that your success is entitled – you may make a great trade, pick a really great stock and have a feeling like you really have the market figured out. Forget your gloating, no one ever has the market figured out. We must always remember that we have to work as smart for the next trade as we did for the last.

4. Do not think that talent is required – making money in any trading endeavor is a small part technical skill and a big part emotional management. Learn to limit losses, let winners run and be selective with what you trade. Emotional mastery is more important than stock picking skill.

5. Do not think that you can tell the market what to do – the market does not care about you, it does not know that you want to make a profit. You are the slave, the market is your master. Be obedient and do what the market tells you to.

6. Do not think you are competing against other traders – trading success comes to those who overcome themselves, it is you and your persistent desire to break trading rules that is the ultimate adversary. What others are doing is of little consequence, only you can react to the market and achieve your success.

7. Do not think that Fear and Greed can ever be positive – in life, fear can keep us from harm, greed can give us the motivation to work hard. In the market, these two emotional forces will lead to losses. If your decisions are governed by either or both you will most certainly find that your money escapes you.

8. Do not think you will remember everything you learn – every trade provides a lesson, some valuable education on what to do and what not to do. However, it is likely that your lessons will contradict one another and lead you to forget many of them. Write down the knowledge that you accumulate, return to this trading journal so that you can retain some value from the lessons taught by the market. Remember, the market is cruel, it gives the test first and the lesson after.

9. Do not think that being right will lead to profits – you may be exactly right about what the fundamentals are and what they are worth. However, timing is everything, if your expectations for the future are ill timed, you may find yourself losing more than you can tolerate. Remember, the market can be wrong longer than you can be liquid.

10. Do not think you can overcome the laws of probability – traders tend to be gamblers when they face a loss and risk averse when the have a potential for gain. They would rather lock in a sure profit and gamble against a probable loss even if the expected value of doing so is irrational. Trading is a probability game, each decision should be made on the basis of the best expected value and not what feels best.

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I went back to a reliable strategy that I have used to pick some great winners for the daily newsletter subscribers recently. This strategy look for stocks making a statistically significant price gain and trading statistically significant volume. When this happens out of a predictive chart pattern a trend often develops. Last week’s winners, V.FGE and V.GBB were picked with this Market Scan Strategy.

Here are a couple of charts that stand out from Friday’s Market Scan using this strategy.

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1. V.MVN

Abnormal break out of an ascending triangle pattern for V.MVN. Support and the stop loss point should be at $0.22.

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2. ANO

ANO is breaking from a pennant pattern with optimism in to the pennant. Support and the stop loss point should be at $1.19.

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Click HERE if you want to learn from some of the timeless advice from some of worlds best traders including the very successful Tyler Bollhorn.

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References

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Background on the theories used by Stockscores.
Strategies that can help you find new opportunities.
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Build a portfolio of stocks and view a slide show of their charts.
See which sectors are leading the market, and their components.


Tyler Bollhorn started trading the stock market with $3,000 in capital, some borrowed from his credit card, when he was just 19 years old. As he worked through the Business program at the University of Calgary, he constantly followed the market and traded stocks. Upon graduation, he could not shake his addiction to the market, and so he continued to trade and study the market by day, while working as a DJ at night. From his 600 square foot basement suite that he shared with his brother, Mr. Bollhorn pursued his dream of making his living buying and selling stocks.

Slowly, he began to learn how the market works, and more importantly, how to consistently make money from it. He realized that the stock market is not fair, and that a small group of people make most of the money while the general public suffers. Eventually, he found some of the key ingredients to success, and turned $30,000 in to half a million dollars in only 3 months. His career as a stock trader had finally flourished.

Much of Mr Bollhorn’s work was pioneering, so he had to create his own tools to identify opportunities. With a vision of making the research process simpler and more effective, he created the Stockscores Approach to trading, and partnered with Stockgroup in the creation of the Stockscores.com web site. He found that he enjoyed teaching others how the market works almost as much as trading it, and he has since taught hundreds of traders how to apply the Stockscores Approach to the market.
Disclaimer
This is not an investment advisory, and should not be used to make investment decisions. Information in Stockscores Perspectives is often opinionated and should be considered for information purposes only. No stock exchange anywhere has approved or disapproved of the information contained herein. There is no express or implied solicitation to buy or sell securities. The writers and editors of Perspectives may have positions in the stocks discussed above and may trade in the stocks mentioned. Don’t consider buying or selling any stock without conducting your own due diligence.

Disclaimer
This is not an investment advisory, and should not be used to make investment decisions. Information in Stockscores Perspectives is often opinionated and should be considered for information purposes only. No stock exchange anywhere has approved or disapproved of the information contained herein. There is no express or implied solicitation to buy or sell securities. The writers and editors of Perspectives may have positions in the stocks discussed above and may trade in the stocks mentioned. Don’t consider buying or selling any stock without conducting your own due diligence.

 

1. A Short Discovery Tutorial
2. Lakes of Lithium Brines

1. DISCOVERY INVESTING: A CREATIVE WAY TO THE FUTURE  

About a decade ago I realized that there was a big hole in current investing theory and practice. At the time I didn’t realize that my ideas would morph into a new approach I called Discovery Investing (D.I.). This investing discipline is different and, more important; it is more powerful in many ways than traditional investing strategies we have from academics and practitioners. 

First, though, we must define the technique.  Discovery Investing is a discipline that seeks significant value creation through market recognition of a world class discovery.  For example the discovery of a cure or effective treatment for cancer would be worth billions of dollars.  The recent sale of Imclone and its cancer treatment Erbitux, a $7 billion take-out, attests to this fact. In 2002, I recommended Western Silver as a micro cap (Incubator) Discovery company.  After 4 years of silver exploration in Zacatecas, Mexico the company had discovered millions ounces of gold and hundreds of million ounces of silver. Goldcorp (GG) ended up owning Western’s discovery for a premium of $2 billion.

Practitioners of the discipline seek companies that offer these mega-wealth creating opportunities in many different fields.  They may be found in the natural resource sector, bio tech sector, high tech sector or, today, in the infrastructure space here in the US.  The reformation of the Utility sector (the development of the electrical grid) is a good example of how the Discovery Space tends to expand and change over time. A major discovery always pays a significant wealth dividend.  The recent focus on health care and alternative energy discoveries has spawned dozens of new discovery opportunities.

D.I. is virtually an untouched investment space.  At the beginning of their life cycle the discovery companies are usually small, illiquid micro caps. We categorize them as “Incubator” companies. Nobody cares about them. They fly “under the radar screen.”  I developed a factor model to rank the best of these opportunities, the Discovery Investing Factor Model.  Consisting of just 10 rules or Discovery Factors, it is easy to use.  A quick examination of the grid’s analytical framework below provides a useful description of the discipline. For each company, each discovery factor is rated by its potential between 1 and 10 (10 points being the optimal rating).

  1. Discovery Potential is real.  Does this discovery have “world class” value-creation potential?
  2. Ownership share: does the company own control of the asset 100%?
  3. Is the potential discovery a game changer? Is it revolutionary, useful today and progressing towards realization?
  4. Is there diversification of discovery risk, multiple opportunities? Are there opportunities for serendipity?
  5. Management and the Board: track record, ownership and insider transactions, option strategy.
  6. Identify a Dominant Cycle (e.g. the Global Quality of Life Cycle) and Catalyst (e.g. the discovery).
  7. Is this a Contrarian discovery play? Are you buying into this for pennies?
  8. Financial strength: balance sheet & income statement management; sustainability of operations, dilution strategy.
  9. Does management communicate with employees, shareholders and customers? Is it honest and timely?
  10. Can you exhibit self control, patience, courage, sustain loss, and continue to invest in this opportunity?

…..read pages 2-4 HERE

Mr. Market

“Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success.  He said that you should imagine market quotations as coming from a remarkable accommodating fellow named Mr. Market who is your partner in private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his. Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but.  For, sad to say, the poor fellow has incurable emotional problems.  At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains.  At other times he is depressed and can see nothing but trouble ahead for both the business and the world.  On these occasions he will name a very low price, since he is terrified that you will unload your interest on him.

Mr. Market has another endearing characteristic:  he doesn’t mind being ignored.  If his quotation is uninteresting to you today, he will be back with a new one tomorrow.  Transactions are strictly at your option.  Under these conditions, the more manic-depressive his behavior, the better for you.  But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice:  Mr. Market is there to serve you, not to guide you.  It is his pocketbook, not his wisdom, that you will find useful.  If he shows up someday in a particularly foolish mood, you are free to either ignore him or take advantage of him, but it will be disastrous if you fall under his influence.  Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game.  As they say in poker, ’If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.’”  . . . Warren Buffett

We revisit Warren Buffet’s “Mr. Market” quip this morning because of a few emails I received regarding last week’s missive (contact Richard at rnewbury@haywood.com for last weeks analysis).  My emailers were upset with the reference to Berkshire Hathaway’s stock performance.  To wit: “Since 1965 the S&P 500’s compounded annual gain (including dividends) was ~9.3% for a compounded return of 5,430%.  Over that same timeframe Berkshire’s annual compounded return was 20.3%, or 434,057%.

Consistency was the key to Berkshire’s outperformance for over those 44 years the S&P 500 suffered 11 down years, six of which were double-digit declines.  Berkshire, however, had only two negative years, neither of which were double-digits.  Such risk-adjusted investing has always characterized Warren Buffet for he maintains it isn’t his best ideas that gave him his tremendous track record.  It was having a smaller number of bad ideas that resulted in a permanent loss of capital.”

Obviously, Warren Buffet doesn’t measure himself according to fluctuations in Berkshire’s share price.  Importantly, he measures himself by growth in book value, which is admittedly less volatile than share price.  To be sure, Mr. Market is manic-depressive.  “At times he feels euphoric and can see only the favorable factors affecting the business.  At other times he is depressed and can see nothing but trouble ahead for both the business and the world.”  That manic-depression surfaced in 2008 when Berkshire’s shares lost an eye-popping 50% of their value.  However,

Berkshire’s book value declined by a mere 9.6%.  Still, that stock price
performance brought about catcalls that the “old man” (read: Warren Buffet) had losthis touch.  We recall similar cries in the late 1990s when Mr. Buffet was cast as a buffoon, who just didn’t “get it,” because he was hoarding cash and shunning Internet stocks.  Subsequently, the S&P 500 peaked in the spring of 2000 (@1553) and over the next seven years only gained ~0.008% (to 1565).  Meanwhile, the “buffoon” grew his book value by nearly 80% and Berkshire’s share price improved by 268%.  As Benjamin Graham noted, “In the short run the stock market is a voting machine, but in the long run it is a weighing machine.”  Ladies and gentlemen, over the long-term, the fate of every stock is ultimately driven by the operating results of the underlying business.  This is determined by BOOK VALUE, EARNINGS, and CASH FLOWS. Accordingly, measuring Berkshire’s performance on those metrics makes more sense than measuring on its share price.

…..read pages 2-6 HERE

Gold, copper juniors poised to shine in 2010

Posted by Reuters with comment via Mark Leibovit

on Sunday, 7 March 2010 18:50

BAY STREET-Gold, copper juniors poised to shine in 2010

TORONTO, March 6 (Reuters) – Shares of gold and copper exploration companies are the most likely to shine in the Canadian junior mining sector this year, as large miners raise their exploration budgets and scout for promising projects.

Small-cap stocks on the TSX Venture exchange enjoyed a strong run last year with the S&P/TSX Venture Composite Index .SPCDNX gaining more than 90 percent through the course of the year.

While 2010 is unlikely to be a banner year for the sector as a whole, analysts say companies with advanced copper projects and those with promising gold assets will probably outpace the pack.

….read more HERE

From Mark Leibovit’s VRGold Letter

“Platinum and palladium outperformed last week following upbeat reports on auto sales. The two metals are used to make catalytic converters for automobiles, so any signs of growing demand for cars will drive prices higher. Ford Motor said its U.S. sales jumped 43 percent in February, while General Motors reported an 11.5 percent jump. Platinum gained 36 (2.34%) to finish the week at 1577 while palladium jumped 45 (10.44%) to 476.

Well, not only did I pinpoint an entry point for GLD at 107.56 was opportune two weeks ago, but I also told you that 112.00 would be a good trading target.  Wednesday’s high in GLD was 112.18.  If you were trading, you would have sold at 112.00 or thereabouts and now be sitting in cash.  If you’re in it for the long haul, these comments are irrelevant.  Upside potential remains clearly to new highs (119.76 in GLD and 1222.70 in Spot Gold).  The 50 day moving average is at 108.57 and the 200 day is at 101.47 for GLD – two levels that represent market support.”

“I am still of the view that the best is ahead. “

 

Special offer from Mark Leibovit for Money Talks only: The intense analysis of Gold in the  10-12 page The VR Gold Letter is right now 75% off for the first month or $29.95 (regularly $125.00 a month). The weekly VR Gold Letter focuses on Gold and Gold shares.Go HERE and use the Money Talks promo code CBC12210

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The weekly VR Gold Letter focuses on Gold and Gold shares. The letter is available to Platinum subscribers for only an additional $50 per month and to Silver subscribers for only $70 per month. Email me at mark.vrtrader@gmail.com.

Marks VRTrader Silver Newletter covers Stock, TSE Stocks, Bonds, Gold, Base Metals, Uranium, Oil and the US Dollar.

Mark was named the #1 Gold Timer for the one-year period ending March 25, 2008 by TIMER DIGEST.

More kudos – Mark Leibovit was named the #1 Intermediate Market Timer for the 10 year period ending in 2007; the #1 Intermediate Market Timer for the 3 year period ending in 2007; the #1 Intermediate Market Timer for the 8 year period ending in 2007; and the #8 Intermediate Market Timer for the 5 year period ending in 2007. NO OTHER ANALYST SURVEYED APPEARED IN ALL FOUR CATEGORIES FOR INTERMEDIATE MARKET TIMING AS PUBLISHED IN TIMER DIGEST JANUARY 28, 2008!

For a trial Subscription of The VR Silver Newsletter covering Stocks, Bonds, Gold, US Dollar, Oil CLICK HERE The VR Gold Letter is available to Platinum subscribers for only an additional $20 per month, while for Silver subscribers the price is only an additional $70.00 per month. Prices are going up very shortl, so act now! Separately, the VR Gold Letter retails for $1500 a year! The VR Gold Letter is published WEEKLY. It is 10 to 16 pages jam-packed with commentary and charts. Please call or email us right away. Tel: 928-282-1275. Email: mark.vrtr

“Throughout history, there have been bull markets in raw materials every 30-40 years. Supply and demand regularly get out of balance, leading to recurring periods of rising (and declining) prices. During the 1980’s and 1990’s, natural resources had been in a bear market for about 25 years (e.g. sugar peaked in 1973, oil in 1981, etc.). Declining markets attract little in the way of increased productive capacity, and this bear market was no different. Virtually no one built an offshore drilling rig, or opened a lead mine, or developed a sugar plantation during this period. Quite the opposite – productive equipment deteriorated, was cannibalized or scrapped while other capacity closed and/or depleted.”….read more HERE

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