The way to make money through investments is simple…

Simple and sensible, right?

In order to become a successful long-term investor, it’s critical you understand The Stupid Test.

The Stupid Test

My mom doesn’t buy stocks. “Too risky,” she says. But last week, she asked me what I thought about Facebook…

“Facebook might be a good product… but it’s a horrible stock,” I said. “I would never buy it.” 

Facebook shares are an investor’s “Stupid Test”…

THIS WAS BAD ADVICE: A well known hedge fund manager… who shall remain anonymous for we see no reason in making more enemies than we already have on The Street… was short of the Netflix last year, selling it at prices above $200/share. One would think that this hedge fund manager would be ecstatic about what has happened to Netflix since but one would be wrong, for this gentleman covered his short position at or near $250/share, losing a great deal of money, all the more sad given that NFLX is now trading nearer to $75/share and has been rather obviously bearishly in the news of late. (written October 2011 – Ed)

What do we find sad about this manager’s position and his advice given earlier this week in an interview with The Wall Street Journal? We find it sad that the manager said that in retrospect he should have believed his own analysis; should have remained short and should have added to his losing position as the price moved above $250/share rather than covering. This is nonsense; this is bad trading of the worst kind and this is the sort of thing that the public really must needs avoid. Having had the stock move against him from $200 to $250, the market was shouting at this manager that he was wrong and badly so. Adding to a losing trade is the only sure way to eventual failure in this business of trading. Ask Nick Leeson, or ask the boys at Long Term Capital Management… they’ll tell you.

There was plenty of time as NFLX began to falter to have been short of this stock, and indeed, it was a much better short at $175 and was
falling than at $250 and rising, for at least when it was falling one who was bearish had the bearish wind at his back. ‘tis always better to trade that way than to be heroic and try to find the top… which one never, ever can anyway. Ask us; we know!

To this we add our own story, for we were short several thousand shares of NFLX a month or so ago in our own personal account and got the benefit of the first $35/share plunge. What did we do? We handled this poorly, covering that day because that seemed like an excessive… an egregious… over-extension to the downside. How wrong we were, however, as NFLX stock has fallen another $45/share from that level and we are out and have missed that plunge. Our error was almost as ill- advised as was that of the hedge fund manager noted above; indeed, in many respects it is worse, for our trade was never behind; it was profitable from the outset. We should have sat tight and we should have added to the trade. Live then and learn. Live then and very much learn.

On this Memorial Day Long Weekend Richard Russell has declared a Dow Theory Non-Confirmation and a Primary Bear Market.  He notes that the D-J industrial Average high of 13,279.32 on May 1, 2012 was not confirmed by the Transports, then when the two averages turned down and broke below their April lows “This action confirmed that a primary bear market is in progress — it was a textbook bear signal.”

Russell further thinks that the Bear Signal indicates that Greece will leave the Euro, then Spain, then whole Eurozone will likely crumble. Also that although Gold will probably be under pressure or awhile, a major bull market/move is to follow. 

“They are coming to take your money away Ho Ho, Hee Hee, Hum Hum!”

I have been warning that government is getting VERY aggressive all because of the Sovereign Debt Crisis. I have warned that this problem CANNOT be solved in the manner in which they are pursuing – taxing everyone & everything. They are about to destroy the economy and we are headed toward a major period of authoritarianism. There is a steady flow of bills being introduced in Washington that are design to eliminate the Constitution all to save the Bureaucracy. They are going to make DWI a federal offense. Sure, drunk drivers are dangerous. The question becomes what is drunk? When there is money involved and profit for government, do not be foolish to really think they are doing anything for society. The kill switch on the Internet is to cut off the free press and to eliminate the right to assemble since they saw how the Arab youth used social media to organize their revolutions.  

Now on January 1st, 2013, the US government will be requiring everyone to have direct deposit for Social Security checks and pensions. Why? Well guess what.  There is another bill HR 4646 that will impose a 1% tax on ALL transactions in a bank account. This is not income. This is money flow – a 1% tax on all bank transactions which will include paychecks, retirement checks and Social Security checks. That will even include a 1% tax on your refund check from the IRS. They want direct deposit and eliminate “paper money” to enable them to now tax your cash flow regardless if you make money or not.  This bill was introduced by Representative Chaka Fattah (D-PA). They will tax everything before REFORM because this is all about retaining power. The next target 2016 is looking very grim indeed. Forget the gold standard. They want everything electronic and eliminate cash!

….read more about the Sovereign Debt Crisis by Martin Armstrong HERE