Stock Market Books

To have a pre-disposition to buy and hold stocks for the long-term can be an extremely expensive frame of mind.  The long-term market trend is up, but in a volatile stock market, the long-term gain is often laden with risk and not nearly as great as many short-term gains.  Risk vs. return has greatly increased for the long-term stock market investor.  People argue that tax consequences are their reason for holding.  That argument lacks weight.  It is very difficult for some people to break away from old habits and patterns of thinking about the stock market.  Those who are unwilling to learn from market crashes are doomed to repeat the lesson.

A few years ago, investors were told that to buy and hold for the long-term was the wise course of action for investors because the long-term trend of the market is up.  If you took any other approach, you were a speculator at best and a gambler at worst.  Brokers and mutual fund managers were the most vocal proponents of this investment philosophy.  The media also joined the chorus and the concept became a part of the “accepted” market lore.  Investor thinking, in this regard, lost elasticity.  What was overlooked was that selling a stock that has entered a phase of heightened risk actually reduces portfolio risk, whether it has been held a year or not.  It is important for us to have clarity about the main issues relating to the length of an investor’s holding period.

The new volatility of the market is probably here to stay.  The current reality of the market is that in a given year stocks will often undergo multiple price swings in which the magnitude of those short-term swings is often equal to or greater than the magnitude of its 1-year price movement.  Even stocks that lose money if held for a year may be very profitable at several times during the year.  Unless the long-term expected gain is much greater than the average return on stock investments, it is a high-risk gamble to retain a stock that has moved up 20% in only 2 months once its charted growth rate has started to show signs of breaking down.  The probability is that holding on to such a stock to meet a 1-year long-term tax requirement will cost way too much.  When stocks move up rapidly, it is common for them to vigorously and abruptly “correct” to the downside once they begin to break down.  It’s like a crowded auditorium in which someone yells, “fire!”  Everyone wants out at once.  Potential buyers then become like those outside the auditorium waiting to get in.  When they see all the people rushing out in a panic, they naturally decide to wait and watch rather than entering.  Thus, while the potential buyers wait, the stock plummets.  

The potential reduction in the investor’s tax rate resulting from a long-term holding period is not sufficient to make up for the substantial risk of loss.  If you have a 20% gain, why not take it rather than lose it?  Selling in less than a year is fairly easy to justify under these conditions.  Though the figures can vary depending on how you file, even at the highest tax rate it would still make more sense to sell under such circumstances (tax rates may be somewhat different when you read this but the point remains the same).  For example, even if your income were $500,000 a year and you had no deductions, 3 short-term gains of $18,000 or 2 of $27,000 would net you more after taxes than one long-term gain of $40,000 taxed at 15%, regardless of how you file.  That is, taking several small short-term gains in a choppy market can be more profitable than hanging on to a stock in the hope of obtaining a larger long-term gain.  Furthermore, in an environment where the long-term gain is unlikely to be obtained (and where the gains already achieved are likely to be siphoned off by the market), it makes even more sense to lock in the profits already obtained once a stock begins to break down.  

Stocks do not move in a linear fashion.  Stockdisciplines.com traders have found that if a stock is up 20% in 5 months, it is unlikely to be up 40% in 10 months.  It is more likely to be up 8% in 10 months or even down 10%.  Hence, the key to higher net returns is to base investment decisions not on the nature of our tax code but on the proper weighing of risk against reward.  If all things were equal, it would generally be better to hold for the longer term.  This is obvious, and it is our own preference.  However, all things are rarely equal and stock patterns do break down.  When a stock begins to drop, the preservation of capital is much more important than getting a lower tax rate.  Those who invest by the tax code rather than by the signals given by the stocks themselves often end up paying less in taxes because they don’t make any money.  They get the deductions they long for (a lot of losing positions) but not the profits.  The priority should be to make money in the first place and after that to have your CPA help you keep it from being taxed away.

The fact is that no one can say for sure that none of the stocks in a given portfolio will plummet out of existence (even if they are all blue chips).  Of course we would all like to buy nothing but steady climbers and leave them in the portfolio for a year or more to get the long-term capital gain tax benefit.  Five years would be even better because it would reduce transaction costs.  However, the market and your stocks do not care about your wants, needs, or tax status.  Also, transaction costs can be minimal.  At one well-known discount brokerage firm, for example, it is possible to sell out a position worth $50,000 for only $7.  If the stock price is $40 a share, the brokerage commission for this trade would come to little more than half a penny per share.  This cost is insignificant relative to the loss that could be incurred by keeping a loser.    

If we buy a stock and it starts to break down shortly after we purchase it, we must admit that either we were wrong or that the unforeseen has occurred.  Certain conditions and requirements had to be met by the stock and/or the company for us to buy it in the first place.  If those conditions no longer exist, we must sell.  Our prime consideration in a volatile environment must be to preserve assets, even if we have to sell a stock the day after we bought it.  On the other hand, if we achieve a return of 20% in 6 months and the stock is still strong and still close to support, we will continue to hold because we have not been given a reason to sell.  The same would be true if we had held the stock for 5 years and our gain were much greater.  The stock itself, or the market, will tell us when we must sell.  Volatility-adjusted stop losses are extremely useful in this regard.

There is no way to know in advance how long a given stock should be held.  We should not invest on the basis of what we think ought to be but on the basis of what is.  Though a 1-year minimum holding period is desirable for tax considerations, it is meaningless and arbitrary in the context of market behavior.  In fact, rigidity in our thinking along these lines can be very costly.  Of course we want to hold a stock as long as we can, but rate of growth and risk should not be ignored.  A stock that has proven itself incapable of breaking through overhead resistance no longer has growth potential, and continuing to hold it involves risk of loss (the risk/reward ratio has changed).  In fact, risk of loss will increase as others conclude the stock will not go higher.  

It is difficult to leave behind old concepts of investing.  It is one thing to be aware that a particular stock has given a sell signal and another to break loose from old ways of thinking in order to act on that signal.  This is something that takes time to internalize to the point where it is automatic.  A good, well-articulated discipline can be an effective trainer in this regard.  There are, after all, lessons to be learned from every plummeting stock and every market crash.  Investors must learn to allow stocks and the market to give their own signals.  When those signals are given…we must learn to listen.

Copyright 2009, by Stock Disciplines, LLC. a.k.a. StockDisciplines.com

Do you want to invest on something you just don’t know what? Are you looking for something other than stocks from companies? Or maybe you just struck out on the stock market? Then maybe one of these can help you decide on investing your hard earned money someplace other than the usual stock market. There are a number of things you can invest on and usually the bigger the risk, the bigger the return. The return may not come immediately but the wait would be worth it.

One option is property investment or real estate investing. This involves purchasing a property and managing it then renting it to earn profit. There are a number of opportunities in real estate investing, but the first crucial step is to know what you want to manage and rent. The next step is then to find a property you want to purchase. Once due diligence, or examining the property is done (usually accompanied by an expert in examining), the complex process of purchasing the land or property starts (this is usually accompanied by a real estate agent or lawyer this time).

Real estate property are typically more expensive than other investment tools like stocks, but as stated earlier, higher risk comes with higher rewards. Another way to invest, if real estate is too risky for you, is thru consumer products.

Consumer products are an investment for people with enough willpower to take it on. This is because product investment tends to have a long period of poor performance followed by a long period of excellent performance. This could have resulted from the ever changing demand of consumers; of what is fad and what is considered as so yesterday. With that, the best product to invest on is usually what’s hot; this would give you fast return on investment. However, it will not guarantee that the fast return will continue for a long period of time. If you’re creative and lucky enough, you could start something new.

Invest on something different that you think could be the next big thing, and then start out small. When the consumers bite on it, expand little by little until you get great recognition. When that happens, competitors will start to challenge your position for market leader, the next step then would be to sell through franchising, and here is where you can make the big bucks.

If the product you started is hot enough, people would be lining up for a slice of your cake. After squeezing what you can out of the franchise, let it go completely. You can make a lot of money with that without having to face the problems of having too much competitors and other business related headaches.

Another option you can invest on is commodities. Agricultural and mining products can become great investments. The problem however would be the fact that just like consumer products, commodities would have very long periods of poor performance followed by long periods of good performance. An example of this would be oil.

Investing is a gamble everywhere you look at it. It would depend upon your financial goals and willpower whether to take on high risk investments like real estate investing, or stick with a low risk investment.

One of the easiest traps to fall into when making decisions about buying or selling stocks is to make predictions about how well they will do in the future based on how they did in the past. As a matter of fact, it’s such a common error and such a human tendency that every stock prospectus warns against this behavior specifically: “Past performance is not a guarantee of future results”.

Why is there such a strong tendency to want to look at historical performance? There are at least two good reasons.

First, even though it’s appealing to think that market activity can be predicted using some kind of mathematical formula, the truth is that stock market activity is a result of human behavior. So far, no mathematical formula has been discovered that can accurately predict it.

But humans crave stability and predictability. Looking backward to the past gives us the false hope that the future will unfold in a similar manner. However, wishful thinking is not a good basis for sound business decisions. And successful long-term investing in the stock market requires decisions based on solid business principles, not emotions.

Second, there’s a lot of “selling” going on that is thinly disguised as “useful information”. Since investing in securities has become so popular since the end of the 20th century, a lot of “celebrity analysts” have been created in the media. Stock market pundits have their own television shows, radio shows, Internet blogs and newspaper columns.

Information about investing in the stock market has become mainstream entertainment. And a large part of the entertainment is showing charts, graphs and other kinds of “historical” visual proof of the pundit’s ability to predict the stock market’s performance.

One of the reasons this kind of historical visual proof is so tempting to believe is the human tendency to think that if a stock sold at a high price in the recent past, that price must be its “true value”. There is a tendency to think that if its price has fallen, it’s probably a bargain because it will be only a matter of time before the price increases to its “true value” again.

In reality, the history of the stock market is full of companies whose stocks once traded high, then fell never to rise again. Anyone who owned stock in Montgomery Wards or Krispy Kreme knows that all too well.

The inability of a stock’s past performance to predict its future performance is the reason that many smart investors don’t rely heavily on measurements like the P/E ratio, or other measurements that look to past quarters’ performance. As Warren Buffett has proven time and time again, buying stocks based on the strength of the company’s management is a much better strategy.

To novices and the inexperienced, investing in the stock market can seem extremely intimidating. That is completely understandable. Trying to invest your money without knowing much about the market is akin to walking into a casino and dropping five hundred dollars on a single poker hand when you have never really played. In truth, purchasing stocks is quite easy. Investing them is the hard part. Well, really, it is more confusing than hard. Therefore it is crucial to learn as much as possible about the market and investing first. To that end, here are a couple of secrets which can really help you.

To begin with, as mentioned, investing is the hard part. Of course, you need to know a few things before buying as well. You need to start reading stock reports. See which stocks have done consistently well, which flounder, which ones are fickle, which ones seem doomed to fail, et cetera. A little research can go a long way – it can literally pay off, in fact.

So, just for argument’s sake, let us say that you have bought your stocks. They are good stocks and you want to do them justice – but you are not at all sure how to sell them. No problem! You do not have to make any faux pas that wind up losing you money. For one thing, never let fear hold you back. If you keep a stock just because you are afraid of what might happen if you sell it, then the market probably is not the place for you. You need to strip some emotions away from yourself, at least as they apply to investing. You need to get rid of all avarice.

You need to discard fear. You need to dump feelings of anxiety. You need to make nervousness take a hike. Believe it or not, doing these things can make all the difference in your success.

But how can get yet rid of these completely natural, understandable emotions? You just need to understand that sometimes, you may lose money. Not all of your investments are going to do well all the time. When they do not, you have to consider that an opportunity. The stock market presents a financial learning experience. Realize that losing money is as natural and expected as making it. Just by doing so, you may find that you win more often.

To that end however, you can implement some “insurance.” Simply put, you should never invest a load of money in just one stock. Spread your money around; that way, if one stock fails, you have not lost everything.

The types of stocks you choose to invest in are also important. You need to look for investments which carry a low risk. Some investors, fuelled by emotion, feel like they are not really investing if they do not take some chances. That is not true at all. Really, you are taking a chance any time you invest money in anything. Therefore, there is no reason to be foolhardy by putting all your eggs into one basket.

Pretty much every investor uses one of three general investment strategies. These are: fundamental analysis, technical analysis and buying and holding the market. A brief examination of each of these techniques will help an investor decide which best suits their personal profile.

Fundamental Analysis
The most straightforward approach of fundamental analysis is a basic examination of a stock versus the value of the company and its expected future earnings. Based on the company’s financial publications it should be relatively easy to determine weather a stock is undervalued, overvalued or somewhere in-between. The trader assumes that the market price will correct itself and the price per share will consequently go up or down, unless there are any unforeseen events or hidden value traps.

Technical Analysis
Using technical analysis, the investor makes an attempt to predict future share prices based on the direction of the market, trading volumes and past prices. This approach assumes that the market and individual stock prices loosely follow discernible patterns, or at least stay within a certain bandwidth of it. Once the beginning of a pattern is identified, the remainder of the pattern can theoretically be predicted, hopefully well enough to yield returns in excess of the general market. Research has shown that solely using technical analysis as your strategy, does not work well. Yet, there are some indicators such as pivot point resistance or support levels that can actually hold up, most likely due to the wide acceptance and adoption of the method under the professional traders.

Buying and Holding the Market
The approach of “buying and holding the market” is to have a portfolio that could hold it’s benchmark against the market performance. For this strategy the investor buys a basket of stock that resembles the stock market or the S&P 500 assuming that the overall direction of the market performance is upward. The investor buys a large number of diversified stocks and does not need to buy every single stock in the index, although that could be achieved by buying stocks of an S&P 500 Index mutual fund. This approach can be used as a benchmark performance tool, as no other investment approach is valid unless it’s able to outperform the stock market over the long run. In the event that investment approaches do perform above market performance with the same risk, the difference is called excess return, which represents the added value of the used investment approach.

The investment approach you decide to use depends on your conceptual view of the two principal stock market theories. In the light of the efficient market theory, the stock price reflects all publicly available information about the company in question, which results in the trading price coming very close to the true value of the share price. Meaning that on average the price reflects the fair value of the stock, but not all the time, as variations of this price can exist. On the other hand, there’s the school of thought that these prices are unpredictable and too random, and cannot be used to generate excess returns. In that case, there is no point in using the fundamental approach seeking stocks that are selling under their actual value. Alternatively, one could concentrate more on developing a more efficient portfolio, instead of selecting a certain kind of stock. This would be a portfolio that provides returns closest to the market’s return at a specified level of market risk. The investor simply determines the amount of risk that is acceptable and builds the portfolio based accordingly.

Investors believing that the market is not efficient for the reason that buyers receive, perceive and evaluate information differently, causing the prices to deviate from their true value can look for undervalued stocks through diligent analysis. Going forward, this would enable them to outperform the benchmark of buying and holding the market. As backed by many studies it’s safe to assume that the market is often inefficient and therefore there are numerous ways of outperforming the market with your portfolio. Your excess returns can generally be 2 -6 percent at a risk free rate. Anything higher is most likely an abnormal return, which is the out-performance over the risk-adjusted return. Just beware, as this can also be a negative abnormal return. Nevertheless a small consistent excess return can also lead to great wealth.

What Is Stock Metadata?

Simply stated, metadata is data about data. And when properly understood and interpreted, stock market metadata, also simply referred to as stock metadata, can give you the edge you need to help you picture what’s happening with a company’s stock. So if there’s a trading trend developing, one of the tools you can use to spot a trend as it moves along would be stock metadata.

Working with Stock Metadata?

When you go online, you find vast varieties of stock charts, current and historical stock market results, and an increasing number of online news sources. But finding anything on stock metadata is challenging.

In order to get more of a feel how stock metadata can be used, consider any of the following scenarios:

You’re planning to buy shares in a company and you want to have an idea during what 15-minute period of the trading day do shares statistically trade at their lowest points You want to sell your shares and you want to have an idea of the best time of the day to execute your trade You want to know the iterations of the various price range differences for a stock to help you time your trade and get a price that’s advantageous to you You want to buy or sell a large block of shares and you want to see a breakdown of the different times of the day when the volume of shares traded for certain stock is both at its highest and lowest

Answers to these and many other questions can be found by reading the topic on stock metadata reports.

Stock metadata reports are unique. For example, you can easily see the relationships that exist between the Open and Close values of stock prices for the day. You can also see what the values are for the other days, day after day.

These reports can cover a specific date range for the company being featured. And, with the availability of multiple arrays of values for the different group categories within each of the arrays, there’s more than a sufficient amount of data there to complete a thorough analysis. This is easy to see when you look at a report.

Stock metadata can also be used to show market trading activity for shares covering 15-minute blocks of time. Statistically speaking, you can quickly see

Time periods when highest and lowest prices were reached Time periods when highest and lowest trading volumes were reached

Metadata answers numerous questions spanning any period of time (days, months or years) like:

How many times during each of the 15-minute periods during normal trading hours have shares traded at the high of the day? How about at the low of the day? What times of the day recorded the highest volume of trades? How about the lowest volume of trades?

Why is this type of stock metadata important? Statistically speaking, it identifies the potential best time of the day to buy or sell shares. When you learn to use metadata, you come to realize that:

History tends to repeat itself Numbers don’t lie, and The trend is your friend.

These statements are easy to understand. Stock metadata makes it simple to prove them true.

Until now, the general public has not been able to easily locate a viable source for stock metadata and stock market metadata. That is until now with Stock-Market-Keywords.com and its Bulls-with-Bears page changing all that. And the good new is that Bulls-with-Bears page already has numerous links to different sources of standard stock market information and is unique with its offering of stock metadata reports.

See today’s featured company. Not only are links included to some of the best sites for stock market information, you can access up to 5 distinct stock metadata reports shown listed below for each company being featured there today. These reports are published every day of the week, Monday to Friday. Click on any of the report titles below for a complete description of it.

Daily Historical Metadata Detail Daily Historical Metadata Summary 15-minute Metadata Detail 15-minute Metadata Summary 15-minute Hi-Low Counts

Furthermore, while you on the Bulls-with-Bears page, you can also get to previous featured companies and find their corresponding reports for them.

Does Using Stock Metadata Work?

Stock charts present graphical images about a company’s stock performance. There are multiple patterns to learn about. These must be understood and correctly interpreted. When used properly, they can be quite effective for stock trading and investing purposes.

The advantage of stock metadata is that it uses something that you have been using all of your life: numbers. If you know how to do simple addition and subtraction, and you know how to count, then you can use metadata.

Here’s actual proof of stock metadata producing results. Check out the following link to the Yahoo! message board for Morgan Stanley stock. It’s a direct result of the analysis I completed using stock metadata as my source.

After lunch on Friday, October 9, 2009, I submitted my prediction regarding the closing price of the day for Morgan Stanley shares. I developed the number by using specific selection criteria against the Daily Historical Metadata Detail report for MS stock. When you read the entry I posted, you’ll see I stated that if Bulls ruled at the end of the day, the stock would close at 32.18.

Well MS actually closed at 32.09 but a few seconds later, the first transaction in after hours trading was at, are you ready for this, 32.18. Talk about making an accurate prediction. I’ll let you be the judge.

Stan Pokutylowicz

What Is Stock Metadata?

Simply stated, metadata is data about data. And when properly understood and interpreted, stock market metadata, also simply referred to as stock metadata, can help you picture what’s happening with a company’s stock. So if there’s a trading trend developing, one of the tools you can use to spot a trend as it moves along would be stock market metadata.

Working with Stock Metadata?

When you go online, you find vast varieties of stock charts, current and historical stock market results, and an increasing number of online news sources. But finding anything on stock metadata is challenging. In order to get more of a feel how this type of information can be used, consider any of the following scenarios:

You are planning to buy shares in a company and you want to have an idea during what 15-minute period of the trading day do shares statistically trade at their lowest points You want to sell your shares and you want to have an idea of the best time of the day to execute your trade You want to know the iterations of the various price range differences for a stock to help you time your trade and get a price that’s advantageous to you You want to buy or sell a large block of shares and you want to see a breakdown of the different times of the day when the volume of shares traded for certain stock is both at its highest and lowest

Answers to these and many other questions can be found by going online and searching for it. I use Google and look either for the terms stock market metadata or stock metadata which returns links to all of the pertinent information.

Stock metadata reports are unique. For example, you can easily see the relationships that exist between the Open and Close values of stock prices for the day. You can also see what the values are for the other days, day after day.

These reports can cover a specific date range for the company being featured. And, with the availability of multiple arrays of values for the different group categories within each of the arrays, there’s more than a sufficient amount of data there to complete a thorough analysis. This is easy to see when you look at a report.

Used as an analysis tool, stock metadata can also be used to show market trading activity for shares covering 15-minute blocks of time. Statistically speaking, you can quickly see

Time periods when highest and lowest prices were reached Time periods when highest and lowest trading volumes were reached

It also provides clear answers to questions spanning any period of time (days, months or years) like:

How many times during each of the 15-minute periods during normal trading hours have shares traded at the high of the day? How about at the low of the day? What times of the day recorded the highest volume of trades? How about the lowest volume of trades?

Why is this type of information important? Statistically speaking, it identifies the potential best time of the day to buy or sell shares. When you learn to use stock market metadata, you come to realize that:

History tends to repeat itself Numbers don’t lie, and The trend is your friend.

Previously, the general public has not been able to easily locate a viable source of stock metadata and stock market metadata. Now that has been changing. When you do a search for either of those specific terms, you’re sure to find the information presented from the source sites or through links to articles written about this topic.

Look for sites that also present features on companies being traded on the major North American stock exchanges. This includes numerous links to key sources of standard stock market information as well as including a selection of stock market metadata reports.

When you choose to examine a featured company, make sure links included are to some of the best available online sites of key stock market information. Do they also have stock metadata reports for each company being feature there by them?

Look for reports that are published every day of the week, Monday to Friday. Typically, the standard report titles as listed below, also have corresponding links to site pages that explain and describe the content of each of the reports.

Daily Historical Metadata Detail Daily Historical Metadata Summary 15-minute Metadata Detail 15-minute Metadata Summary 15-minute Hi-Low Counts

Does Using Stock Metadata Work?

Stock charts present graphical images about a company’s stock performance. There are multiple patterns to learn about. These must be understood and correctly interpreted. This can get quite complicated. But when used properly, they can be quite effective for stock trading and investing purposes.

The advantage of stock metadata is that it uses something that you have been using all of your life: numbers. If you know how to do simple addition and subtraction, and you know how to count, then you can use and understand metadata.

Some people even boast of using stock metadata to predict price results. Check out the following link to the Yahoo! message board for Morgan Stanley stock. It was submitted after lunch on Friday, October 9, 2009, to this Yahoo! message board in regards to the closing price of the day of Morgan Stanley shares.

It was developed using specific selection criteria against the Daily Historical Metadata Detail report for MS shares from stock metadata reports available online for people to use. As you read the entry, you’ll see that if Bulls ruled at the end of the day, the prediction was the stock would close at 32.18. Well MS actually ended the day at 32.09 but a few seconds later after closing, the first transaction in after-hours trading was at, are you ready for this, 32.18. Talk about making a good prediction. I’ll let you be the judge.

Stan Pokutylowicz