Investment Strategy

Monday 3 June 2013

Finding An Income-Based Conservative Investment Strategy

No matter where you look today there are stories of financial doom, gloom and despondency, people are sick and tired of the media talking about 'toxic loans', failed get rich quick schemes and much more. No longer are individual small investors in it for the 'fast buck', most appear to be seeking investment strategies that will enable them to have an income rather than a short-term capital gain.
Do such schemes exist? And if so where can you find them?
They do and are easy to find if you know where to look! Known as a 'covered call strategy' they are based on the principle that, today, most small investors are not 'gamblers', rather they want savings to accumulate some interest and not to be at the whim of some speculator's pocket book. People are looking for conservative investment schemes that offer a reasonable return on investments - and have easily understood risks and the rewards.
However, there are a some elements that have to be in place prior to setting out on this income-based route - you will need to have; a brokerage or a retirement account that allows you to write calls, enough stocks (greater than 100 shares each) or the ability to buy them in a range of companies and the ability to access a service (probably web-based) that will enable you to monitor your portfolio and to select the way you trade.
This strategy of covered calls is one that is clearly focused on income rather than capital gain. It depends on you using stocks that you already own and then to look at an option to sell them for a price that you can fix at some point in the future often called 'buy-write' - because you have previously bought the stocks and are willing to write an option for some one to buy at some point in the future.
It may seem a tad confusing but let's look at an example; you own shares in the XYZ Corporation, let's say 100 at $100 and you think, based on what you know of their performance, that their price will rise to, say, $105 in three or four weeks and you would like to benefit from that. Call your broker tell them to sell a three/four week option at a price of $105 (its called the 'strike price'). What will happen is that the broker will tell you what each share is trading for as a call option and deposit that amount for each share you own in your account. If it is $1 a share then you would get around $100 and if, over the period the 'strike price' reaches $105, whoever purchased the option will get them and you will get $10500 and that, added to the original £100 means that you have made an income of $600.
Suppose the strike price isn't met then you get to keep your shares and also the $100 allowing you to re-offer them at a later date.

Land Profit Generator - Retirement Investing Strategies

Would you be surprised to discover that vacant land can be an excellent investing strategy for your retirement planning and long term investing goals? The Land Profit Generator by Jack Bosch has brought up the idea that you could use vacant land to print money legally for your golden years. Find out how in this review.
Everyone knows that over the long term, real estate and vacant land in particularly will always increase in value. Vacant land can increase a lot more on average than any improved real estate. The reason being that once development moves into an undeveloped area, any parcels located their will multiply in desirability and value.
If you locate vacant land for pennies on the dollar, using the methods in the Land Profit Generator system, you can use your self-directed IRA or 401k or other retirement funds to buy these properties. You can then sell some of the land to replenish the cash in your account, keep the ones that are most likely to appreciate in the future, and then keep buying more parcels.
You can end up with a large portfolio of vacant land parcels that can be maintained for very little over many years. Once it comes time to draw from your retirement funds, you simply sell one or two pieces of land every year and you will have a great and retirement without any financial worries.
Let us take a look at an example. For this example you start out with a retirement account balance of just $10,000 in 2009. You buy five parcels for $2,000 each at twenty cents on the dollar. Next, you sell one for $10,000. SInce you do not have to pay any taxes on the gains because you are doing this in a tax deferred retirement account, you now have $10,000 in the account again and can start buying all over. But you also still have the other four parcels.
You can implement this strategy at your own pace. It will be very easy to buy ten properties each year in your spare time. This way you will accumulate a portfolio of 80 parcels over the course of the next ten years. Even with only modest appreciation over this period of time you will have built a Million Dollar retirement portfolio starting with only $10,000 today.

How to Become a Millionaire by Investing - Five Investment Strategies of Warren Buffett

Stock investment is one of the fastest ways to become a millionaire. Warren Buffett is a good example of a billion-dollar investor. To be a successful investor like Warren Buffet, you have to first understand his beliefs towards the market and his investment strategies.
1. The market is irrational
Warren Buffett believes the market is irrational. It is often driven by greed and fear. Do you know people who buy when the market has gone up and sell when the market came down. Or are you one of them? If you have done your research and understand the true value of the stocks you have bought, you will feel secured and will no longer be worried when the prices go up and down.
2. No one can predict the market consistently
Take a moment to recall, have you heard stories about someone who spend money to buy mysterious trading systems, hoping to make good profits but only to be disappointed? Average investors try to predict the market's next move. When they cannot predict, they give money to the so-called experts who claim they can. Warren Buffett believes that successful investment has nothing to do with the ability to predict. Master investors know that no one can predict the market consistently.
3. Huge returns with little risk
While many people talk about "high risk, high return", Warren Buffett believes in huge returns with little risk. In fact, Warren Buffett is a very risk adverse investor. His first rule for investment is "Never lose money" and his second rule is "Never forget the first rule". People think of investment as high risk because they have not learnt how to do it properly. Just like driving, don't you think it is risky to drive on the road if you haven't learnt how to drive properly? If you know the right way to do it, you can reduce the risk significantly.
4. Invest in few great companies
Most investors are taught to "diversify, diversify, diversify". Therefore, they bought into many mutual funds and keep small holdings in many stocks. Warren Buffett thinks diversification is for people who don't know better. By investing across the market, you will go up and down with the market. The key to outperform the market is to identify great companies and focus your investments in them.
5. Make decisions base on strict criteria
Many investors make decisions based on emotions. They are tempted when they learn of hot tips or see their friends making quick profits. Then they sell immediately when they see stock price tumble the next day. Successful investors follow a set of strict criteria to determine when to buy and sell. Investment criteria are rules that you follow to decide what stocks to buy, when to buy and after buying, when to sell. Here are some examples: the company must have increasing sales and profit for the last 5 years, return of equity must be more than 15%, long-term debt must be less then 3 times of net profit, etc.

Stock Investment Strategy Index Tracking Stocks

Any successful stock investment strategy should focus on maximizing the amount of money you make. After all, unless you're trying to take over a company, the only reason that you trade stock is to make money. One of the best ways to maximize your effort when it comes to investing stock is to trade index tracking stocks.
Also known as exchange traded funds or EFT, these new stocks on the block give you the leverage power to trade stock for entire industry with one symbol. This means that one single share of an index stock is like buying a portion of the dozen to over 10,000 stocks that make up the index.
Here are three popular examples:
Dow Jones industrial average: EFT symbol DIA
Also known as diamonds, this index stock represents all of the stocks which make up a Dow Jones industrial average. So when the Dow goes up, so does the stock price for DIA. Any of the other trends also apply to this and any other index stock.
S&P 500: SPY
Trading $100 worth of this index stock is like buying a portion of the 500 largest companies which make up the S&P 500. They're the 500 largest companies for a reason and trading an index stock which contains 500 companies can help some people take the emotional attachment to an individual company out of their investment equation.
NASDAQ: QQQQ
The National Association of Security Dealers Automated Quotations is the largest screen-based equity securities trading market in the United States. Previously traded under the symbol QQQ, this EFT gives you a lot of trading power while eliminating the volatility commonly associated with trading stocks for an individual company.
If you are new to the concept of index tracking stocks, you should consider studying them and adding one or more EFT to your stock portfolio. You can find index tracking stocks that cover any industry including the Internet, oil, pharmaceuticals and health care, real estate, and manufacturing. There are even index stocks that cover every public company found in a single country. If you're interested in investing in a country like Mexico or Taiwan, trading an index stock which covers all of the securities for one of those countries may be the easiest way to go.
Index stocks are a relatively new trading vehicle. They most likely owe their existence to the information technology available today. The stock price for an index tracking stock is a real time reflection of the accumulated value of all of the stocks it contains. While this is also true of mutual funds, index tracking stocks are faster moving and you don't pay anyone to maintain a portfolio of securities. You simply buy and sell the stock as you would any other security.
The convenience and ease of use of these exchange traded funds have made them very popular. Their inherent diversification allows you to invest in an entire industry through a single trade and for many people that makes an EFT a wise element of a smart stock investment strategy.

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Your Investment Strategy May Need an Overhaul - Inflation is Here to Stay

There is much to remember about the 1970s: disco, hairstyles, Archie Bunker. And much to forget, like double digit inflation. Since the Federal Reserve vanquished inflation in the early 1980s conventional wisdom has held that the problem was gone for good. The roaring 90s was the nail in the inflation coffin: low inflation, low unemployment and soaring asset prices.
But somewhere along the way $4/gallon gas showed up. Food prices continually shock and dismay shoppers accustomed to significantly more discretionary spending room. Young adults who have experienced nothing but prosperity are suddenly initiating conversations with their elders about how to cope. And in the process, bringing back those painful memories.
While the 1990s are often remembered for a through-the-roof stock market and low inflation, the truth is that inflation was actually quite high. Market appreciation is itself a form of inflation, one we enjoy more than dread. But too much of a good thing can be deadly. That stock market got out of control and led to the dot-com bubble and bust.

Where did it come from?

The answer is too much money. Again, too much of a good thing can lead to dire circumstances. For the entire decade of the 1990s the Federal Reserve allowed the money supply to grow faster than needed. That produced the dot-com fiasco. In the early part of this decade the Fed implemented stimulative policies that exacerbated the problem. The housing bubble was another direct result of too much cash, and another form of inflation.

Now that it, too, has burst the problem of too much money is manifesting itself outside of asset prices and into consumer prices. Without stocks or houses to soak up the excess cash investors are turning to oil and energy, food and commodities, etc. If restrictions on the money supply are not put into operation the problem will only worsen. But the Fed is too preoccupied with the credit crunch to change its stance.

For investors that means living with uncomfortable inflation. Over the next several years we can expect interest rates to increase, corporate profits to come under pressure, and price-to-earnings multiples on stocks to decline. That is not a great recipe for stock investing so those investors who need cash to fund living expenses should seriously rethink their investment strategy.

The good news is that higher interest rates are a good thing, at least for fixed income investors. Interest rates have been historically low for the better part of this decade, causing much angst for bond and preferred stock holders. A return of more normal rate levels can present an opportunity for investors needing income, and a chance to adopt a new investment strategy.

How to Create Day Trading Strategy and Investing Strategy Ideas

I always encourage traders to develop their own trading strategy, whether it be a day trading strategy, swing trading strategy or investing strategy. There are two main reasons why I believe it is important for traders to develop their own trading strategy.
First of all, developing a trading strategy requires the trader to strive for a greater knowledge of the market and its price movements.
Secondly, when a trader develops their own trading strategy they are tuned into how the strategy actually works, what will cause it not to work and they will be in a much better place to make adjustments when needed.
How to Create a Trading Strategy
This is the time consuming part, but can also be fun. For me the real fun is testing out what I come up with, but before we can test anything we need an idea. How I generate trading strategy ideas is by watching charts, both past and in real-time. No matter what time frame I am watching, I look for moves where there was/is good money to be made. Once I have found a move that looks profitable I start to ask myself questions about it:
What precipitated the move?

Was it a chart pattern, a candlestick pattern, indicator level, trend line break, a news event or certain time of day? These are samples of the questions you want to attempt to answer.
Did the move start before a certain session (NY, London, Tokyo, etc), near the close, mid-day? Is there any relation to an opening or closing market?
Where could I enter?
How could I have gotten into the trade?
Looking at my answers from above, how could I take advantage of this opportunity in real-time?
Does the pattern I am watching give an entry signal such as a break out of resistance/support/pattern, a certain amount of movement before it takes off, a certain time of day, a short term reversal pattern?
Are there any indicators that aid in this?
Does the stock/forex pair generally stay within an average range for the day?
Look for anything that would allow you to enter into the big move as it is happening.

Where could I exit?
This is very important - more important than the entry!

What signals are present once the move has topped or bottomed and started to reverse?
If my entry criteria disappears, can I use that as an exit?
How can you stay in the move to capture the bulk of it, but also not give up too much profit when it reverses?
Are there any indicators that aid in this?
Would a trailing stop have allowed me to capture a large profit? If so, what should my trailing stop be?
Would a fixed number profit target work (ie. if stop is $100, then profit target is $350)
Does the currency pair generally stay within a certain percentage move for the day? (all pairs and stocks have average movements per day)

Money management - is the trade worth taking?

From the entry point you identify, what is your risk in dollars based on your position size?
What is your potential profit?
Based on the above two answers, was the trade worth taking? If the risk is too large, or you are getting into moves too late you will need to adjust. If you are giving up too much profit when prices reverse, you will also need to adjust.

Other things to consider

Does this signal you identify for entry occur at other times, and not just before large moves? I.e are you going to get a lot of false signals?
Can you cut down on false signals by only trading a certain time of day, adding indicators, or pattern filters?

In short, you want to analyze your charts and look for opportunities. Then examine those opportunities and construct how you turn those opportunities into real money...without exposing yourself to excessive risk.
Once you have gone through several opportunities in this fashion you will be well on your way to creating profitable trading strategy ideas. When you come with a trading strategy ideas that seems valid, see if the trading strategy would have worked on past movements. Then see if it works on upcoming movements. If it worked in the past is working in real-time then try using it with real money...you have created a trading strategy.