[Ebook] Stock Market Wizards: Interviews with America's Top Stock Traders - Jack D. Schwager

• Title: Stock Market Wizards: Interviews with America's Top Stock Traders
• Authors: Jack D. Schwager
• Pages: 352 pages
• Publisher: Collins; Rev Upd edition (April 15, 2003)
• Language: English
• ISBN-10: 0066620597
• ISBN-13: 978-0066620596

The third in the bestselling Market Wizards series, this time focusing on the barometer of the economy—the stock market.

It has been nearly a decade since the publication of the highly successful The New Market Wizards. The interim has witnessed the most dynamic bull market in US stock history, a collapse in commodity prices, dramatic failures in some of the world's leading hedge funds, the burst of the Internet bubble, a fall into recession and subsequent rumblings of recovery. Who have been the 'market wizards' during this tumultuous financial period? How did some traders manage to significantly outperform a stockmarket that during its heyday moved virtually straight up?

This book will feature interviews with a variety of traders who achieved phenomenal financial success during the glory days of the Internet boom. In contrast with the first two Market Wizard books, which included traders from a broad financial spectrum—stocks, bonds, currencies and futures—this volume will focus on traders in the stockmarket.

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Trading Forex

Using fundamental and technical analysis, the individual trader attempts to determine trends in the price movements of currencies, and by buying or selling currency pairs, attempts to gain profits. The most often traded currencies, the major currencies, are those of countries with stable governments and respected central banks that target low inflation. Currencies that often trade along with the U.S. Dollar include the European Euro, the Japanese Yen, and the British Pound as they are the most liquid. A trader can trade these currencies in any combination. CMS Forex also offers the Swiss Franc, and the Canadian, Australia and New Zealand Dollars making for 19 total trading instruments when accounting for all the cross pairs. More "Exotic" currencies are not offered as they are often tightly regulated and simply too illiquid.

Buying and Selling Currencies
Traders can generate profits (or losses) whether a currency is rising or falling by buying one currency, which is anticipated to gain value against another currency or selling one currency, which is anticipated to lose value against another currency. Taking a long position is one in which a trader buys a currency at one price and aims to sell it later at a higher price. Alternatively, a short position is one in which the trader sells a currency that he anticipates to depreciate and aims to buy the currency back later at a lower price.

Buying or selling currencies in response to economic or political events which occur are reactive, whereas buying or selling currencies on anticipated events is speculative. The bulk of currency activity is generated by market participants anticipating the direction of currency prices. In general, the value of a currency versus other currencies is a reflection of the condition of that country’s economy with respect to the other major economies.

It is the trader’s option to take either a conservative or a more risk-taking approach. Employing a conservative approach, the trader establishes and liquidates positions quickly and efficiently to capitalize on even the slightest of price fluctuations, using limit and stop orders to manage risk. A limit order is placed to ensure a position is established once a price level in the market has been reached.* A stop order is placed to automatically liquidate a position at a chosen price level in order to limit potential loss on a particular trade. By placing orders in relation to technical support and resistance levels, the trader may profit incrementally from the minor price fluctuations that occur each day.

The Time in the Major Financial Centers Impacts Market Players

Foreign exchange is a continuous global market, providing participants with 24-hour market access. The only breaks in trading occur during a brief period over the weekend. Although foreign exchange is the most liquid of all markets, the fact that it is an international market and trading 24-hours a day, the time of day can have a direct impact on the liquidity available for trading a particular currency.

The major dealer centers and time zones are that of Sydney, Tokyo, London, and New York. Therefore, traders must consider which players are in the market, since in the modern interconnected financial world, events that occur at any hour, in any part of the globe, can affect some or all parts of the investment community.

The market's 24-hour nature is a substantial attraction to traders that prefer to trade at all times of the day, or night.

-- CMS Forex --


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Forex - Fundamental Analysis

Fundamental analysis involves examining the intrinsic value of a nation’s currency based on economic news releases that reflect the strength, or weakness, of a country’s economy. Fundamental traders follow these news announcements, known as “fundamental indicators,” because they paint a picture of a currency's strength in relation to other countries.

Fundamental indicators are reports that include statistical data on things such as employment, gross domestic product (GDP), international trade, retail sales, housing, manufacturing, and interest rates. The stability, growth, or decline in any of these sectors may have an effect – direct or indirect – on the value of a country’s currency.


Factors That Move The Forex Market

Central banks play a key role in the Forex market because they have the responsibility of changing the country’s “base” interest rate. A central bank has to find a fine balance when setting interest rates as it wants to maintain growth in the economy, but at the same time it has to be careful to curtail inflation. The bank’s decisions on whether to raise, cut, or hold the interest rate fuels speculation in the Forex market, where the value of a currency, or group of currencies, changes in real time.

In addition to information about a country’s economy, the value of a currency is connected to national and international political events, elections, and changes in government trade policies. The prices of sensitive commodities like oil and gasoline are an important fundamental indicator as high prices can hurt consumer spending and confidence, and curtail the activities of certain businesses and government services.

Natural disasters, terrorist attacks, and militarily actions in a sensitive region cause instability in the world and have a significant impact on the Forex market as they develop. These types of evens can be hard to predict in advance.

The ability to identify trends in macroeconomic indicators and reading central bank’s current and future actions is a valuable tool that comes from following financial news, watching the markets, and trading Forex.

-- CMS Forex --

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Investing Online (Part 2)

Open Online Investing Account. Once you've chosen the brokerage you desire, open the account. You can usually do this online by filling out a form and then submitting it electronically. However, at some point you will have to sign a few forms and either mail or fax them back to the brokerage. We suggest that when you open an account, that you get all of the account options that you can. For example, instead of just opening a cash investing account, we suggest that you open a margin account with option trading capability that has checks and an atm/debit card. That way, as you become a better investor and grow into the account you'll already have all the tools you need at your disposal.

Make Initial Deposit. Before you can trade you'll need to fund your account. You can do this by sending in a check, doing a direct transfer from a checking or savings account, or by wiring your money (fast but expensive). Make sure you deposit more than the initial amount so that if you lose some money, you will not trigger any maintenance fees.

Select Investments. Now that you've got a funded account, it's time to select your investments. Take your time!! Don't rush into finding investments just because you're account is funded. And don't feel like you have to invest all of the money at once. Use the other resources on this site to help you find stocks and funds to purchase.

Execute Trades. Once you select your investments, place your order. You can do this with many different types of orders. Here are the most basic:

• market order. This is the simplest order and is simply an order to buy or sell a stock or mutual fund at the current price.
• limit order. This is an order to buy or sell a stock at a given price or better. For example, you could put in a $20 limit order to buy a stock that is currently trading at $20.25. Your order will only execute if the stock hits or falls below the $20 price. These orders can be used to get a better price for stocks that are volatile, but they sometimes backfire and the price moves up before they execute. You can also use a limit order to lock in a profit. For example, if you bought your stock at $20 and put in a limit order to sell at $25, then the next time the stock hits $25 your order will be executed and you will have locked in a gain.
• stop order. Although more complicated, this is like a limit order except that it is used to protect your investments. For example, you may have a stock that you hold at $25 that has already given you a nice return. To protect the gain, you could put in a stop order at $22. When the stock hits $22 the order will turn into a market order to sell the stock. Whereas the limit order at $22 would have executed immediately, the stop order executes only when the trigger price is met.
• stop limit order. Similar to a stop order, this trade turns into a limit order once the stop price is met. For example, if you put in a stop limit order at $22 and your stock hit $22, the order would be triggered but the stock would then only sell at prices greater than or equal to $22. This type of order is commonly used to lock in gains and to ensure that one does not sell at a loss. However, this type of order could backfire terribly if the stock price keeps dropping.
• short sale. This is an order where you sell a stock that you do not own, by borrowing the stock from the brokerage and then selling it. Short sales are very risky and are used to make bets that a stock will go down. They are risky because there is no downside limit to your risk. For example, you could short a stock that seemed overpriced at $50 and the stock could go up to $200, thereby losing 3 times the stock price. When you short stock, you are required to keep a percentage of the stock price in your account at all times, and you are charged interest on the amount of stock you shorted. If the price goes up too much, you will get margin calls and be required to deposit more money or to close your short position at a loss.
• good till canceled (gtc). This is one of the two timing options. It means that your order will stay active until it is filled in whole. In other words, you could place a GTC order to sell a $20 stock at $30 and it would stay active until the stock hit $30, which could be months or even years.
• day order. This order will only be active the day in which it is placed. It will expire at the end of normal trading.
• all or none. This is an option whereby you can decide if you want your order split up or not. Normally, orders are executed in small lots. For example, if you buy 1,000 shares, it typically takes several small trades to accumulate that many shares. However, in an all or none order, the broker will only execute the trade if they can get all 1,000 shares at once.

Monitor Portfolio. Now that you've bought your investments sit back and don't watch them too closely (it's often frustrating). However, once a year, or even twice a year, look at your investments and decide whether or not they are still meeting your goals. As your goals change, and as your investments go up and down, change your portfolio to meet your current needs. For example, you may have one stock that moves from 10% to 25% of your portfolio. You should reduce your exposure to this stock by selling some of it and buying something else. This is also known as rebalancing your portfolio. Also, if any investments are doing poorly because of bad management, change in their competitive position, etc. -- you should sell them immediately. Use the rest of the tools on this website to monitor and optimize your online investing portfolio.

-- ABC Stock Investment --

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Investing Online (Part 1)

Investing online is easy, even if you are a beginner investor. To get started, this is all you have to do:

Choose An Online Brokerage. There are many things to look for in an online broker, but these are the most important.

• Reliability. Most online brokerages have strong reliability ratings, but to make sure, check out the reviews of each brokerage by third parties. You can find ratings in many money and consumer related magazines, including their online versions. Do a search for "online brokerage reviews".
• Execution. It is very important that when you place a trade order, that it is executed in an extremely timely manner. To find out how fast different brokerages execute trades, you can also read reviews, or visit their site and see their execution guarantees.
• Breadth of Investments. Perhaps one of the most important aspects is the breadth of investing options that your online brokerage provides. Before you sign up, browse through the broker's site and view all of the different investments that you can purchase. Look specifically at the choice in mutual funds. Some brokers only provide limited options and others allow access to almost any mutual fund out there. Typically, the larger the brokerage, the more investing options they can provide. Also, the more discounted the broker is, the less options they provide. Besides mutual funds, look to see what they offer for bond investments, options and money market funds.
• Diversity of Products. Similar to breadth of investments, you want to make sure that your online brokerage offers all the products you'll need in the future. Look to see that they offer investing in stocks, bonds, mutual funds, options, exchange traded funds (ETF) and money market accounts. On top of that, see if they also offer checks and atm/debit cards related to your account (easy ways to get money out). Some online brokers even offer separate bank accounts that can be tied to your brokerage account, and some even offer mortgages or home equity lines of credit. If you use all or several of the products, many brokerages offer discounts.
• Pricing. Although pricing is important, unless you're a day trader the actual cost of doing a trade really shouldn't be your final decision maker. That's because a typical long-term investor only makes a few trades a month or year. And if you need to spend an extra few dollars for your trades but get better service and more investment options, then I would recommend paying for the better options.
• Account Minimums. Check the account minimums for each online broker you're investigating. Some are as low as $100 and some are $10,000. Check to see the minimum amount before you are charged a maintenance fee (fee charged if your balance is below a certain dollar value).
• Rates. Look at the interest rates offered by the brokerage for their money market accounts. If you are planning to hold a lot of cash in your account, this rate is very important. They can vary dramatically, but typically the more money you have invested, the higher the rate paid. Also, look at the margin interest rates (the rate charged on money you borrow from the brokerage). These rates can be astronomical for some brokerages.
• Fees. Look for any fees that the brokerage may charge. A good brokerage should not charge any annual fees, maintenance fees or sales loads. Look closely at the website for any hidden fees and make sure you avoid them.
• Investment Research. Look for online investing companies that offer free or reduced price research. Although you don't need this research, and it is often tainted by the person or firm who wrote it, it is often helpful to see the information from another perspective.

-- ABC Stock Investment --
To be continued...

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The Compounding Effect of Investing

The compounding effect of investing your money is perhaps one of the most important aspects to achieving long-term wealth. For it to work, you must be a long-term investor with a lot of patience. Here is a summary of how it works.

Say that you invest $1,000 and that you achieve a return of 10% per year. That means that in the first year you would have $100 in gains ($1,000 x 10%) and a total of $1,100. In the second year, you'll start with $1,100 but this year you'll earn $110 ($1,100 x 10%) for a total of $1,210. The third year you will earn $121 ($1,210 x 10%) and have a total of $1,331. You'll notice that each year you earn significantly more than the year before because each year you earn money on the previous years' gains. This is called the compounding effect of money and it is one of the most important aspects to investing and saving money.

It is important to understand that the longer you keep your investment, the more money you will make. However, the amount of money you make does not rise in a linear fashion. Instead, for each year you keep the money invested, you will earn significantly more money. This can be illustrated in the following manner:

If you earn 10% per year, at first glance, it seems like it will take you 10 years to double your money (10 x 10%)), and 20 years to triple your money (20 x 10%). However, this couldn't be further from the truth. If you keep compounding your gains and earning 10%, you will actually double your money in under 8 years, and triple your money in under 12 years. Your money will quadruple in 15 years and you will have over 6 times your investment by year 19!

To illustrate this effect, we've added a graph and table below that shows the effect of compounding your investments:

Total Dollars by Year, Assuming a 10% Annual Return

Total Dollars Invested and Profit Per Year, Assuming $1,000 Initial Investment and a 10% Annual Return

Year	Total $	Profit $		Year	Total $	Profit $
0	$1,000	$100		21	$7,400	$740
1	$1,100	$110		22	$8,140	$814
2	$1,210	$121		23	$8,954	$895
3	$1,331	$133		24	$9,850	$985
4	$1,464	$146		25	$10,835	$1,083
5	$1,611	$161		26	$11,918	$1,192
6	$1,772	$177		27	$13,110	$1,311
7	$1,949	$195		28	$14,421	$1,442
8	$2,144	$214		29	$15,863	$1,586
9	$2,358	$236		30	$17,449	$1,745
10	$2,594	$259		31	$19,194	$1,919
11	$2,853	$285		32	$21,114	$2,111
12	$3,138	$314		33	$23,225	$2,323
13	$3,452	$345		34	$25,548	$2,555
14	$3,797	$380		35	$28,102	$2,810
15	$4,177	$418		36	$30,913	$3,091
16	$4,595	$459		37	$34,004	$3,400
17	$5,054	$505		38	$37,404	$3,740
18	$5,560	$556		39	$41,145	$4,114
19	$6,116	$612		40	$45,259	$4,526
20	$6,727	$673

-- ABC Stock Investment --

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[Ebook] How to Trade in Stocks: The Livermore Formula for Combining Time Element and Price

• Title: How to Trade in Stocks: The Livermore Formula for Combining Time Element and Price
• Authors: Jesse L. Livermore
• Pages: 111 pages
• Publisher: Traders Pr (November 1991)
• Language: English
• ISBN-10: 0934380201
• ISBN-13: 978-0934380201

Review
Jesse Livermore's book, in my opinion, is the single all time best book ever written on trading stocks.

I have read many books on trading, 7 out of 10 ordinary books are written by people who are good at writing textbooks. They are good at talking theory, but when it comes to combat in the trading battlefield, they come short and leaves you unsatisfied.

Jesse walks...

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Analyzing Mutual Funds (Part 2)

Compare Mutual Funds - The best way to judge a mutual fund is to compare it to its peers. Select the funds in the sectors you desire from the families you've chosen and compare them to each other. You can get fund information from prospectuses (available online at the fund families sites) or through screening tools like Yahoo Finance or E*Trade. Look closely at the following aspects of each fund:

Management - Look at the background of the portfolio managers. Do they have a lot of experience? Do they have experience in the industry that they are analyzing? How is their past performance? How is their past performance on other funds and at other companies? Look for backgrounds that have business experience as well as finance experience, and look for someone with a solid track record and that thinks independently of investment bankers and institutional research analysts.

Investment Strategy - What type of strategy does the fund follow? This is clearly stated in the prospectus and is easy to find online. Do you want someone that speculates? Uses leverage? Holds too much cash? Tries to time the market? You'll find that strategies vary dramatically from fund to fund, even in the same sectors. For example, one growth fund may look for stocks growing 5% or more, while another looks for stocks that grow 15% or more. One growth fund may invest mostly in international, large cap stocks and another similar looking fund may invest in domestic small cap stocks.

Look closely at how the fund describes it's goals. Make sure that they match the type of fund you are looking for.

Fund Size - Look at the total size of the funds' assets. If it is small (in the $100s of millions) then the company may be able to get in and out of stock positions quickly. For larger funds (in the $billions), it is much more difficult to get in and out of stock positions. In fact, the largest mutual funds often have trouble finding enough stock to make their positions, which often leaves them no option to invest in some of the smaller cap companies. With that said, this is just one more tool to use when evaluating different funds.

Turnover - Do you want a mutual fund that is constantly buying and selling stocks or do you want an investment that buys and holds its stocks for a long period of time? Many funds say that they are long term investors but still have high turnover rates. Check the prospectus or information site you are using to compare turnovers. High turnover means higher commissions and expenses.

Holdings - This is one of the best ways to see what types of stocks your fund buys. Each fund is required to report its top 10 holdings each quarter, along with the percent held of each. Look at the list of top stocks. Are they too concentrated? Not concentrated enough? Are they all in the same sector? Are they chasing currently popular stocks? Are they international, domestic, large cap, etc? Compare the top holdings of each similar fund you are contemplating. Make sure that the same stocks aren't in each of the funds. For example, a stock like Microsoft could be found in growth, value, large cap, technology and many index tracking funds. Overall, the top holdings should give you one of the best answers as to whether or not you want to buy it.

Past Performance - This information can be found in any prospectus, charting service (like BigCharts.com) or mutual fund screening tool (like Yahoo or E*Trade). Look at the past performance compared to it's benchmark and compared to other funds you are looking at. If the performance is much better or worse than its peers, figure out why. And remember, past performance is not an indicator of future performance. There are many reasons why a fund has performed better or worse than its peers. For example, many funds that have done well over the past have often been invested heavily in certain sectors that have done well. Although these funds have performed well, they may have also taken more risk and could be currently exposed to downside risk if that sector goes through a down cycle.

With that said, past performance shouldn't be used as the main reason to select a mutual fund. However, by studying the past performance, you should be able to gauge what kind of returns are likely in the future. For example, two growth funds that appear identical could have vastly different returns over time. One might vary between -10% and 15% returns per year while another varies between -25% and 30% returns. Difference like this are probably a good indicator of the type of inherent risk and return that you can expect from those funds.

Fees - Once you've narrowed the funds you like down to a short list, start comparing the fees. Look at the load and the management fees. We recommend that you never buy any fund with a load (a load is a fee charged to buy the fund that is in addition to an annual management fee), unless you really, really like the fund. Loads are typically used to pay salespeople and financial advisors and you shouldn't have to pay these if you are buying on your own account. Regarding management fees, they vary from about 0.5% to upwards of 5%. We recommend that you find a fund that charges 1.5% or less. Remember, the management fee comes out of the fund each year, so if the total return on the fund is 8% and the fee is 3%, they've taken away 38% of your profit!!!

Minimum Investment - Finally, look at the minimum investments for a fund. Some minimum investments are $10,000 or more, so before you decide on a fund, make sure that you can meet the minimum investment criteria. For IRAs, this amount is often lowered so if you really want a high minimum fund, you could invest in it through an IRA.


-- ABC Stock Investment --


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Analyzing Mutual Funds (Part 1)

Mutual fund investing can be overwhelming. There are hundreds of mutual fund companies and thousands of funds spread across hundreds of different market sectors. Our method of analyzing mutual funds is rather simplified but should yield as good of results as many financial advisors can give. To find the right mutual fund, research using the following methods:

Determine the Mutual Fund Sector(s) to Invest In - Should you invest in large cap, small cap, growth, value, bonds, international, health care, technology or other sector funds? The answer depends mainly on how much money you have to invest. If you have several hundred thousand dollars to invest, you should diversify your mutual funds over a dozen funds or more, with as little overlap as possible between the mutual funds. In this case you could choose many specific sector funds if you prefer. If you are just starting out and want to invest a few hundred or few thousand dollars, then you should stick to one fund that is general in nature. In other words, the more money you have, the more variety of mutual funds you should purchase.

Also, you should pick your mutual funds based on your age and your investment goals. If you are simply speculating, you'll want to stick with pretty specific sector funds. This increases your risk and chance of higher return. Also, the younger you are, the more risk you can withstand in your portfolio. Regarding age, the older you are, the more diversification you should take. For example, if you are nearing retirement, you'll want a large portion of your portfolio invested in bond mutual funds. Take this information into account with the information from the previous paragraph and use them together. For example, if you are young and don't have a lot of money to invest, you should pick one or two general funds that replicate the overall stock market. If you are older and have lots of money to invest, you should own several funds including both foreign and domestic stock and bond funds.

If you know what sectors of the market you want to invest in, you can determine your fund sector based on personal preference. For example, you may believe that technology, oil, or healthcare stocks are poised to rise faster than the rest of the market. If this is the case, and you are okay taking the extra risk, then you could invest in specific sector funds that match your beliefs. Often, it is a good idea to invest your money by the book (generally accepted investment philosophies, i.e. diversify, diversify, diversify), but it also makes sense to invest most of your money by the book and invest the rest in sectors that you find particularly appealing.

With an idea of what type of funds you want to invest in, it is time to narrow down the list to a group of fund families that you find acceptable.

Find Acceptable Mutual Fund Families - You'll want to pick mutual fund companies that have a wide variety of options, low fees, no loads and most importantly, a great reputation. I usually choose the large mutual fund companies that have avoided any scandals, but small fund companies can be just as good if not better. By selecting large companies you can choose between many different mutual funds under one family. Also, large mutual fund companies often charge lower fees and have better insider trading and fraud protection programs. Most importantly, a larger mutual fund company doesn't rely on one single portfolio manager for all of its funds. That means that just in case the manager leaves the firm, there will still be several other capable managers to take over. Our favorite mutual fund companies (at the time of this article) are Vanguard and T. Rowe Price - they both have no loads, low fees, good reputations and a large variety of funds. Once you've done your research and have formed a list of several fund families, it's time to pick your specific funds.

-- ABC Stock Investment --
(To be continued)


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