Stockbullz.com Weekly Stock Newsletter #15
Stockbullz.com Weekly Stock Newsletter #15
June 23, 2006
“It’s my opinion but it’s your money!”
Dear Canadian Stock Investor,
This week featured a nice recovery on many of the resource stocks.
The HUI and XAU for gold stocks, 2 well tracked indexes are approaching their 30 day moving averages.
I will be watching very closely if they cross the moving averages or if they don’t garner enough steam and continue their downtrend.
I won’t try to predict what will happen because I don’t know. And any single analyst or writer who attempts to convince you with whatever evidence that he knows exactly what will happen in the future, you should take with a grain of salt.
That’s because nobody has a crystal ball. Life and the markets have this one feature that make constant accurate predictions impossible: unpredictability.
Who could have honestly predicted the 9/11 attacks? Who could have honestly predicted the right countries where maniac dictators have begun nationalizing resource properties?
Nobody I think. But they could have had substantial effects on your portfolio.
So I am no longer playing the prediction game. I’ll let the “experts” do that. I will try my ultimate best to only react to markets from now on.
Before I finish on the topic of predicting market events I want to give you a great quote from Mark Cuban:
“I mean look at the concept of price targets. Someone, analyst, mutual fund manager, whoever will come on and say, “I have a price target for this stock of XXX — which is up 30pct from here.” I see it getting there over the next 6 months. Yeah right. When someone tells me they know where a stock is going, I can only laugh and ask them why they haven’t mortgaged the house and put it all in the stock. Of course I know the answer. They don’t want to put their money in the stock; they want YOU to put YOUR money in the stock so the price of the stock they own goes up. Get long and get loud.
Why can’t we just admit they are pitching a stock and treat it like a trinket on QVC.”
Mark Cuban is a pure straight shooter and if you think about what he says, it is 100% true. Love him or hate him, he does offer some great pieces of advice. Read more of his commentary on stocks here.
Now let me offer some theories and reasons why trend following is not a main stream trading system:
1. Totally ignores fundamentals. So a trend follower could be shorting a stock that just experienced record earnings or he could be going long a company with no profits and tons of debt. This goes against what you have been brainwashed by the media.
2. Radically simple. Just tracking price movements seems way too simple to make money in the markets. We are brainwashed that you must do hours upon hours of “due diligence” before you buy a stock. But the problem is that in reality, companies with terrible fundamentals go up and many companies with great ones go down.
3. It’s a trading system that requires strict discipline. Again, media recommends “buy and hold” with no exit strategy whatsoever. And if you’re wrong, you should buy more because the stock with those great fundamentals you bought has just gotten cheaper. Trend Following is a numbers game too where only 40% of your trades will be profitable. So yes, 60% of your trades will lose money but as long as you are disciplined and cut your loses short you can still do very well in the markets.
4. It recommends going short as often as you go long. People who short stocks are portrayed as demons in the media. Shorting is seen as evil because shorting bets on stock prices going down and nobody wants that right?
5. Doesn’t require the whole analyst/glamour of the financial industry. If people learn that they can trade successfully by following queues from simple stock charts and moving averages, then they don’t have to read CFA’s research reports. They don’t have to watch ROBTV or CNBC to hear some fund manager discuss why he thinks stock X will go up and why you should buy it. Think about all the very high paying jobs that could be potentially eliminated if every investor just followed the trends…
That’s just the way I see it anyway.
In regards to trading moves this week, I covered on my YRI short position at a small loss because of a trend reversal and entered a new short position in A: Abitibi-Consolidated. This is just some newspaper recycler who’s share price is getting hammered recently. To be completely frank, I don’t know much more. Just take a peek at their chart and anybody could tell me that the trend is down. I might have shorted at the complete bottom or it could continue dipping down. I don’t know. My stop loss is a 30 day Moving Average crossover.
Like I said at the beginning, many resource stocks are approaching their 30 day Moving Averages so I have my finger on the trigger if some breakouts occur.
That’s about it for this week. Thank you for taking the time to read this and I wish you luck in your investing decisions,
Mike
Disclaimer: This letter is merely someone’s opinion. It should not be taken as investment advice. Through viewing this publication or accessing our site, you agree to hold Stockbullz.com, its operators, owners and employees harmless and to completely release them from any and all liability due to any and all loss (monetary or otherwise), damage (monetary or otherwise), or injury (monetary or otherwise) that you may incur. It’s your money, so you are ultimately responsible for any gains/losses you may incur. Do your own due diligence! Writer may own positions in some of the mentioned stocks.