Mail Bag

An archive of my responses to members questions, comments and suggestions.

Big Wall Street Myth: The Self Investor Can’t Be Successful

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 1

The following is a portion of an email sent to me from someone looking to get into the stock market and wondering how to proceed.  I have had a few discussions with her getting her started down the right path and she sent me the following over the weekend:

"Last night I had dinner in a wine bar, and next to us (my girlfriend and myself) sat a couple, and for some reason they wanted to talk to us.  Turns out the guy is a partner in a Hedge Fund …well anyway, I mentioned I have an interest in stocks and he suggested to me to stay away from the stock market, it will take all my money!  Find a nice mutual fund!  Ha!

To that I replied (ranted is probably a better description):

"Let me first say that I absolutely don’t recommend that the beginner start with forex and/or options.  Both are highly leveraged and can get fairly complicated.  If not careful you can wipe away your cash quickly.
 
I would master trading individual stocks on the long side first, then develop a short strategy (for profiting when the market falls), then move to options and forex once you’ve had a couple years of success.  That’s my opinion.
 
Regarding your dinner discussion I wish I was there!  This hedge fund manager has the view point of most "professionals" on Wall St.  "You can’t do it successfully on your own that’s why you need a professional such as ourselves to lose.. er I mean invest your money."

To that I say.. and let me be frank – bullshit!  You should have asked him what the 5 year track record of his fund was.  I’m willing to bet it was sub par at best.  Wall Street wants the potential self investor to believe that it’s not possible to make money without their help.  If the truth got out they would be out of business.  Just as they want you to believe that mutual and hedge funds are the way to go, they want you to believe that the buy and hold strategy is the far superior strategy.  Keep your money with us, dollar cost average over many years and we’ll make you rich.  Again, BS.  All it means is more management fees for them.  If you want to go the well diversified approach and dollar cost average just use index funds with a few good exchange traded funds.  Why pay management fees for a fund that is highly likely to under perform or at best match the return of the S&P500 over the long haul?.  It’s nonsense!
 
Just look at all the so called professionals who run mutual funds and under perform the market year after year.  How about all those hedge funds that are blowing up left and right because they forgot about "the hedge" part of equation and took on too much leveraged risk.
 
You ABSOLUTELY can make money in the market on your own.  Not only that but you can blow away the performance of mutual and hedge funds.  Why?  For one, the tools available to the self investor are increasingly on par with what’s available to the big fellas and much if it is free or affordable.
 
Perhaps the biggest reason that self investors can greatly outperform is due to the fact that you can be nimble and trade quickly in and out of small growth stocks.  Big funds take on such large positions that they must build them and liquidate them over several days to several weeks.  Furthermore, many of the high growth opportunities (in stocks below $15/share) are off limits to these funds because they simply aren’t liquid enough.
 
The self investor has major advantages and armed with the right knowledge and a few tools can kill that "nice mutual fund"!
 

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CANSLIM Inquiry; Model Portfolio Performance & Buy/Sell Alerts

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 1

A member recently wrote in with the following questions:

I came across your site the other day when searching CANSLIM. I find your site very interesting, and would like to ask you a few questions if you don’t mind.

1. How is your portfolio doing this year, and what’s the YTD return?
2. I am new to CANSLIM, in your opinion, will it be a good approach for casual trader?
3. In the beginning, I may need to follow your trade closely to get myself familiar with CANSLIM. Will you give buy/sell signal with reasons? Will you treat each trade the same in asset allocation, or differently because some may be more speculative play?

That’s all for now, and thank you very much for your time.

My Response:

Let me begin by saying that while I do use a CANSLIM approach to a certain degree, I use a much more flexible approach and implement my own variation- for example at times I use big momentum swing trades based purely on technicals when the time is right.  I also use extensive short trading during times of market weakness to profit on the other side.  So, while the core of my strategy focuses on buying the best companies and holding for several weeks/months, my strategy will ultimately depend on what the market gives me.  As far as cutting losses at 8% which the CANSLIM method recommends, again I choose to be more flexible.  Sometimes I cut my loss at 2% and other times it may be as much as 12%.  Generally, speaking though I adhere to the principle of keeping losses small.  This is critical.  My average loss over the past few years is right around 5%.

1.  The SelfInvestors Model portfolio is up just over 9% this year.  I’m going to have a tough time duplicating my 27.6% gain last year but given this incredibly volatile, sometimes irrational market I’m not at all unhappy with the performance thus far which is still more than double the S&P.  Each and every week I do a short review of the my performance in the Weekly Report released on Sundays.  I believe in complete transparency.  Hyping a few big winners while sweeping the losers under the rug seems to be the status of quo of many advisory services. 

2.  The CANSLIM approach is quite research intensive because you are focusing on technicals and fundamentals as well as gauging the health of the overall market.  Going this alone will consume much of your free time which is why I developed the tracking system and buy/sell alerts.  I do all the work and my tracking systems spit out the best candidates near a breakout or still in a buyable range.

3.  Absolutely.  All buy and sell signals (received within a few minutes of the transaction) come with a fairly detailed explanation of the trade and the size of each trade will depend upon the overall health of the market and the risk level of the trade.  For example a purchase in Cisco or Google will be much larger than a swing trade in a 3 dollar stock.

Here’s an example of a trading alert in Nastech Pharmaceuticals (NSTK) sent to members today:

"It’s been a very long time since I’ve initiated a QSP trade.  The conditions just haven’t been ripe recently and as I’ve said before I’m not going to initiate alerts for entertainment purposes.  There may be times when I go a few weeks without a new trade (although that will be rare).  While the overall market conditions remain volatile and uncertain making big bets on either side risky there is a sector that is seeing some big money coming in recently.  It’s possible that the next round of market leaders will come from this space.  That space is biotech.  NSTK is one such biotech stock that has seen some big buy volume behind it and it’s been featured in the #1 longs list for some time now.  I believe the time is right to initiate a small QSP trade in NSTK.  I’m in at 14.43 with a $10K position.

There are a few others you might look at in the sector such as IDP and ACEL.  I’ll have a special report on the biotechs for you this weekend."

Interested in the tracking databases, the model portfolio or email alerts of the SelfInvestors premium services?
Get all the details of each membership here:
http://selfinvestors.com/tradingstocks/memberships/

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some hard hitting, thought provoking questions

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 0

I’ve been so busy I nearly forgot to respond to being tagged by Chris (aka "the pirahna") Perruna, but then an hour ago I was tagged again, this time from a member of www.tagged.com which to me reeks of spam.  I have no idea who the person is that "tagged" me from this website but it served as a good reminder.  Yeah, I lean towards the optimistic side.  Anyway, on to a few questions that were passed on to me- what are my obsessions and why is that I do what I do?

Obessions

1. this site/my business – i’m a bit of a workaholic at times and have given up a lot in the last few years to build it so this may fall into the category of obsessive more than anything else

2. travel – love it, but haven’t had much time to do it – spent 6 weeks in Thailand a couple years ago and eventually plan to live somewhere overseas for 6 months out of year (my ideas are panama, mexico, ecuador, uruguay, argentina).  That plan has been pushed back several times!  Here’s me on the way to a camping trip in Thailand a few years ago:

3. music – living in seattle, i’ve been lucky to see some great local bands just a few steps from my door.  One of these days I’m hoping to put together a music page at the blog where I can share some of my favorite tracks of "undiscovered" bands.  The last show I went to was the Silversun Pickups a couple weeks ago.. probably one of my  top albums for ’07.  Not exactly "undiscovered" now, but still a favorite of mine.  Here’s a video from a set they did for Spin magazine.

 For more of a local flavor check out some friends of mine called The Maldives.  If you like your rock with a little bit of a country twang be sure to check them out and if you’re going to be in Portland in a couple weeks they are playing! They put on a fantastic live show.  They recently played a live set for the best radio station in the world!

4. the gym – does it count as an obsession if you’ve managed to get in there just 3 times in the past 8 months?
5. trading stocks – i think most people in this business would say the same thing.. it’s like gambling but with much better odds.  The downside? Void of cheap drinks and steak dinners.

Why Do I Blog?

1. helping others navigate and learn the markets – I sure wish investing blogs were around when I was learning this stuff!
2. interacting with other like minded people from all over the world
3. the hoards of cash I rake in from doing it (kidding)
4. hey, it’s not a bad marketing tool for the business I’m building
5. i enjoy it!

I’ll add one more question – An Embarassing (did I spell that right?) Moment

1. misspelling "street" (I said it so fast I said "d" instead of "t" ) at the district spelling be in front of several hundred people in 6th grade

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Tracking Upgrades and Downgrades

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 0

Question:

What source do you use for upgrades and downgrades.. or do you even mess with it?

My Response:

Upgrades and Downgrades are useful to know before the market opens.  Often times valuation downgrades can occur after a stock has run up significantly and act as a "sale" allowing you to get in to the position if you missed the break out.  However, it can be tricky to get in at the right time on valuation downgrades.  The very best stocks may bounce immediately after gapping down at the open, while others may continue selling for several days.  It does require quite a bit of experience in chart reading, specifically with the intraday charts.  On the opposite side, an upgrade can provide the catalyst the stock needs to break out from a base.

A paid service I have really liked is www.flyonthewall.com which is about $25/month.  They provide near real time alerts on upgrades/downgrades, analyst earnings comments, rumors, etc.  Real Time Traders provides a good free list of upgrades and downgrades at http://www.rttnews.com/marketinfo/g_minfo.asp?page=upgrades

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CNBC Stock Market Challenge

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 0

Comment:

I just went and did something unusual. I just entered the $1,000,000 challenge on CNBC. So now you have got to help me win. If I win, I will sign up for a lifetime membership with Self-Investors.

My Response:

Great! – people who win these things put all their eggs in one basket on highly volatile, bigger reward trades… much like the quick strike profit plays i highlight in the Stock Watch reports.  I’d say if you stick to the following you got as decent a shot as anyone!

1. stick to no more than a few stocks for your entire portfolio
2. buy stocks under 10/share, preferably under 5
3. pray that one or two of them double in price over the next couple months :)

With such a short time frame, this contest is about 20% luck and 80% skill.  But hey, you’re odds of winning a million dollars here are a heckuva lot better than buying a lotto ticket.. and it doesn’t cost anything.   Good luck!

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Using An Automated Buy Order: Buy Stops With a Limit

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 0

Question: 

I am a little confused. What does using buy stops with a limit mean?  Isn’t using the buy stop good enough?
My Response:
Using a buy stop will trigger an "at the market" order at a specified price.  For example, if you were away for the day but wanted to get into a stock that might break out such as HOTJ you could set your buy stop somewhere between 3.75 and 3.80.  As soon as the stock hits that price, it will trigger a market buy order.  Depending on how fast the stock is moving, how liquid it is and the execution of your broker you might get your order filled at your requested price or much higher.  Just because your buy stop was triggered at 3.75 doesn’t mean you’re going to get that price.  What the limit order does is keep the order from getting filled at too high of a price.  This is important.  If a stock is moving quickly you could get filled way above your buy stop price.  Placing a limit order assures you of getting a certain price.  The only draw back is that your order may not get filled at all.  But at least you’ve minimized your risk. 

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Profiting From Mergers & Acquisitions – Almost Pure Luck

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 0

Question:

How does an investor play the mergers and acquisitions game? When two companies are expected to merge, which stock should an investor buy?  How does an investor find the possible companies that may become acquired? The stock of the company almost always goes higher when it is announced.  Cramer mentioned 10 possible mergers on his show last night (20 companies).  Just wondered. Some of his ideas don’t materialize.

My Response:

It’s often times difficult to tell if a company may be acquired.. and it’s often just rumor or speculation which can move a stock.  The M&A game is mostly just pure luck unless of course you’re an insider who knows a little something.. which of course would get you into trouble with the SEC.  In a situation where a company is being purchased, you will almost always get a pop because the buying company will pay a premium.  In a merger situation of relative equals, it really depends on the situation and if the market thinks it makes sense.   Speculating on which companies may be bought out make for decent entertainment I suppose and he may just be right on a couple, but that alone is never a reason to buy a company.  The good news is that what you’ll find is that most of the companies that are being bought out and paid a premium for are exactly the companies that we are looking at.  Small, high growth companies that can add to the bottom lines of their larger counterparts.


 

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Technical Analysis: Importance of Looking at Multiple Time Frames

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 1

Question:

Thanks for the tips on reading the charts. I never knew a person was supposed to look at the weekly chart first. Maybe that is what I have been doing wrong?  Thanks.

I looked at the charts for AVTR just to see if I could see what you meant. Where was the resistance on it?  I guessed at about $65. Is that right? Why does it look like it is in danger of breaking down below support of the 50 day?

My Response:

Looking at the weekly first and narrowing down from there to the daily and then the intraday for buying and selling is key to understanding the big picture.  For example: on the daily it might appear that the stock is breaking out to a new all time high but if you look at the weekly you might see that it’s just part of a much larger base with lots of resistance in its path.  Stocks breaking out to new all time highs are much more bullish.
 
The resistance currently in AVTR is about 86- 87 which is the highs of the current base.  It looked like to me it was in danger of breaking below support because you see on Friday it moved lower with sell volume well below avg.  It closed a hair below support on Friday.  Today it continued that move and the bullish action is broken.  This is no longer a stock that would be considered for purchase.. at least not anytime in the near future.
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Tracking the Break Outs and Making the Purchase

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 0

Every once in awhile I get a request to send out alerts sooner so that members don’t miss the break out or get in at a better price.  When a high quality stock breaks out often times I will purchase in the Model Portfolio, which you will be alerted to within minutes.  Sometimes, by the time the mail gets to you, the stock has run up a few percent.  If you missed the ideal buy point and you see that the stock has run up 5% in 10 minutes, do not chase it.  It will come in and digest that gain.  HWCC has run up more than 4% in the last hour.   Rather than chase it, wait for your price.  It’s most likely going to digest that gain and test 26.50 or even lower.  If it doesn’t, forget about it – maybe it pulls back tomorrow and offers you the better price. .. or maybe it never does.  So what.  There are many other opportunities. 

With that said, how can you stay on top of these break outs yourself?  The first thing I would do is head on over to the email alerts section of the members area and set yourself up to receive the premarket report of top break out plays every morning before the market opens.  I would sign up for report #3 which gives you the top 20 stocks near a break out or in a buyable range (within 5% of the pivot).  Just add an email address and click activate.  It takes a couple seconds and you’re set up to receive the best opportunites the market has to offer every morning to your inbox.   Additionaly, you can set yourself up to receive an alert when the break out happens based on various parameters (there is a detailed tutorial there to help you)  Keep in mind though that prices updates in the database are delayed 15 minutes, so you may miss the fast movers (but I’ve found very few stocks actually run way up in that first 15 minutes and never offer a decent buy point).  If you’re using real time alerts this is more of a safety measure because you don’t need to set the alerts, it’s all automated for you.

What I would do is go to the Breakout Center, then click Breakout Watch and go to the bottom of the table and select download tickers to a text file, then import into a watchlist in your real time charting package, then set your alerts for each stock.  This might take 20 minutes and your done.  You can go about  your business and set alerts to go to your email, cell phone or buzz your desktop.  There are many packages but I use TCNet.  This is the platform I’ll be using for the real time platinum service which will be launched very soon.  During the trading day you’ll be able to join me to discuss the trade set ups during the day or general investing questions.  We’ll discuss the finer points of chart reading, particularly on a real time, intraday basis as well as purchase and sell points.

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