Archives of “mutual fund managers” tag

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Why Most Investors and Nearly All Traders Lose Money

  
  Education
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I strongly suggest that you do not confuse being an Investors with being a Trader. I’ve been pointing out for many years that the Stock Market is greatly influenced by day-traders, flash-traders, program-trading firms, in for quick trades of a few hours, a couple of days at most, and back out again. That’s not Investing and certainly not Investing Wisely.

The problem for Investors is that they have for decades, for the most part, considered themselves to be Buy and Hold Investors, (married to the stocks and mutual funds) through both good times and bad. When they finally get discouraged, (and they do!)they get out, usually due to large losses, and they tend to stay out for very long periods. An excellent current example is / are those who have been on the sidelines since the big bear market plunge of October 2007 through early last year, not enticed back in for even part of the new bull market of last year plus.

They (Mutual Fund Investors) tend to listen to Wall Street saying they need to have a long-term perspective when their stocks and mutual funds are plunging 25% – 50% and more, and so hold on. When they do decide to ‘reposition’ their portfolio they tend to listen to mutual fund managers, and brokerage firm sales persons and spokesmen on TV shows and in magazines, advising them to buy a stock that should be 30% higher 24 months from now, without considering that it might first be 30% lower three or more months from now.

Historically (way back when) Buy and Hold strategies and long-term outlooks work well in secular bull markets, when there is /was much less downside risk, when bear markets are more spaced out, less severe, and short-lived. In secular bull markets the long term trend is up, and when bear markets end the market ‘comes back’ to its previous high in the next cyclical bull market and continues on to still higher highs, continuing to be interrupted by only occasional mild bear markets.

Those days are gone and possible gone forever.

It’s the cyclical bull markets that are temporary, not exceeding previous highs before the next cyclical bear market takes the market back down again. In both secular and cyclical bear markets Buy and Hold is probably the worst imaginable investment strategy. Not only does it not produce gains, but even the most determined Buy and Hold investors are likely to give up with the worst of timing, after their losses have become larger than they can handle either financially or emotionally. (more…)

The Secret to Trading Success

  
  Education
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secret1The most important thing you must learn in every market cycle  is where the money is flowing. It is flowing into the companies where the earnings are growing. As long as mutual funds have capital in flows instead of net out flows then they must put new money to work investing in stocks. If you want to make your job as a trader much easier then find where the flow is going. Mutual fund managers can not go to an all cash position they can only move money around. A bear market sinks most stocks because managers have to sell everything to raise money to redeem shares. In an uptrend they have to buy stocks with the incoming money flows. Where does this money go? It goes into the sectors and stocks that are in favor due to increased earnings in a sector and individual stocks that are dominating their sector and changing the world in the process. You want the leaders not the has been. You want the best the market has to offer. Where are consumers dollars flowing into? That is where the money is going. What companies have the best growth prospects? The stock can only grow in price if the underlying company does. Mutual fund managers are the biggest customers in the market when they start buying a stock that increases huge demand and price support.

Your job is to follow the big money, shorting in bear markets, going long in bull markets. Following the trend of what is in favor. Do not fight the action, flow with it.

Quit having opinions and start being a detective looking for the smart money, the fast money, the big money and where it is going now.

The Anatomy of a Trend: 10 Guidelines

  
  Education
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  1. A trend begins with capital flowing into an asset based on a perceived increase in the future value of the asset.
  2. Trends are identified by higher highs and higher lows for several days in a row or the reverse lower highs and lower lows.
  3. Moving averages can also identify trends based on a moving average sloping up or sloping down visibly.
  4. A moving average can also act as support or resistance for a stock as it trends in one direction and bounces off a key moving average.
  5. Trends tend to persist because the owners of the asset have no reason to sell and tend to just let their position ride causing the trend to continue.
  6. Supply and demand causes trends when you have a lot of dollars chasing a limited asset.
  7. In stocks, up trends are caused by mutual fund managers building large positions in their favorite stocks.
  8. Down trends in stocks are caused when institutions start to unload a stock or investors cash in their mutual fund shares during bear markets and managers have to raise cash by selling their holdings.
  9. Capital is always looking for great returns so they chase stocks with the biggest earnings expectations planning on the stock price following.
  10. Trends tend to persist until acted on by an opposing force. Sometimes this is as simple as running out of buyers or sellers of the asset.

The money is in the big trends, look for them, find them, and ride them until they end.

“The trend is your friend until the end when it bends” -Ed Seykota

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