Stock Market Warning Signs

I do not claim to be an especially smart man. The investment world is littered with "smart" people who have gone broke because they thought they had it all figured out.

It's called hubris — when you think you know so much that you stop looking for reasons you might be wrong.

One of the best examples was the Nobel Prize-winning economists who started a hedge fund called Long-Term Capital Management (LTCM). Their computer models worked great, scalping a few pennies each off of trillions of dollars of bond trades. And so long as their fundamental assumptions about their trades didn't change, they made money.

But when Russia defaulted on its bonds in 1997, LTCM blew up in spectacular fashion. These Nobel Prize winners were leveraged to the hilt on the assumption that bonds never default.

But really, that's a stupid thing to think. It may be difficult to pinpoint exactly when it will happen, but you can count on the fact that at some point, some country will be unable to pay its debt. To wager billions otherwise is just insane.

LTCM was leveraged so deeply that its failure shook the global financial system.

It was the same when insurance company AIG wrote insurance on trillions' worth of mortgage derivatives. The assumption was that U.S. home values would never decline and that mortgage default rates would never go above 2%...

Once again, the global financial system was brought to the brink of disaster. And seven years later, it hasn't fully recovered.

We can blame the Fed, mortgage companies, Congress, banks, and homeowners — but the human tendency to assume that we've got it all figured out was the real cause of the financial crisis. So you can bet it's gonna happen again.

Can't See the Forest

Even the "smartest" people can get so focused on the details, so consumed by the specifics of their area of expertise, that they simply can't see the big picture.

But that doesn't mean the big picture doesn't exist.

I'm not sure I even want to be a smart man if it means getting so focused on the trees that I can't see the forest. A couple times a year, I might come up with a truly inspired idea. The solid investment results I generate for subscribers to The Wealth Advisory are mostly the result of hard work: I do the research, I run the numbers, and I let them tell me if a particular investment is a good idea.

My best asset is experience. I've seen a lot in the stock market over the last three decades: the Asian currency crisis in the '90s, the Internet boom and bust, two Iraq wars, the post-9/11 recession, an oil super-spike, the Alan Greenspan Fed, the subprime mortgage crisis, interest cuts, hikes, and so on.

I knew stocks were bottoming in March 2009. And I knew beyond a doubt that the ensuing bull market would last years...

But there's something I don't understand right now: I am troubled by my inability to reconcile one particular chart with what I am seeing in the stock market.

Here's the chart that is keeping me up at night...

Click Chart to Enlarge

It's not just one region. Asia, Europe, North America — manufacturing data around the world is coming up short of expectations. At the same time, the S&P 500 and the Nasdaq are hitting new all-time highs.

New highs for stock prices are usually assumed to mean investors see better economic growth ahead that will allow companies to sell more stuff, increase revenue, and make more money. And if you simply pay attention to earnings, the fact that around 75% of S&P 500 companies are beating first quarter earnings expectations probably makes you feel okay about stock prices.

But for me, the fact that right around 50% of S&P 500 companies are missing revenue estimates is a problem. Companies aren't selling as much stuff. Manufacturing activity is falling. Durable goods orders are falling. U.S. business equipment spending has fallen seven months in a row.

U.S. economic data is missing projections by the most since the financial crisis. Something's got to give here. Either economic data has to do an about-face and improve, or stock prices have to come down.

Earnings are the lifeblood of the stock market. When earnings are growing, stock prices can move higher as investors see better times ahead. When earnings are not growing or shrinking, investors will no longer pay higher prices for stocks.

Surprisingly, economic data is not always perfectly correlated to growing earnings. When interest rates come down, stock prices can rally even if economic data hasn't improved. And if economic data falls but not as badly as investors expect, stocks can also rally.

But today, with stock prices at record highs and the Fed mulling rate hikes, it's a bad time for the data to head south.

Money is Leaving

Adding to my concern is the fact that money is coming out of the stock market. People are selling.

In nine of the last 10 weeks, there's been a net outflow, as this chart from Bank of America shows:

So far this year, investors have pulled a net $79 billion out of the S&P 500.

That in and of itself isn't a complete disaster. People sell for all kinds of reasons. It's not uncommon for people to have to sell some stock to raise cash for their tax bill, for instance.

But when economic data is weakening, GDP forecasts are coming down, corporate revenue isn't growing, and stocks are at record highs, I start to worry that the conditions are perfect for a 10% correction.

Of course, there are no guarantees. Maybe economic data starts to improve... maybe companies can actually start selling more stuff and earning more money... maybe they can grow into their lofty valuations...

Maybe.

Source : http://www.wealthdaily.com/articles/warning-signs/6066

Clueless About Stock Investing? Get Started With These Essential Stock Investor Tips

Many people start their life as a stock investor the wrong way. It happened to me. Everyone I knew were making lots of money in the market. I thought it was so easy to make money just by listening to market tips. But the truth will always reveal itself when the market correct. It become clear that the only thing easy is how easily your money can disappear there.

These are wrong ways to start your journey as a stock investor. It is not too late to change. To start off on a sound footing you will need to have some tried and tested techniques before participating in the stock market.

It could be bit technical for some people to understand, so let’s break it down.

Master These 10 Techniques Before Becoming A Stock Investor.

1) Education

Most people need a proper education before they can find success in whatever they do. The same with the stock market. If you are looking to become a stock investor then the first step is looking for a stock investing education.

Learn about how to analyse a company businesses and calculate the real worth of a business. Have a proper education before starting your stock investor journey.

2) What Stocks To Buy?

There are thousands of stocks listed in the stock market. The most popular stocks are dividend stocks, growth stocks blue chips and penny stocks. If you are a stock investor you will look for stocks that have potential for capital gains (rising share prices) and giving good dividends.

The stocks can only do that if they have a good business and continue to generate good profits every year. On the other hand, penny stocks can offer massive capital gains (much more than good stocks) but these gains are not sustainable because they are due to speculation. What stocks to buy? The choice is yours.

3) How Much Capital To Invest?

Decide early on how much capital to put into stock investing. If you have $50k savings you should not be putting all of the $50k in the stock market.

Keep at least 30%-40% for personal emergencies and some cash into an “Opportunity Fund” if the market corrects. Don’t put everything in the stock market!

And above all, don’t use margin finance and loans to invest in the stock market. It can hurt your finances badly if the market decide to drop.

4) Is It The Right Time To Start Investing?

Although many people think that long-term investors need not time the market won’t it be nice if you started when the market is at a low point rather than at all-time high? What cycle is the market right now? Have you heard of the Malaysia stock market investing cycle? This phenomenon comes around every 10 years in Malaysia. Knowing this beforehand could make you a richer stock investor.

5) Spare Time

Having enough spare time is a critical element in stock investing. If you have limited spare time then you have to be a passive investor and cannot be an active or aggressive participant in the stock market.

It is because spare time is needed to conduct many activities such as stock research, read up on news, look at stock charts, monitor stock prices and ongoing learning to upgrade your skills and knowledge.

Stock investing is a serious business where you are learning something new everyday. Many stock investors ignore this to their peril.

6) Good Resources

Good resources refer to the guidance and information you will need to keep your stock investing up to track. Is it a stock market blog, money magazines, authoritative stock market websites or a stock market group you can join? The purpose is to gain reputable news and in-depth knowledge about the stock market.

7) Online Account

A good online account helps an investor make better investing decisions. It should have adequate online security, offer low trading commissions and tools to help the stock investor to make good decisions on purchasing and selling stocks. Choose an online account wisely because it is an asset to a stock investor.

8) Age Factor

Are you 30 or 50 years of age? A 30 something person have a different set of investing strategies compared to a 50 year old looking to accumulate enough money for retirement later.

Unfortunately you can see there are many people in their 50 investing in the stock market like a 30 year old. They aggressively purchase speculative stocks with their savings hoping for a big gain.

It is the wrong way to investing as stock investor in their 50 should NOT be speculating but instead using passive low risk investing strategies to increase their incomes.

9) Paper Trading

Many people skipped this process called the “testing period” and regret it later. It is a time where you go LIVE and test out your investing strategies to see if they work in real life or not. In USA, they call this “paper trading” which the account is loaded with virtual money.

In Malaysia, you don’t have it yet. But you can always make a trade on paper and keep track of this. If you are not making money investing in a virtual account, there is a big chance you will also lose money in a real trading account.

10) Knowing Yourself

Many people who failed say that they failed because they could NOT keep their emotions in check. In the stock market your true character will reveal itself, trust me. If you are greedy in the stock market, it is because you are greedy in your real life.

Learn more about yourself before you start investing. Learn all your strengths and weaknesses and how to overcome them. In the stock market you are your own demons. Knowing yourself beforehand will make you a better stock investor later.

Conclusion

Many stock investors start their investing journey the wrong way. They end up losing badly in the stock market and they blame the market for being a scam.

However, it is not too late to change all the wrong ways. Things can easily be fixed with the proper training and education. Mastering some tried and tested techniques before you start investing can help you to the right footings to investing success later.

The Coffee Can Portfolio

If I were given $10,000 today, how would I invest it? I would build a coffee can portfolio. As you’ll see, it is an elegant and simple solution to a set of knotty problems.

Those problems are largely behavioral issues of our own making. For example, most investors tend to buy high and sell low, the opposite of what you should do.

One of my favorite stories in this regard involves Ken Heebner’s CGM Focus Fund. It was the best U.S. stock fund of the decade ending in 2009. The Focus Fund earned 18 percent a year for its investors, beating its nearest rival by more than three percentage points. Yet according to research by Morningstar, the typical investor in the fund lost 11 percent annually.

How? Investors tended to take money out after a bad stretch and put it back in after a strong run. They sold low and bought high. Incredibly, these people found the best fund you could own over that decade and still managed to lose money.

This is all too common. Investors are bad at timing their buys and sells. People get emotional. They chase hot stocks. They can’t wait to grab gains. They’re impatient and too focused on short-term results.

Also, most people trade way too much. All that activity smothers their returns. Brad Barber and Terrance Odean showed this in a famous 2000 paper titled “Trading is Hazardous to Your Wealth.” Their conclusion: “Individual investors who hold common stocks directly pay a tremendous performance penalty for active trading.”

All this trading incurs costs. You pay commissions, which are often slight but can still add up. You pay bid-ask spreads. You pay taxes. (Although you can shield this liability in a tax-free account.) You pay fees if you invest in any mutual fund. These fees go a long way toward explaining why most mutual funds have trouble beating an index like the S&P 500.

In short, the way most people invest is the exact opposite of what you should do. As Jerry Seinfeld told George Costanza: “If every instinct you have is wrong, then the opposite would have to be right.”

Which brings us to the coffee can portfolio.

A money manager named Robert Kirby came up with the idea in 1984. He wrote about it in an essay for the Journal of Portfolio management. In it, he tells the story of how he managed the portfolio of one client for about 10 years, and then her husband died.

She inherited his estate and told Kirby she would add his portfolio to her own. Kirby saw the list of stocks in the husband’s portfolio and wrote, “I was amused to find that he had secretly been piggy-backing on our recommendations for his wife’s portfolio.”

But then he saw something that shocked him. The husband had followed Kirby’s advice – with a twist. “He paid no attention whatsoever to the sell recommendations,” Kirby wrote. “He simply put about $5,000 in every purchase recommendation. Then he would toss the certificate in his safe-deposit box and forget it.”

Well, the results were quite interesting. The husband had a number of small stocks worth less than $2,000. But he also had several worth more than $100,000. And he had one holding worth more $800,000. This one holding alone exceeded the value of his wife’s entire portfolio. It was humbling for Kirby, as you might well imagine.

Hence, the idea of the coffee can portfolio. The strategy simply amounts to buying stocks and socking them away in a proverbial coffee can for 10 years. Kirby explains that the idea harkens to the Old West, when people used to put their valuables in a coffee can and hide it somewhere.

The success of this portfolio depends entirely on what you initially put it in. This reduces the investment problem down to its core. What should you buy knowing you can’t sell it for 10 years? My hunch is with a little reading and thinking almost anyone can come up with a promising list of five to 10 stocks.

Make sure you own a variety. If you pick just five, make sure they aren’t all oil stocks, for example. You also want to avoid faddish stocks or things that look like they might not be around in a decade.

It’s not easy. But it removes a lot of the obstacles that prevent people from doing well. There are no transaction costs after you set one up. There are no capital gains taxes to pay. There are no investment advisers to pay, either. (Thus it will never be popular with investment professionals). There is no trading, no fiddling around trying to buy low and sell high. You simply decide what goes in the coffee can today and then you go on about your life. Open in 10 years and see what you have.

Source : http://www.washingtonpost.com/news/get-there/wp/2015/03/13/what-to-do-with-10000-try-an-old-fashioned-coffee-can-fund/

KLCI 10 Year Cycle

All markets have cycles. They will go up, peak, go down and then bottom. When one cycle is finished, the next one begins.

The same theory apply to our stock market. It is a fact in the stock market investing cycle, the key to making big money is to buy at the bottom and sell what you have at the peak.

Those who have experience with stock market investing know the boom and bust cycle the stock market goes through in Malaysia. Many analysts have their own time frame of the stock market investing cycle; some say 3 years, others say 5 years but to me, I can vouch for the KLCI 10 years calendar cycle. Let me explain in-depth with some events that had affected the Malaysia stock market in the past.

History of the KLCI

The modern day Stock Exchange of Malaysia was formed in 1964 and I have below, each of the 10 calendar year boom and bust stock market investing cycle which happened.

1960 – 1970

1969 – May 13 race riots in Kuala Lumpur sent the stock market crashing!

1971 – 1980

1974 – Arab oil embargo making oil prices shoot to all-time highs. This cause stock markets all over the world to crash due to very expensive oil.

1981 – 1990

In this period there were 2 major bust and 1 minor bust stock market investing cycle.

1985 – The Pan Electric crisis which saw the stock market close for 3 days and sending the market into a tailspin.

1987 – US Dow Jones Black Monday stock market crash. When the US market crash, our market followed them down!

1989 – China Tiananmen Square protests leaving hundreds dead and thousands arrested in China. Our stock market dropped sharply in sympathy with the protests and chaos.

1991 – 2000

In this period there was 1 minor bust and 1 major bust stock market investing cycle.

1991 – 1st Gulf War, Operation Desert Storm – it cause oil prices to spike and later stock market dropped sharply because of the war lead by the US against Iraq.

1998 – Asian Financial Crisis. Many companies suffered heavily and the stock market crashed leaving most investors with heavy losses. The worst stock market crash I’ve experienced since 1987.

2001 – 2010

In this period there were 2 major busts and 1 minor bust stock market investing cycle.

2001 – Sept 11 Twin Towers terrorist attack in New York. This lead to the near collapse of the US stock market due to panic selling from the attacks. Unfortunately, our market followed them down!

2003 – US invasion of Iraq. It cause the Middle East area to heat up and lead to high oil prices. Our stock market dropped sharply.

2008 – US Subprime Financial Crisis leaving many US banks and brokerages bankrupt. Our stock market followed the US down in a major correction!

What will Happen in the Next 10 Years?

Ever since the last major bust in the 2008 US sub-prime crisis, the market have been on the boom cycle. So now is 2015! ... and we had 6 years of stock market boom cycle without a major crash.

If you believe the 10 year boom bust stock market cycle theory, you know the boom cycle will end some day. So don't be surprised one day within this 10 calendar year, the stock market will experience a major crash as part of the investing cycle. Be prepared!

What Special Forces Can Teach Us About Investing

When I was a young Army officer (well, a 2nd Lieutenant, anyway, which only other 2nd Lieutenants believe to be a “real” officer rank) I was assigned to a Psychological Operations (PSYOP) Group. PSYOP doesn’t exist in the Army today; political correctness has softened the harshness of Psy War (Golly, “harshness” as an element of warfare? Perish the thought). It’s now called Military Information Support Operations.

Whatever we call it, the job of the Psy Warrior is to either induce or reinforce behaviors favorable to United States national objectives, assuming of course that the United States leadership actually has objectives (and can articulate them.) We trained with and deployed with other special operators so it was a challenging and exciting job, but I noticed that the Special Forces (Green Beret) teams seemed to have even more fun and adventure.

I was attached to these teams but not a real member of the team, so after a year in my first assignment I began training to become a Special Forces officer. In those days, there was the Army and there was Special Forces. That is to say, the common wisdom back then of Big Green (the conventional Army) lay in the fact that everything was hurry up and wait; that there was an SOP (standard operating procedure) for everything; that prior ways of doing things were proven and therefore to be duplicated whenever possible and “this is the way we do things around here;” and that the job of the Infantry was to fight and someone else would take care of getting the beans and bullets to us.

I learned very quickly what makes Special Forces different: all of these shibboleths were stood on their head. I think many of those lessons learned can stand us in good stead as investors, as well. Lessons like…

1 — In unconventional warfare, there is no hurrying the process. It takes time to build relationships with the indigenous population, more time to train them, and more time to test them and prove to them that you will die alongside them if need be. This is a continuous process; it moves as quickly as can rationally be done but it is the antithesis of hurry up and wait.



2 — There are no SOPs. Sure, in Vietnam you might have heeded the British experience in what was then Malaya, but there is nothing “standard” about dealing with a different culture, new information, and situations and terrains that are unique to the job at hand. Your response to a situation may be informed by others’ experiences, but it is your responsibility to determine what makes this situation different and adapt to it. “Improvise, Adapt and Overcome” is the SF mantra, not “What’s the SOP?”

3 — Nothing is ever “proven” just because it worked somewhere else 5 times in a row. If that were the case, we’d still be using the Greek hoplite or Roman phalanx in fire and maneuver situations. Or, as succinctly stated by one fine NCO instructor I had when I looked around at the three items and one tool I had to perform a particularly difficult training mission, “Stop looking outside yourself for resources. Your most important resource is your brain. Use it.”

4 — Special Forces teams live off the land most of the time. There are resupplies of essentials like ammunition as the situation on the ground allows but the resources that are native to the area are those most often used. Nobody drops SF troops bottled water. Unconventional warfare means you drink what the indigenous population you are training and fighting alongside drink and you eat what they eat. You never have enough of anything so you must constantly reallocate scarce resources to get the biggest bang (literally) for your buck.



How does understanding these distinctions help us become better investors? Let me count the ways…

1 — Investing is a marathon, not a sprint. Having a plan and sticking to it for as long as it makes sense is the way to succeed. Slow and steady wins this race every time. If you are 80 years old and suddenly decide you have to make up for lost time, the market is no place to do it. I have had two difficult periods in my 40 years in this business, including one in recent years when I underperformed. But my eye was always on the long term, never on doing something stupid to try to rapidly over-compensate for something already done. I always remember that, like every facet of unconventional warfare, we must constantly learn, tweak, use what is valuable and discard what worked somewhere else or at a different time but is no longer working. There is no hurrying the process. The faster you go and the more anxious you are to chase chimeras, the less likely your chances of success.

2 — There are few SOPs that mean anything in investing. Yes, the market over any 50-year period returned “x,” but how does that knowledge help you today? Are you supposed to believe that “x” is some sort of standard now? Do you have 50 years of investing left? Challenge every “sure thing” or “guaranteed path” to success. Take “As Goes January, So Goes the Year” as an example of an SOP that some investors use by which to invest or not invest. Back in January, I wrote disparagingly of the propensity to make something of the fact that the first 2 days in January were down, with some gurus noting that was a likely harbinger of a down year. Then it was the First 5 January Days Down Indicator, then, “If the month of January is down, it is likely the entire year will be down.” Of what possible value is an SOP like that? If you had sold in January, you’d have locked in a sizable loss and missed February, the best month in nearly 4 years. The year may still end down, of course, but the point is: each day in the market you must Improvise, Adapt and Overcome. That doesn’t mean you need to “do” something every day; maybe you simply decide that your current approach makes the most sense and therefore you’ll stick with it. But a truism, cliché, or SOP will not lead to your success.

3 — Right now, Robert Shiller’s Cyclically-Adjusted-Price-Earnings Ratio (CAPE) is in disrepute because the market has clearly overshot where it “should” go based upon where it has typically gone in the past before correcting. Does that render CAPE invalid or of little interest? Heavens, no. The intelligent investor, like a good Special Forces A-Team, considers all the possibilities as having merit at some time — but neither shackle themselves to any one path for life (and then be as angry as a spurned lover when, this time, it doesn’t work out the way it has in the past.) Nothing is “proven” until it proves itself this time.

No one knows what will grab the popular imagination and what will not, at least not before it happens. Just because some indicator worked before doesn’t mean it will work today. There’s a reason I have returned to my reallocation roots after dilly-dallying around with some advanced quant theory which left me poorer than I was before! By diversifying across sector and asset class, we are protected from those days when everything does not go up in beautiful concert — and those days are more numerous than not!

What makes the markets so interesting is that every day they make fools of some and poets of others. (Some days, we are one and the next day the other…)

4 — Like a Special Forces ODA (Operational Detachment “A” — what I had the honor of commanding back when we called them A-Teams,) you too must reallocate scarce resources. Unless you have unlimited wealth, you must decide between A or B, X or Y. And you must decide when to expend ammo and in pursuit of which targets; you can’t just waste it on some whim. That’s what strategic allocation ensures.

Allocation of your financial resources, and reallocation as appropriate, are constant logistical challenges we all face. In this case, you are the one on the financial battlefield. It is your money and your future that is at stake. I’m pretty certain, as nice a guy as he may be, if you followed Warren Buffett into Tesco (TSCDF), he won’t be sending you a check for the difference...

Source : http://www.talkmarkets.com/content/stocks--equities/what-special-forces-can-teach-us-about-investing?post=60755

The Guillotine and The Sandpaper

It's one of the biggest questions in the market right now... And we're worried lots of people are getting the answer wrong.

The question: Is it time to buy oil stocks yet?

In late July, we warned DailyWealth Traders that crude oil was due for a decline. We pointed out that sentiment (as measured by fund-manager positions) was extremely bullish toward oil, which is a bearish signal.

Since our warning, oil has crashed. It's fallen from $102 per barrel to $45 per barrel. As contrarian traders who hunt for crisis situations, oil has been on our radar...



Some folks are already buying oil stocks. They believe they've hit bottom. For example, top financial weekly Barron's recently ran a cover story that encouraged readers to buy a handful of oil stocks. Many of the talking heads on financial television say they're buying oil stocks.

Other than buying them for a very short-term bounce (like 1-2 weeks), we recommend NOT buying oil stocks right now. There's a great chance some "sandpapering" is on the way.

And it's important that you know what sandpapering is...

In June 2013, we published an essay in DailyWealth Trader on "The Guillotine and the Sandpaper." In the essay, we explained the idea...

It was first described by legendary market analyst Bob Farrell...

You start with a dramatic drop [in asset prices]. Prices fall 20%, 40%, even 70%. That's the "guillotine." Then comes the "sandpaper": a period where prices move up and down without going much of anywhere. This go-nowhere action exhausts anyone who is still left holding. Eventually, everyone gives up. When there are no sellers left, prices can start to rise.

In other words, the guillotine is what happens when a market suffers a sharp selloff in a short time... and sets up an opportunity to trade a recovery. But before the recovery takes place, the asset often spends months or years moving sideways. That's the frustrating sandpaper phase. It's just how the market works.

Consider our huge winning trade on aluminum giant Alcoa. In 2011, Alcoa suffered a near-50% drop. Instead of rebounding quickly, it "sandpapered" shareholders for two years. We waited... and jumped in right as the sandpapering ended. We made 80% in less than a year. You can see sandpaper phase in the chart of Alcoa below:



Or... consider airline stocks over the past four years.

In 2011, airline stocks suffered a huge 45% drop. And while they ended up recovering and running higher, they spent more than 15 months trading sideways. They spent more than 15 months "sandpapering" traders who bought right after the drop. Then in late 2012, airline stocks started moving higher. You can see that sandpaper phase in the chart of leading airline Southwest Airlines.



Again, sandpapering after the guillotine strike is usually how the market works. It takes time to absorb the shock of lower prices and form a bottom.

And since many folks are still bullish on oil stocks today, we believe they'll trade sideways (or even lower) for at least several months. It could take more than a year for the sector to digest its huge recent loss... and frustrate the people who just bought shares.

You can see the guillotine in this two-year chart of the Dow Jones U.S. Oil & Gas stock index...



Now that oil stocks have suffered the guillotine strike, expect a sandpaper phase. The vast new supply of oil from North American fracking should keep prices below $60 for years.

These lower prices will start filtering through oil-company income statements and balance sheets. Companies will report much lower asset values. They'll start reporting shockingly low earnings. Some of the companies that have taken on lots of debt will go bankrupt. We're sure a few companies will be busted for questionable accounting and overstating reserves (it always happens after major tops).

There will be a relentless supply of bad news from this sector... which will keep the investment public away.

Of course, we can't know how long the oil sector will take to frustrate the people who just bought in. But it's likely to be at least six months. We're sure experienced short-term traders (like our friend and colleague Jeff Clark) will be able to trade short-term rallies. But for traders and investors with longer time horizons, it's best to avoid oil stocks right now. They're due for a sandpaper phase.

When oil stocks finally rally, the gains could be enormous. But it's best to stand aside right now. We're monitoring the sector closely... And we'll update you as it plays out.

But for now, we'd much rather focus on sectors that will benefit from consumers paying less for gasoline... Stay tuned for more on this idea.

Regards,

Brian Hunt and Ben Morris

Source: http://www.dailywealth.com/2921/what-you-re-not-hearing-about-oil-stocks

Day Trading Pitfalls

YOU are up at 6.30 am every morning from Monday to Friday, look through your account, scan the latest business headlines for stocks that are making news of the day, look at their charts and then make your picks for the day. For those who are curious as to know what you are doing, you are someone involved in stock market day trading.

Many people say they enjoy stock market day trading because they can make a lot of money from this. I’m sure some people find stock market day trading to be a very lucrative career – people are known to make thousands every day. The flip side is they can also lose a lot of money if they do NOT know what they are doing!

I know trying to convince people that stock market day trading is NOT for them can be a tough call but if you keep in mind on these 6 things I have said, you will be able to see why stock market day trading is just not for everyone.

6 Reasons Why Day Trading Is Not For Everyone

1. Day Trading Require Fast Reflexes

A day trader is a person buying and selling stocks within minutes or hours and selling by the end of the day - that means he or she has to make super fast reflexes in the stock market. Another flip side – they usually have to bet very big - a few minutes or a few seconds too late could mean losing big!

2. A Very High Risk Game

Stock market sites like Market Watch will tell you that only 5% of people actually make money in stock market day trading. To put this into perspective, that means 95% will end up as losers in this game! If you are someone just looking to make a comfortable living from the stock market, think long and hard before taking up day trading.

3. Very Difficult To Master

It’s very difficult to learn how to day trade especially in the local stock market. Most people start by reading a book they bought over the internet. Others pay big money to attend day trading courses. Can they make you a good day trader? I doubt it. The best advice I have read and seen is to find a mentor who have been day trading successfully for 10 years or more.

4. It’s Very Stressful To Your Body and Mind

Stock market day trading can be very stressful to the body and mind. Day traders often complain they do not sleep or eat well. If you’re not healthy, then you should never ever day trade. After all you have many options – there are other stock market strategies you can use which are a lot healthier than stock market day trading.

5. The Game Is Rigged Against The Small Timers

Advanced technology employed by professional traders, hedge funds and institutions such as black boxes, high frequency trading and computer trading algorithms build codes and scripts to trade against you. They continue to find ways to make it harder and harder to make money from stock market day trading.

6. Require Lots of Spare Time & Hard Work

If you can’t be around from the time the stock market opens till it close, then you cannot be a day trader. Stock market day trading usually means you have to be around and eyes glued to the trading screen …until you close all your positions! And there is …waking up early to read the headlines and make your picks for the day.

Conclusion

Only around 5% of retail traders make money as full-time day traders. The probability of success is small even though the rewards are enormous. Do you want to day trade? I hope not.

Why Boring Stocks are More Profitable to the Pocket than Exciting Ones

This spring, a reader wrote to me with a complaint...

He was irritated with my coverage of "World Dominating Dividend Grower" stocks (WDDGs).

These stocks are too "boring," he said. Why pay to hear how these companies continue to do the same darn thing day in and day out?

If you're a regular DailyWealth reader, you know what I mean by "World Dominating Dividend Grower." These businesses are usually the No. 1 companies in their industries. For example, UPS is the No. 1 package-delivery company in the world. Wal-Mart is the No. 1 retail network. Intel is the No. 1 maker of semiconductors.

These companies have thick profit margins, fortress balance sheets, and pay out large and growing dividends. Because they are so good at what they do, and because of their dominant position in their industries, they are extremely resistant to outside competition. This allows their shareholders to safely compound their wealth over many years.

They are the ultimate safe haven in today's volatile market... even safer than gold. But according to the reader's complaint, there wasn't enough "new" stuff happening with these stocks to justify the time I spend telling readers about them.

It's extremely unlikely this person will ever make substantial money in the stock market.

You see, the urge for "action" is one of the hallmarks of the average stock market loser. Put bluntly, it's how poor people view the market. They see it as a place for "action." But investing isn't about action and excitement. That's what Las Vegas gambling casinos are about.

Only after someone grows to favor "boring" over "action" does he start thinking like a rich investor, rather than a poor one. You need to understand investing is about making money and keeping it safe, and that's what WDDGs do for you...

In fact, back in 2008, when the stock market fell 38% for the year, and more than 53% from its late-2007 highs, Wal-Mart returned 18%, and McDonald's returned 6%. Not all World Dominators performed that well in 2008, but they all did better than the overall market.

Yes, they're boring... But think about why they're boring.

They don't change much over the years. Coca-Cola looks a lot like it did 20 years ago, except it's bigger now. Same with Wal-Mart, McDonald's... and most other WDDGs.

Coke will continue to exploit the world's largest beverage distribution system. Wal-Mart will keep selling everyday goods at the cheapest possible price. McDonald's will keep selling fast food, based on what its customers demand. Boring. Very boring. But very profitable.

Contrast that with exciting businesses, like biotech. Most biotech companies don't have any sales, because they're just research companies. They usually wind up going out of business. Small exploration mining stocks are also exciting. And they, too, generally have no revenues... and most of them wind up worthless.

It's very hard to make money in exciting industries like biotech and exploration mining. But the WDDGs just keep doing the same old boring thing year in and year out... And their sales and profits grow almost every year, year after year, decade after decade. Their dividends keep growing every single year, year after year, for 10, 20, 30, more than 50 years in a row in some cases.

For investors, putting money into WDDG stocks is so boring, it's almost like putting your money in a plain old bank account... except this account can make you double-digit average annual returns over a long period of time, decades even... instead of the 0.2% you get in bank accounts these days. Over the past year, the World Dominators in my 12% Letter portfolio grew their dividends at an average rate of about 11.5%.

If you want excitement, go to Las Vegas. If you want to make money, invest in boring businesses that dominate their industries and pay higher dividends every single year.

Good investing,

Dan Ferris

Source: The article was copied from http://www.dailywealth.com/2059/you-wont-make-money-investing-actiong