3 Types of Investing

Of course, it begs the question:

“What did Dan Zanger do to make so much money so quickly trading stocks?”

Especially since he was just an ordinary everyday guy with no formal training or experience.

Well, to answer that question, you need to understand this…

As far as we know, only three investing strategies account for all stock market returns.

The first of these is… Value Investing.

Coca-ColaThe most famous value investor is, of course, Warren Buffet. Value investing is a simple and proven way to make money in stocks.

You find companies undervalued when compared to their actual ability to turn a profit. You buy shares in those companies. You wait to see the share prices rise as the companies grow and turn higher profits.

Let’s pretend you were born in 1919. Your grandparents – Ma and Pa Jenkins – bought one share of Coca Cola stock for you at $40. The split adjusted value of that single share… with dividends reinvested… would be worth somewhere in the neighborhood of $8.7-million by 2011. Nice neighborhood!

Oh… and your one share would have grown to 129,000 shares. And you’d also be getting about $242,000 in annual dividend payments.

The downside of value investing is you have to wait it out. Sometimes decades. While riding the inevitable ups and downs of the market.

If the companies you invest in last, you could end up with a hefty portfolio.

Of course, you might be too old to do anything with the money… but… that’s another issue altogether.

The second is… Small Cap Investing.

Another simple and tested concept. You buy smaller companies with high growth potential. As they become bigger companies their share prices go up too.

You don’t have to wait as long with small caps to see a profit. But if you don’t pick the right ones you’ll lose money faster as well.

Pimples-B-gonePretend a fictional company named Pimples-B-Gone, Inc. comes out with a real cure for… um… pimples. The company is tiny with a market cap of $400-million. Any company under a $2-billion cap is generally considered small.

Because of its size, Pimples-B-Gone, Inc. is not on the radar of any of the big institutional traders. So it goes unnoticed by just about everyone.

Share prices sell for $7 or so.

You get in on the bottom and buy a boatload of cheap shares.

Word spreads about the product. Since it works, pimple-faced teens buy it in droves. Investors take notice. They begin pouring hundreds of millions into Pimples-B-Gone, Inc. The result is share prices skyrocket to $21 in a year.

You sell and make 300% on your investment. Or you could sell sooner and make less. Or you could wait and hold on while share prices continue spiking.

The point is you get faster and often bigger returns. That’s the basic idea anyway. In fact, you could use this strategy as an income-generator in the short term.

Value Investing and Small Cap Investing have been around for decades. They account for 90% of stock market returns. The other 10% was a mystery until the mid-1990’s. It’s based on a variation of what Dan Zanger did to become a multi-millionaire trader.

Money Pile

Professors Eugene Fama and Kenneth French began a detailed analysis of stock market data in the 1980’s.

They developed a model which explained how value and small cap investing beat the overall stock market. Yet they were unable to figure out the last piece of the puzzle.

That is until one of Fama’s understudies – Mark Carhart – used the university’s stocks database to do a little testing of his own.

Almost by accident, Carhart stumbled upon the concept of…

… Momentum Investing.

Which explains the final 10% of stock market returns. After decades of being in the dark, we now know the only three ways to make money in the stock market.

What’s more, with momentum investing you can profit from short, medium and long term time frames. You can trade momentum daily, weekly, monthly or whatever.

Momentum trading describes the buying and selling force behind a price move.

A “body” in motion tends to stay in motion. So do stock prices. A stock surging up tends to keep surging. A stock dropping down tends to keep dropping.

The two components of momentum trading are: (1) a rapid price move… and… (2) high volume support. Once a price starts moving… and… a bunch of investors plow money into the stock… the price keeps on moving in the same general direction.

For the most part, that is the strategy Dan Zanger used. In an interview with FORTUNE, Zanger said, “I trade whatever the market is going to push up the most.”

He relies on the same process today.

Now there are a variety of ways (a.k.a. “systems”) for trading momentum. Zanger’s is one 99% of regular traders couldn’t follow in a million years.

I’ll tell you why in just a bit.

Before I spill the beans, I think it’s important you understand why my style of momentum trading is a high-profit, low-risk strategy:

  • #1: You’re finding the small cap stocks overlooked by most traders. These stocks “run-up” higher and faster than any others. After all, it’s much easier for a $3 stock to go to $6… than… for a $100 stock to jump to $200. You’ll have little competition. Institutional investors won’t pay attention to them. Main Street investors won’t know about them.
  • #2: You choose the small cap stocks which are going up MORE THAN other stocks. In other words, not just any stocks will do. Only stocks with the biggest, most recent gains make for the best momentum trades. Keep this in mind…

    “Stocks outperforming the market tend to keep outperforming the market in the future.”

And finally…

  • #3: You “bet” on the most likely winners by going with an established trend and not against it.

Post Fed Moments

Did you see what happened in the markets today?

The S&P and Dow soared to record highs on news that the Federal Reserve will not reduce its $85 billion monthly asset-purchasing program.

So what’s my take?

It may surprise you that I do not try to support the belief that this news is bullish… or bearish.

Obviously, the investor community felt this was a good thing and they’re spending a great deal of time formulating opinions and trying to forecast the market.

But just a day ago, these same financial experts claimed the Fed would not continue with their buy back.

Who do you listen to?

The most important truth is that none of it matters…

…all that matters is how people are reacting…

…and the only true measure of this activity is found in price. Nowhere else.

Price is the only thing measuring investor demand as well as investor supply.

If price is making higher highs and higher lows – representing an uptrend – we know the odds are in our favor for a continuation in trend.

Vice versa for a downtrend.

And until we start to notice price patterns or a shift in momentum, we continue to trade in the direction of the trend – minimizing our risk and protecting our profits.

Cramer reveals major sell signal for otherwise hot stock

They’re called momentum or momo stocks on Wall Street. Jim Cramer says they can make you a lot of money, but only if you know when to get out.

By momentum stock Cramer means “hot speculative stocks of companies with relatively low market capitalizations.”

Now, make no mistake – these stocks are the proverbial deep end of the pool. That is, if you sell too late you’ll be the one who gets stuck with a loss,” Cramer said. “However, if you sell to soon, you’ll miss out on making a great deal of money – and few things are more frustrating than watching a stock you’ve once held advance by double or even triple digits.”

Like all areas of investing, Cramer says the trick is to approach these stocks with discipline. “I’d be afraid to buy them too if I didn’t have a discipline that let me know when to get out,” Cramer said.

Here’s how Cramer does it.

Adam Jeffery | CNBC

“Usually these stocks begin with very little research coverage from the major Wall Street brokerage houses,” Cramer said. That’s important because Cramer thinks the sell signal comes from an increase in analyst coverage.

“You have to use your own judgment here, but a good rule of thumb is that once a hot stock, that had little coverage, has at least a half dozen analysts covering it, the run is going to begin to peter out.”

Although that may sound counter-intuitive, Cramer said don’t take increased coverage as a sign the Street is getting behind a stock.

Instead, he says take it to mean the Street has come late to the game. “Historically, that’s what it’s been.”

Therefore, “When I see a hot stock that had little or no research coverage attract 6 or more analysts, I sell,” Cramer revealed. “It says to me that just about everyone who wants a piece of the stock has a piece of it.”

It’s not scientific, Cramer admits, “But this formula has worked for me for as long as I can remember. And if you’re going to play momentum, you have to know when it’s time to leave the table.”

Off the Chart: Gold & Oil

what should we do now that oil and gold are surging higher? do you see those today? it was gold’s day to shine. whenever we have one of these big bad events, and believe me the obama administration and congress taking their time to decide whether to shoot missilesat syria counts as a big, bad event. i like to take a step back, tryto distance myself from the hysteria a bit. you don’t want to makeemotionally driven decisions in this business. you need to stay analytical. people who make emotional decisions lose. that’s why tonight we’re going off the charts. take a look at the rise in goldand oil with the help of the co-founder of decarly trading. as well as being my colleague at realmoney.com and a terrific technician with a great record of late with the show. if you want to play either goldor oil, you’re going to have to table the whole syria issue. you have to take a broader perspective. why don’t we start with gold,please? seasonally this could be a good time to buy the precious metal. it just happens to be annually the best time because it tendsto rally through late september or early october. on the other hand, though, the price of gold has run up more than $200 from the lows of under $1,200. nobody likes to chase in that situation. that’s why garner recommends waiting for significant pullback and doing buying. why is garner so confident that it will be worth buying?well, let’s take a look at the weekly chart of the price of gold. down at the bottom, you can see what’s known as — this is the cot report. the trading commission commitment of traders. that’s a c of t traders report. many time here on off the charts. this lets you know about the holdings of commercial hedgers, while large speculators, the big institutional players trying to figure out what to do. they’re buying and selling gold as investment. earlier this year liquidated their holdings in a wave of panic selling. wave of panic selling, right? and gold came down hard. bright, look at that.they’ve been building their positions back up. and last week, large speculators were holding 78,000, that’s the green one is large, the gold future contracts. but that is still a low number. it suggested garner even though gold is rebounding hard off the bottom, it has more room to run. the gold trade is far from crowded and far from over. how do we play this? check out gold’s daily chart. garner thinks we could catch a nice pullback in gold after our government decides what to do in syria, that’s the certainty element that should bring down gold, she expects traders to buy on the rumor of a syrian strike and sell on a fact, whatever the fact may be. she believes gold prices might actually relax when it happens simply because most of the buying will have taken place in anticipation of the attack. and if our government refrains from hitting syria, many people will decide to ring the register. and if we get that syrianselloff in gold, that will be the time to buy. if you look at the bottom of the chart, the relative strength indicator, the rsi, an indior we use all the time here as well as the percentage oscillator developed by larry williams helps measure whether securities are overbought or oversold. both of these have drifted down out of overbought territory. it’s coming down. based on where the two indicators are standing, garner thinks we could be in a back and fill mode for decent interval, that would be like this. bouncing around without a clear trend. if we get a pullback in the futures contract, then thatwould pique garner’s interest in buying the precious metal. that’s her level. she’d like to see a knee jerk decline down to 170, that’s this level in the wake of a strike on syria which means garner would be able to get bullish again. she wants to see it go down,this level be a deal and then she thinks that. how about oil. let’s take a look at this very different picture. when it comes to crude, garner’s the opposite position. she wants to buy gold intoweakness and thinks you should sell oil into strength. how do you like this? take a gander at the weekly chart of west texas crude.garner knows oil has a tendency to top out in mid september. have you ever thought about that? i hadn’t. beyond that, i need to interject something. some of that might be because summer driving season is over. while auto has been rallies in anticipation of attack on syria, you’ve got to remember what happened after the united states got involved in conflicts in the middle east and north africa. remember after moammar gadhafi in libya two years ago, the price of oil in the united states dropped 10% immediately.garner expects to see that same pattern with syria especiallyunlike iraq and libya, the country’s not a major oil producer. since 2011, syria’s a net importer. net importer of crude at the moment.take a look at the commitment of traders report. that’s the c.o.t., you’re going to see the opposite of gold here. right now the large speculators are holding record net long positions of oil. they’re over — they’re stacked to the gills with oil. when they eventually start ringing the register and looking at positions she believes could be brutal. let’s check out the detail of weekly charts to see how low it can go. garner points out the price of crude is consolidating in a violent, violent but relatively narrow trading range. if oil spikes to an attack on syria, then garner doesn’t thinkit would go past 115 or 116 a barrel. if that would happen, she would start betting against it aggressively. once the dust settles or there’s no further rally, garner sees oil falling and falling hard, the price of crude drops below $100. garner thinks we could see awatershed cell all the way down to 90. wow. possible floor of support 96, maybe not. that’s one you want to catch if you’re a short seller. now, check out the slow oscillator near the bottom here. that’s a classic technical tool that measures whethersomething’s overbought or oversold. crude’s been overbought since july. that’s above that line is overbought. and every time the oscillators reach these levels in the last couple of years and pull back, we have seen stunning declines in oil. stunning, look at that.look at that pattern, every time we get that we’ve seen stunningdeclines. right now these are close to falling out of overboardterritory, garner expects the trend to turn bearish, at the same time the moving average, that macd we focus on helps technicians measure directional momentum beginning to wane. we could be approaching a dreaded bearish crossover where the blue line crosses over the, well, the red line, you have to just — i mean, it was a bearish cross that will drive things down. we have seen this used to good effect. and it’s right on the verge of warning that oil could be in a lot of trouble. yeah, crossover’s always been bad.take a look again. all we’re doing is measuring what’s happened in the previous selloffs and it’s developing. this one is developing just like these three. so let me give you the bottom line. the charts interpreted by garner suggest gold and oil could be about to pullback when our government decides to attack syria. but garner thinks gold will be a buy into that weakness because it can bounce back while oil needs to be sold before it gets hammered. boy, that would be some decline. i want you out of oil.


An Open Letter To My Children: I’m Doing The Best I Can

Thought Catalog

Dear Kids,

I’m doing the best I can.

I know I’m not always perfect, but please know that I’m really trying to do the best I can for you. It may not always seem like it, but I promise you I am trying my hardest to keep all things balanced—kid time, family time, work time…really, just time in general —balanced. It’s all just one big heap of minutes and seconds that are flying by me as you get older and move closer to the gates of college.

While it’s whizzing past me, please know these things:

Just because we have cereal for dinner doesn’t mean I don’t love you.

I know it’s not the best thing in the world to make, but sometimes after dealing with clients all day, returning a plethora of emails and fulfilling every business need that hits the front burner all I want to do is…

View original post 754 more words

How to Stop Procrastinating by Using the “2-Minute Rule”

Recently, I’ve been following a simple rule that is helping me crush procrastination and making it easier for me to stick to good habits at the same time.

I want to share it with you today so that you can try it out and see how it works in your life.

The best part? It’s a simple strategy that couldn’t be easier to use.

Here’s what you need to know…

How to Stop Procrastinating With the “2–Minute Rule”

I call this little strategy the “2–Minute Rule” and the goal is to make it easier for you to get started on the things you should be doing.

Here’s the deal…

Most of the tasks that you procrastinate on aren’t actually difficult to do — you have the talent and skills to accomplish them — you just avoid starting them for one reason or another.

The 2–Minute Rule overcomes procrastination and laziness by making it so easy to start taking action that you can’t say no.

There are two parts to the 2–Minute Rule…

Part 1 — If it takes less than two minutes, then do it now.

Part I comes from David Allen’s bestselling book, Getting Things Done.

It’s surprising how many things we put off that we could get done in two minutes or less. For example, washing your dishes immediately after your meal, tossing the laundry in the washing machine, taking out the garbage, cleaning up clutter, sending that email, and so on.

If a task takes less than two minutes to complete, then follow the rule and do it right now.

Part 2 — When you start a new habit, it should take less than two minutes to do.

Can all of your goals be accomplished in less than two minutes? Obviously not.

But, every goal can be started in 2 minutes or less. And that’s the purpose behind this little rule.

It might sound like this strategy is too basic for your grand life goals, but I beg to differ. It works for any goal because of one simple reason: the physics of real life.

The Physics of Real Life

As Sir Isaac Newton taught us a long time ago, objects at rest tend to stay at rest and objects in motion tend to stay in motion. This is just as true for humans as it is for falling apples.

The 2–Minute Rule works for big goals as well as small goals because of the inertia of life. Once you start doing something, it’s easier to continue doing it. I love the 2–Minute Rule because it embraces the idea that all sorts of good things happen once you get started.

Want to become a better writer? Just write one sentence (2–Minute Rule), and you’ll often find yourself writing for an hour.

Want to eat healthier? Just eat one piece of fruit (2–Minute Rule), and you’ll often find yourself inspired to make a healthy salad as well.

Want to make reading a habit? Just read the first page of a new book (2–Minute Rule), and before you know it, the first three chapters have flown by.

Want to run three times a week? Every Monday, Wednesday, and Friday, just get your running shoes on and get out the door (2–Minute Rule), and you’ll end up putting mileage on your legs instead of popcorn in your stomach.

The 2–Minute Rule isn’t about the results you achieve, but rather about the process of actually doing the work. The focus is on taking action and letting things flow from there.

The most important part of any new habit is getting started — not just the first time, but each time. It’s not about performance, it’s about consistently taking action. This is especially true in the beginning because there will be plenty of time to improve your performance later on.

For more ideas on making it easier to get started and about the importance of focusing on the process and not the result, read this article and this one.

Try It Now

I can’t guarantee whether or not the 2–Minute Rule will work for you. But, I can guarantee that it will never work if you never try it.

The problem with most articles you read, podcasts you listen to, or videos you watch is that you consume the information but never put it into practice.

I want this article to be different. I want you to actually use this information, right now.

What’s something you can do that will take you less than two minutes? Do it right now.

Anyone can spare the next 120 seconds. Use this time to get one thing done. Go.

Successful People Start Before They Feel Ready

Thought Catalog

In 1966, a dyslexic sixteen-year-old boy dropped out of school. With the help of a friend, he started a magazine for students and made money by selling advertisements to local businesses. With only a little bit of money to get started, he ran the operation out of the crypt inside a local church.

Four years later, he was looking for ways to grow his small magazine and started selling mail order records to the students who bought the magazine. The records sold well enough that he built his first record store the next year. After two years of selling records, he decided to open his own record label and recording studio.

He rented the recording studio out to local artists, including one named Mike Oldfield. In that small recording studio, Oldfield created his hit song, Tubular Bells, which became the record label’s first release. The song went on to sell…

View original post 934 more words

6 Things I Learned As A Girl Who Has Basically Everything

Thought Catalog

I’m privileged.

When I was 14, I went to Paris for the first time. My parents paid for my entire undergraduate education at an expensive private school. I still owe my Mom thousands of dollars for all the traveling I did when I studied in Rome. This isn’t to say I’m entitled. I am incredibly grateful for the opportunities I’ve been given. My parents came to America in their late teens with a smaller suitcase than I would use for a weekend getaway. Both put themselves through college and beyond. Their hard work and support however, gave me a luxury – the opportunity to be anxious and disillusioned.

Perhaps because I know they will be there to catch me when I fall, I’ve developed a fear of trying. It’s pretty cowardly if you think about it.  I frequently open 40 Safari tabs of jobs I’m going to apply for…later. I…

View original post 1,153 more words