Black Swan Management, LLC

Investments and Strategies for the Future of Business

Posts Tagged stock

Race Horses and Mutual Funds

May 19

Posted by Al Thomas in business, mutual fund | No Comments

For years investors have been taught to look
into the composition of a mutual funds. In other
words the “experts” want you to take the time to
analyze the stocks within the mutual fund
portfolio, categorize them by industry group and
try to understand the objective of the fund
manager. This is nonsense.

When I go the track I look to see what the horse
has been doing for the last several races. I
don’t give a hoot what he had for breakfast. All
I want to know is has he been fast? Is there a
good chance he will finish in the money in the
next race? I only want to know how he has been
performing.

Most mutual fund managers, except those who
follow index funds, are always trading. You have
no idea that what is in the portfolio today was
there yesterday or will be tomorrow. Some fund
managers trade more than others, but you can
prove this to yourself by looking at the fund
prospectus at the beginning of the year and one
of the updates that funds publish quarterly.
Many of the stocks will still be there, however,
you don’t know if the percentage holdings are
the same.

By the way, don’t bother reading a mutual fund
prospectus. They are worthless when it comes to
making money. Consider that most of the
information in it is about a year old by the
time you read it. Think about this seriously for
a minute. Is there anything you can find out in
the document that will show up in your bottom
line? I’ll wait while you think. OK? There
really wasn’t anything was there? All
prospectuses are basically worthless.

But you say the SEC (Securities and Exchange
Commission) in Washington approved this. No,
they did NOT. They don’t approve of anything;
they just read it to be sure it meets the
regulatory requirements for disclosure. There is
almost no difference between the prospectus for
the worst mutual fund and the best mutual fund
and both of them may have been read by the same
Dilbert in his cubicle at the SEC.

There is one excellent way to find out which
fund to buy. It is based on performance. How
much has the fund increased in price during the
past 12 months? Just 12 months. Many financial
analysts want you to look at 3-year, 5-year and
10-year performance. Remember that horse? I
don’t care how many races he won 3 or 5 years
ago. Can he run NOW? There are many publications
and web sites that tell you the best performers.
Investor’s Business Daily prints a list of best
performing funds each day. You might have to see
the paper every day as they sometimes just tell
about the long-term performance. You want the
last 12 months and the last 3 months.

Three years ago you could have bought the best
performing fund on the street and today have a
dog. I call a dog any mutual fund that is not
outperforming the S&P500 index.

If you were a jockey you would want to ride the
fastest horses because in many races you get a
percentage of the purse. The same applies to
mutual funds. You must own only the best
performing funds at all times. Like the jockey
you must pick the fastest horse if you want to
be a winner.

You should review your fund holdings monthly to
see that you are only in the best funds. It
might take you an hour, but you will find that
you will double the current return on your
mutual fund investments. Do it!

Author: Al Thomas
Article Source: EzineArticles.com
Provided by: Pressure cooker

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7 Stock Market Tips to Live By

Mar 20

Posted by admin in investing, stocks | No Comments

Planning to go into stock market investment? Here are some general tips to live by.

1. Understand the basics of economics.

The stock market follows the laws of economics, particularly the law of supply and demand. If there is a greater demand for the stocks of a particular company, the price of its stocks will go up accordingly. On the other hand, if there are more stocks available for selling (more sellers) than stock buyers, the unit price of that company’s stocks will go down.

2. Study your prospective company/ies.

Read up on the company’s profile: products, services, operations, and track record in the business. This is important to assess the company’s stability and capability to deliver its promises and meet its profit targets.

3. Choose companies that are more likely to stay.

With so many existing companies in the stock market, choosing becomes a big challenge for beginners. Government-owned companies and businesses are relatively stable, unless there is a political revolution in the horizon. Telecommunications and gasoline companies are also stable and profitable since the demand for these products and services is constant. Although IT companies are the fastest growing in the market today, be careful because there are so many of them that it checking on their profiles could be very taxing. Choose IT companies that have proven track records of profitability and stability of at least 10 years.

4. Always read and watch the news.

Dealing with the stock market is not a guessing game. Sound decisions and good intuition are results of constantly learning about the local and global political and economic happenings. Give particular attention to the industry where your company belongs. Even stable companies can suddenly go bankrupt or experience a big blow that can bring them down. Remember Enron?

5. Spread your investments.

Avoid investing in just one company. If all your stocks are concentrated to one company, the chance for loses is also greater. Spread them out so that earning investments can cushion those investments that earn less.

6. Do not rely solely on stock brokers.

Do your homework. Remember, the stock broker is “gambling” with your money. When an investor does not understand how the stock market works, he/she becomes vulnerable to scrupulous brokers.

7. Do not be greedy.

Although stock market investment is all about profits, becoming greedy will make an investor lose his/her better senses. He/She might suddenly forget to check on economic rumors and decide right away to buy or sell thinking that he/she would make big profits by doing so.

About the Author
Find out more about stocks and shares at http://stocksandshares.us

Article source:
7 Stock Market Tips to Live By

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Strategic, Strategy Success!

Dec 20

Posted by admin in strategies | No Comments

Good day friends I trade stocks, stock options and commodity options.  The key to my success is being a contrarian.  The most important part of my strategy is going opposite the masses and being contrary.  I don’t run to buy stocks when they are at their all-time highs and I don’t avoid stocks because they are out of favor.  They usually exhibit characteristics that enable an investor to achieve the greatest success.  Uncertainty in the stock market especially breeds the best opportunities and bodes well for investors with strategies.  I recently went against the grain as I usually do.  I am currently shorting gold and thinking about doing the same with sugar.  These are commodities if you did not know along with many others.   I have found that having an intimate knowledge of the commodities market helps you to find more opportunities in the stock market.

For instance lets say orange juice futures are at an all time high being contrarian you know that the price of orange juice can’t rise forever armed with this knowledge you can search options chain or sell stocks that will be affected by stocks that a drop in orange juice will directly affect.  Truck transporters, o.j. producers and companies that sell to the o.j. producers.  If you have knowledge of the commodity market you can’t avoid or capitalize on the ripples that the rise or fall of a certain commodity has on the stock market.  More on strategies and strategic responses to market condition in the future.  Hang on I am just getting started, success is within your reach.

Keathel H. Haynes III, Chief Investment Officer

http://www.blackswanmanagementllc.com/

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Hedging ? What Is It, And It’s Uses In Risk Management

Nov 19

Posted by admin in business, commodities, investing, stocks, wealth | No Comments

Second of a two part article
Before discussing the use of hedging to off-set risk, we need to understand the role and the purpose of hedging. The history of modern futures trading began in Chicago in the early 1800′s. Chicago is located at the base of the Great Lakes, close to the farmlands and cattle country of the U.S. Midwest making it a natural center for transportation, distribution and trading of agricultural produce. Gluts and shortages of these products caused chaotic fluctuations in price. This led to the development of a market enabling grain merchants, processors, and agriculture companies to trade in contracts to insulate them from the risk of adverse price change and enable them to hedge.

The first commodity exchange was the creation of the Chicago Board of Trade, CBOT in 1848. Since then, modern derivative products have grown to include more than the agricultural industry. Products also include Stock Indices, Interest Rates, Currency, Precious Metals, Oil and Gas, Steel and a host of others. The origins of the commodity and futures exchange was created to support hedging. The role of speculators is beneficial as they add trading volume and important volatility to what would otherwise be a small and illiquid market place.

A bona-fide hedger is someone with an actual product to buy or sell. The hedger establishes an off-setting position on the futures or commodity exchange, thereby instituting a set price for his product. Someone buying a hedge is known as being “Long” or “Taking Delivery”. Someone selling a hedge is known as being “Short” or “Making Delivery”. These positions known as “Contracts” are legally binding and enforced by the exchange.

Entering your trades either for speculation or hedging is done through your broker or Commodity Trading Advisor. Commodity and Futures exchanges are distinct from Stock Exchanges, although they operate using the same principals. They are regulated by different agencies such as the Commodity Futures Trading Commission who are responsible for regulation of retail brokers in the USA as well as Commodity Trading Advisors who are Portfolio Managers.

Now let’s view some real life examples of hedging or mitigation of risk by using exchange traded derivatives.

Example 1: A mutual fund manager has a portfolio valued at $10 million closely resembling the S&P 500 index. The Portfolio Manager believes the economy is worsening with deteriorating corporate returns. The next two to three weeks are reports of quarterly corporate earnings. Until the report exposes which companies have poor earnings, he is concerned of the results from a short term general market correction. Without the privilege of foresight, he is unsure of the magnitude the earnings figures will produce. He now has an exposure to Market Risk.

The manager thinks of his options. The greatest risk is to do nothing, if the market falls as expected, he risks giving up all recent gains. If he sells his portfolio early, he also risks being wrong and missing further rally’s. Selling also incurs substantial brokerage fees with additional fees to buy back again later.

Then he realizes a hedge is the best option to mitigate his short term risk. He begins by calling his CTA (Commodity Trading Advisor) and after consultation places an order to sell short the equivalent of $10 million of the S&P 500 index on the Chicago Mercantile Exchange “CME”. Now his result is when the market falls as expected, he will off-set any losses in the portfolio with gains from the Index hedge. Should the earnings report be better than expected, and his portfolio continues upward, he will continue making profits.

Two weeks later the fund manager again calls his CTA and closes the hedge by buying back the equivalent number of contracts on the CME. Regardless of the resulting market events, the mutual fund manager was protected during the period of short term volatility. There was no risk to the portfolio.

Example 2: An electronics firm ABC has recently signed an order to deliver $5 million in electronic components of next years model to an overseas retailer located in Europe. These components will be built in 6 months for delivery two months after that. ABC instantly realizes they are exposed to two risks. 1. the rising and volatile price of copper in 6 months may result in losses to the firm. 2. the fluctuation in the currency could easily add to those losses. ABC being a young firm cannot absorb these losses in view of the highly competitive market from others in the field. Losses from this order would result in lay-offs and possibly plant closures.

ABC telephones their CTA and after consultation places an order for two hedges, both for an expiry in 8 months, the date of delivery. Hedge #1 is to buy long $5 million of copper effectively locking in today’s price against further price increases. ABC has now eliminated all price risk. The risk of plant closures is greater than the lure of increased profit should copper price fall. After all, ABC is not in the business of speculating on copper prices.

Hedge #2 is to sell short the equivalent of Euro Currency vs US Dollars. Since ABC is effectively accepting EC in payment, a rising US dollar and a weak EC would be detrimental and erode profits further. The result of the hedge is no risk and no surprises to ABC in either copper or currency levels. A risk free transaction and full transparency is the result. In 8 months with the order completed and the customer accepting delivery, ABC notifies the CTA to close the hedge by selling the copper and buying back the Euro Currency contacts.

Many examples exist to demonstrate the mitigation of risk to an institution or financial portfolio. New products are constantly created and available on both over-the counter and exchange traded markets. It would be wise to consult with a qualified Commodity Trading Advisor or broker to discuss the analysis for an on-going risk management solution or a one time only hedge.

About the Author
Dwayne Strocen is a registered Commodity Trading Advisor specializing in analyzing and hedging Market and Operational Risk using exchange traded and OTC derivatives.

Article source:
Hedging What Is It, And It’s Uses In Risk Management


Dynamic Hedging: Managing Vanilla and Exotic Options (Wiley Finance)

Dow Jones Never Loss Trade

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FOREX Versus Futures Market – What Is The Difference

Nov 19

Posted by admin in stocks | No Comments

Today’s market takes root in the agriculture markets of the 19th century, when farmers began to sell contracts to deliver their crops at a later date. This was done to anticipate the needs of the market and stabilize supply and demand during poor crop seasons. Like goods and services, the contracts themselves soon became seen as valuable. A grocery store chain, for example, might want to bid on such a contract to ensure that they, and not their competitors, have fresh strawberries during the winter.

1. The Futures Market

The current futures market, of course, includes far more than just foods! It is a market for all sorts of commodities including manufactured goods, agricultural products, and financial instruments such as currencies and treasury bonds. A futures contract states what price will be paid for a product at a specified delivery date.

2. Playing The Futures Market

When an investor plays the futures market, the actual goods are not important and there is no expectation of a real delivery. After all, locusts or the elements of nature could destroy the crop. As such, the value of the contract itself changes daily according to the market value of the commodity.

3. How Transactions Work

A futures contract has a buyer and seller. The contract specifies the buying price, a quantity of goods, and a delivery date. You can never lose money on a futures trade – you will never pay more than the initial amount of the contract. By locking in prices at a fixed rate, you ensure that you will still get that price years from now, protecting against price raises. On the other side of the coin, if the value of the commodity drops, the producer will make money.

4. How Is Profit Made?

In the end, investors are hoping to profit from the daily fluctuations of the market. They buy long term contracts and hope the market will rise the value of the commodities. This way, they can buy low and sell high. Alternatively, those wishing to sell their goods can offer short term contracts if they expect the value of those items to go down.

5. The FOREX Market

FOREX is trading in currencies. It is therefore very liquid in nature – you will never get stuck with two hundred boxes of strawberries that have to be sold within 2 weeks or they will go bad and youll lose a lot of money. Far, far less slippage occurs in the FOREX market compared with the futures market. Slippage is a term that refers to you losing money.

6. Always Open

While most futures exchanges can happen 7 hours in any given day, FOREX is open 24 hours a day for trading. This makes futures far more liquid, able to take advantage of trading opportunities as they arise.

7. No Commission

Traders pay a fee for each transaction they enter into instead of having to pay commissions to brokers. There is a very high volume of trading FOREX transactions are almost instantly executed. This minimizes slippage and increases price certainty. Brokers in the futures market often quote prices reflecting the last trade – not necessarily the price of your trade.

About the Author
For more great forex market related articles and resources check out http://commodities-futures.info

Article source:
FOREX Versus Futures Market – What Is The Difference

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The Thrills Of Investing In The Stock Market

Nov 19

Posted by admin in stocks | No Comments

Investing in the stock market has its thrills. That is why it is not surprising that there are more and more Americans investing in the market, despite the risks of losing their money to invest. Why not save, you might ask? It is easier to sleep at night knowing that your money is safely kept in the bank rather than knowing that your money you invested in a certain company gone pffft after the company stock crashes.

But, you see investing has its rewards. True, there are risks, but risks are part of the game of investing. The hope of having bigger money after investing looks promising on a variety of reasons.

What are some of these thrills that make someone go out and invest in the stock market, hoping for a larger financial return?

First is that, compared with saving, investing is the proactive use of your money to earn more money. In investing, it is your money working for you. Unlike saving which is a passive activity, you invest your money in the stock market and hope for a larger money return. Now, ain’t that fun?

When you buy stock shares of a company, you are in effect buying a piece of that company. In short, you become a part owner. Being a stock holder of the company entitles you to certain rights. This includes voting on important company matters and getting profits if the company distributes dividends. Doesn’t it feel great, for example, if you own stock shares of Coca-cola?

Another reason to be a stock holder is that you participate in that company’s growth of the company. If for example the value of the company increases, your investment also increases too. If profits increase, don’t be surprised if you receive bigger dividend checks. Some stock prices increase for a long period. For instance, some long-time employees of Microsoft became millionaires because of the dramatic increase in their stock value.

“No pain, no gain.” It’s a clich�, of course, but that is the one thing that you must remember in investing in the stock market. How can you get more money if you don’t try investing? Do you really think that your money will increase if you invest it in a bank (which offers low interest deposit rates) compared with investing?

Risks are part of investing, as in any other decisions you make. But given the thrills of investing, shouldn’t you be investing too?

About the Author
Find out more about stocks and shares at http://stocksandshares.us

Article source:
The Thrills Of Investing In The Stock Market

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