Getting the Most out of This Market Wednesday, May 7 th, 2014s. Or the #1 cause of all trading losses is traders

Transcription

1 Getting the Most out of This Market Wednesday, May 7 th, 2014s Or the #1 cause of all trading losses is traders Jeff M. Roth Co-founder, SimplerStocks.com 1

2 Table of Contents Intro (2-3 mins) Stock Market Life Cycles (15 mins) Current Markets (15 mins) Portfolio Management (15 mins) Q & A

3 How to Get the Most Out of This Class In a nutshell... Kick back and listen. This is a well laid out presentation. You don t have to frantically write down everything. This is being recorded and you will get a copy of all the slides and notes. Sit back and soak it in. There are hundreds of people in this class and I won t have time to answer all of your questions. 3

4 Who am I? Why am I here? 4

5 The ups 5

6 The downs 6

7 Stock Market Life Cycles The stock market doesn t go up or down forever There is an ebb and flow The market is like a digestive system the larger the meal the longer it takes to digest. The market is constantly digesting moves on every time frame. From a 5 minute chart to a weekly. Example.

8 Financial Institutions Banks, Asset Management Firms, Insurance companies, Pension funds, Hedge Funds, 8

9 Pension Funds Morgan Stanley estimates Worldwide pension funds hold over $20 trillion in assets. Larger than mutual funds, insurance companies, hedge funds, or private equity. Top 300 pension funds collectively hold $6 trillion in assets 9

10 How BIG is that? If you spent $1 million a day since the year 0 through today you would have spent ONLY about $700 billion. 10

11 Do Pension Funds Invest in the Stock Market? 11

12 Examples of Pension Funds California State Teachers $139 Billion California Public Employees $214 Billion New York City Retirement $115 Billion Texas Teachers $100 Billion General Motors $102 Billion

13 How do pension funds and other financial institutions invest? Let s say you re the portfolio manager for a modest size pension fund out of Boston. You have $10 billion to invest in stocks You do your research and find a small, fast growing semi conductor company called SunPower You decide to put 2% of your funds into the stock or $200 million.

14 How do pension funds and other financial institutions invest? (cont d) The stock is trading at $32 per share In order to get your full position you need to buy over 6 million shares of stock What s the Problem? Submit a market order, right? The average daily volume of SPWR is 3.2 million shares a day. How do you buy a large amount of shares without drastically increasing the price?

15 It s not that hard 15

16 Slow and Steady A pension fund manager will usually allow days for accumulation. They will have a price range in mind. I m a buyer between $32 - $32.50 When the stock in that range small blocks of shares are bought to not alert suspicion If the stock gets too high they will stop buying share, even sell some to bring the price back down

17 This is a long process and the goal is to blend in and not alert anyone they are there 17

18 Let s looks at some live examples UBNT PCLN LSCC

19 What About the Markets Now?! 19

20 What are the institutions doing and how do we know? We as retail investors have the luxury of being able to quickly go in cash and stay there Institutional fund managers always need to have their funds in something Losing less is better Where does the money go? No one got fired for buying IBM

21 Sector Rotation When a fund manager shifts investments from one asset class to another. Different sectors perform better at a different times When fund managers get nervous they move funds from speculative growth stocks to conservative investments like utilities and consumer staples XLU, XLP

22 The Bond Market 22

23 The Bond Market The 2 nd most liquid market in the world Bond markets in Europe are going up as well as the U.S. To the charts

24 The Aussie Carry Trade 24

25 The Yen Aussie/Yen is what I like to call the hedge fund index. Funds will borrow currency from one stable country with very low interest rates (Japan), convert that currency (yen) into the currency of another stable country (Australia) with the highest interest rates, and trade. When funds are borrowing more from Japan and buying more Aussie dollars funds are taking a position known as risk on, i.e., buy more speculative assets. When the carry trade unwinds, converting Aussie dollars back to Yen to pay back what they borrowed funds are taking a risk off position, i.e. selling their speculative assets. In short when the Yen is going higher; funds are paying back their Yen debt and taking off risk, i.e., selling stocks. When the Yen is going lower, funds are borrowing more Yen and take more speculative positions, i.e., buying stocks. What s the Yen doing?

26 When Leaders fall 26

27 Leaders Stocks that were once institutional favorites are falling faster than the overall market These are the stocks that doubled and tripled during the market run up now underperforming NFLX, QIHU, PCLN

28 What s all the Yellen about? 28

29 The Fed and the impact on the S&P 29

30 The Fed FOMC continues to cut the size of their monthly bond purchases The economy is like a big game of monopoly and the Fed is the banker. When the Fed creates more money for everyone to play with the more Park Ave houses can be bought and the stock market goes higher. The inverse is true when the Fed starts tightening the spigot. The market is always changing and the Fed is one of the drivers.

31 The BIG, BIG Picture The stock market has gone through many boom and bust cycles over the last 100 years. The market events of 29, 87, and 08 are rare events not the norm. A bull market lasts about 3-5 years, and a bear market lasts 9 20 months. A typical correction is 10-30% with the average correction at 20% Let s look at a few charts

32 How to Manage a Portfolio 32

33 How Many Stocks Do You Own? Professional portfolio managers don t try and manage dozens of positions. Rarely should you own more than 8 stocks Owning too many stocks will cause you to miss opportunities Diversification is a story told to the public to make them feel better about putting their money into the stock market Professional fund managers find leaders and concentrate their funds into those stocks

34 Questions to ask yourself What is my risk tolerance? What s the current market outlook? What s my investing experience? What is the allocation of my account towards growth stocks? What s my position size?

35 Scaling into a trade If you bet on a horse race you can t change your bet in the middle of the race. If you re scaling into a stock position this gives you the flexibility to change your bet. Decide to add more shares or cut your position loose with minimum damage to your overall portfolio.

36 I own it, now what? Money is made in the sitting Jesse Livermore Set your stops according to the ATR this is where risk tolerance and position sizing comes in.

37 My rules, they don t have to be yours My Risk tolerance: I m willing to lose a max 2% of my portfolio on any one trade. Example. My Current Market Outlook is that the stock market is in a down trend and I want to be very cautious. I m not using any margin. I have a separate $100,000 account that I want to invest in growth stocks. My plan to start with 5 positions using a max of 10% of my account on each position

38 Time for Questions 38