Alessio Rastani Profit before Principle www.leadingtrader.com
A Quick Quiz
Who said: Be fearful when others are greedy and be greedy when others are fearful.
Warren Buffett Be fearful when others are greedy and be greedy when others are fearful.
Who said: The way to make money is to buy when blood is running in the streets.
John D. Rockefeller The way to make money is to buy when blood is running in the streets.
Who said: I go to bed every night dreaming of another recession. Governments don t rule the world. Goldman Sachs rules the world.
Alessio Rastani I dream of another recession.
Interview with Sir David Frost: Alessio, what did you mean by what you said?
Capitalism or Economic Freedom.
Greed or Desire for financial freedom.
What is wrong with our society today?
Advert in a newspaper: Get A Better Job. Get A Higher Salary. And you can decorate your own prison! Get A Better Job. Get A Higher Salary.
The Next 4 Years
Robert Kiyosaki Most people live their lives chasing paychecks, pay raises and job security because of FEAR. (from Rich Dad Poor Dad)
JOB
ASSETS
The Emotional Crowd ( the herd )
Investors simply refuse to learn about risk. They fail to understand the simple, powerful truth that RISK strongly depends on the price paid for an investment.
What is the Most Important Rule of Investing?
Important Rule: Sell High Buy Low
Most people do the exact OPPOSITE! They Buy High. They Sell Low.
It means you can lose 90% of your money paying too much or make 20 times your money over the long term.
What determines RISK is NOT just asset quality $ It is the price you pay for the asset $
3 Types of Risks when Investing 1. Psychological Risk 2. Valuation Risk 3. Liquidity Risk
Valuation Risk
Valuation Risk: Tip #1: The Secret to finding undervalued stocks
Tip #1: Finding Undervalued Stocks Pick stocks with a PEG ratio of LESS than 2. PEG Ratio is the P/E (price/earnings) divided by the growth. For example, if a company s share price is $10, its earnings (EPS) is 2 and its expected growth is 5% then its PEG is = 1.
The smart money (e.g. mutual funds and hedge funds) will not pay twice growth (PEG > 2) for a stock. If PEG is over 2, it is considered overvalued and expensive. If PEG is below 2 (ideally below 1) is undervalued and cheap.
Tip: Yahoo Finance ( finance.yahoo.com ) ---> Type in symbol/name ---> Competitors Type in name or symbol (e.g. AAPL)
Finding the PEG Ratio: Click competitors in left panel:
Finding the PEG Ratio:
Facebook stock s PEG back in July 2012 $28 $576 $29 Facebook s PEG was GREATER than 2 (PEG > 2). Overvalued and expensive. Compared to GOOG and MSFT.
Liquidity Risk
Tip #2: The Secret to finding if a company is in financial trouble (e.g. debts)
AAPL s Balance Sheet
AAPL s Balance Sheet AAPL has 176 Billion (add 3 zeros at the end) in assets, compared to only 57 billion in liabilities. This is a pristine balance sheet.
Tip #2: Company s Financial Health 1. Check the company s balance sheet. 2. A financially healthy company has more assets than liabilities. E.g. Apple (AAPL) has a pristine balance sheet.
Tip #2: Company s Financial Health If a company has more liabilities than assets, move away! E.g. check out the balance sheet of Smack Sportswear (SMAK).
Unhealthy company s Balance Sheet: SMAK
Tip #3: Use this shortcut: Current ratio > 1
Current ratio must be > 1 Current ratio is a measure of liquidity. Current assets current liabilities. e.g. SMAK has a Current ratio LESS than 1. Leave it.
Psychological Risk
Remember one sentence: Price and risk go up and down together. When prices rise, so does risk. When prices fall, risk falls too.
There is a direct correlation between price and risk. Failure to understand this is why most investors lose money when they buy and sell stocks.
Most people behave as though risk rises when prices fall.
Most people behave as though risk rises when prices fall. The more prices fall, the more scared investors become. BUY SELL The more prices rise, the more euphoric and greedy investors become.
BUY SELL Repeat Until Broke!
How do we break the cycle? so we buy LOW and sell HIGH?
2 Powerful and Useful Tools which measure overbought and oversold conditions: 1) Index which measures % of stocks in S&P 500 which are above their 50 day moving average ($SPXA50R) 2) S&P 500 Bullish Percent Index ($BPSPX).
50 day Moving Average
On stockcharts.com: Look for extremes below 25% and above 80%
On stockcharts.com: Look for extremes below 25% and above 80% The blue circles on the chart indicate when less than 25% of stocks were trading above their 50-DMA. The red circles show when more than 80% of stocks were above their 50-DMA.
S&P 500 Index of 500 largest companies in the World
Bullish Percent Index below 25% gives buy signal :
32% gain in the index
Over 115% gain in the index!
Strategy for Buying Stocks
200 Ambush Trade www.leadingtrader.com/etx Select Simple Moving Average with settings of 200. Go to www./etx
S&P 500 (2012-2013) Buy at the 200 Moving average
Dow Jones Index 1985-1987 BUY BUY
US Market on November 22nd 1963 BUY
ASML Dutch stock (2012) BUY
Amsterdam Index (ASX) - 2012
www.leadingtrader.com/etx Bollinger bands (20, 2), Keltner Channels (20,1.5) MACD (8, 21,9 histogram)
Squeeze Breakouts Squeeze Breakouts Squeeze forms when Bollinger bands (blue Lines) enter Keltner Channels (red lines). If MACD Momentum is above zero go long At breakout from squeeze (and vice versa).
Silver (weekly chart) Squeeze breakout
Thank you for attending! www.leadingtrader.com/holland