You would be shocked to know how many accepted “facts” in the financial world are simply not true.  For example, you may have been told that asset allocation — the amount of your portfolio you dedicate to stocks, bonds, etc. — is more important to your future returns than stock selection. This widely cited idea comes from a grossly misinterpreted study that suggests “more than 91.5% of a portfolio’s return is attributable to its mix of asset classes. In this study, individual stock selection and market timing accounted for less than 7% of a diversified portfolio’s return.” The statistic is… Read More

You would be shocked to know how many accepted “facts” in the financial world are simply not true.  For example, you may have been told that asset allocation — the amount of your portfolio you dedicate to stocks, bonds, etc. — is more important to your future returns than stock selection. This widely cited idea comes from a grossly misinterpreted study that suggests “more than 91.5% of a portfolio’s return is attributable to its mix of asset classes. In this study, individual stock selection and market timing accounted for less than 7% of a diversified portfolio’s return.” The statistic is attributed to a 1986 paper published in the Financial Analysts Journal called “Determinants of Portfolio Performance,” written by Gary P. Brinson, CFA, Randolph Hood, and Gilbert L. Beebower. It is commonly referred to as the BHB study. Read that way, the study is basically telling us stock picking is a waste of time since we can only squeeze a small amount of performance out of the stock selection process. If you read the paper closely, however, the authors actually said something different. BHB studied the variation of a portfolio’s quarterly returns. #-ad_banner-# I don’t know where the misinterpretation started, but… Read More

It’s a simple way to look at trading. But to me, a successful trade is one that makes money. For most investors, this means you see a stock you like, do some research and then decide to pull the trigger. At this point, of course, the hope is that the stock moves up and you book a reasonable return on your investment. #-ad_banner-#But if the stock moves lower or sideways, you’ll break even at best. What if I told you that there is a strategy that makes it possible to profit from owning stocks that aren’t moving at all? This… Read More

It’s a simple way to look at trading. But to me, a successful trade is one that makes money. For most investors, this means you see a stock you like, do some research and then decide to pull the trigger. At this point, of course, the hope is that the stock moves up and you book a reasonable return on your investment. #-ad_banner-#But if the stock moves lower or sideways, you’ll break even at best. What if I told you that there is a strategy that makes it possible to profit from owning stocks that aren’t moving at all? This isn’t just theory. In my premium newsletter we’ve been able to earn market-beating returns time and again using what we call the Maximum Income strategy. For example, MasterCard (NYSE: MA) was one of the first positions we opened back in February 2014. The trade closed in July, about five months later. Over that period, the S&P 500 gained about 6%, while MasterCard only gained 1.3%. But by using my Maximum Income strategy, my subscribers pocketed a 10% gain. How is this possible? While traditional stock investors sit back and hope… Read More

Last week, I shared some research with you that I submitted to the Market Technicians Association (MTA). My paper, “Fixing the VIX: An Indicator to Beat Fear,” earned me the 2015 Charles H. Dow Award, and I’m headed to New York City this week to accept that great honor. In my paper, I presented research on a metric you may have heard me mention before, the Income Trader Volatility (ITV) indicator. Between Sept. 20, 2013 and Sept. 26, 2014, the period covered in the research I submitted to the MTA, I recommended 183 trades based on… Read More

Last week, I shared some research with you that I submitted to the Market Technicians Association (MTA). My paper, “Fixing the VIX: An Indicator to Beat Fear,” earned me the 2015 Charles H. Dow Award, and I’m headed to New York City this week to accept that great honor. In my paper, I presented research on a metric you may have heard me mention before, the Income Trader Volatility (ITV) indicator. Between Sept. 20, 2013 and Sept. 26, 2014, the period covered in the research I submitted to the MTA, I recommended 183 trades based on ITV and 93% of those trades were winners. #-ad_banner-#This week, I want to show you exactly how I use this indicator to recommend trades to my subscribers. But before I do, let me do a quick recap. Most traders are familiar with the Volatility S&P 500 Index (VIX), which is helpful in finding turning points in the S&P 500 index. In general, traders look for high VIX levels as a sign of a market bottom and low levels as a sign of a potential top. But VIX is not useful in finding turning points in specific stocks. ITV is similar… Read More

Dear StreetAuthority readers, Next week, I’m headed to the 2015 Market Technicians Association’s (MTA) Gala Awards Dinner in New York City. The event is hosted by the MTA, a global organization of 4,500 professional investment analysts. I’m going because Amber was awarded the 2015 Charles H. Dow Award. This award was established in 1994 by the MTA to highlight outstanding research in technical analysis. This is an incredible achievement and recognition of Amber’s expertise in the field. As StreetAuthority readers, you’ve likely heard of Amber Hestla or maybe even profited from her research. Her award-winning paper… Read More

Dear StreetAuthority readers, Next week, I’m headed to the 2015 Market Technicians Association’s (MTA) Gala Awards Dinner in New York City. The event is hosted by the MTA, a global organization of 4,500 professional investment analysts. I’m going because Amber was awarded the 2015 Charles H. Dow Award. This award was established in 1994 by the MTA to highlight outstanding research in technical analysis. This is an incredible achievement and recognition of Amber’s expertise in the field. As StreetAuthority readers, you’ve likely heard of Amber Hestla or maybe even profited from her research. Her award-winning paper detailed and tested the strategies she uses to select trades in her premium newsletter, Income Trader. She’s closed 86 straight winners selling put options, but the results of her research can be applied to other trading strategies. So in today’s issue, we’re doing something a little different. Amber will be revealing the results of her research. I hope you find this information — which is not available anywhere else — as extraordinary as I have.  Congratulations, Amber! Frank Bermea  Publisher, Profitable Trading I spend a great… Read More

One of the best ways to lose money in the markets is to be a perma-bear. We all know that there will be another bear market in stocks one day — nothing goes up forever — but we have no way of knowing when that decline will begin. So while the bears will eventually be proven right, those who heed their growls too early will, at best, miss out on gains and, at worst, lose a significant amount of money. As investment guru Peter Lynch noted, “Far more money has been lost by investors preparing for corrections or trying to… Read More

One of the best ways to lose money in the markets is to be a perma-bear. We all know that there will be another bear market in stocks one day — nothing goes up forever — but we have no way of knowing when that decline will begin. So while the bears will eventually be proven right, those who heed their growls too early will, at best, miss out on gains and, at worst, lose a significant amount of money. As investment guru Peter Lynch noted, “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.” Lynch was the manager of Fidelity Magellan Fund from 1977 to 1990 and delivered an average annual return of 29.2%, nearly double that of the S&P 500 during that time. This time frame included Black Monday, the largest one-day crash in market history in October 1987 and three separate declines of 20%. Below is a chart that illustrates how listening to perma-bears could be hazardous to your wealth. It shows some highly publicized market calls following the 2009 market bottom. Nouriel Roubini is an economist who earned the nickname “Dr. Read More

Right now, we’re facing one of the most challenging environments for income investors in history. #-ad_banner-#The average one-year CD yields just 0.28%. Yields on 20-year Treasuries have dipped below 2.5%. Even so-called high-yield “junk” bonds are paying just 6% — a far cry from what they once paid. Stocks aren’t much better, either. The average yield in the S&P 500 is only 1.9%. With rates like that, it would take you nearly 40 years to double your money, after accounting for inflation. And that’s only if the market… Read More

Right now, we’re facing one of the most challenging environments for income investors in history. #-ad_banner-#The average one-year CD yields just 0.28%. Yields on 20-year Treasuries have dipped below 2.5%. Even so-called high-yield “junk” bonds are paying just 6% — a far cry from what they once paid. Stocks aren’t much better, either. The average yield in the S&P 500 is only 1.9%. With rates like that, it would take you nearly 40 years to double your money, after accounting for inflation. And that’s only if the market doesn’t fall, which is never a guarantee. Of the 13,980 stocks listed on U.S. exchanges, a mere 166 yield 10% or above. And most of them are companies like Seadrill (NYSE: SDRL), which cut its dividend in 2012 and is down nearly 75% over the past 12 months. Don’t get me wrong. I’m not against dividends, CDs and the like. You’d probably be wise to have some money in them. I’m simply pointing out that market conditions have made it very difficult to produce sufficient income from these investments alone. Yet 99% of… Read More

Income investments are an important portion of any retirement portfolio. Historically, they’ve provided retirees monthly or quarterly income distributions to help cover expenses, healthcare and any other living expenses. #-ad_banner-#The other morning I was perusing a Morgan Stanley Smith Barney report that outlined four different 401(k) allocations. While there are many factors that go into an individual investor’s asset allocation, the portfolios range from 25% to 60% in income producing bonds. Along with bonds, the portfolios invest anywhere from 10% to 54% in large-cap stocks. Assuming that part… Read More

Income investments are an important portion of any retirement portfolio. Historically, they’ve provided retirees monthly or quarterly income distributions to help cover expenses, healthcare and any other living expenses. #-ad_banner-#The other morning I was perusing a Morgan Stanley Smith Barney report that outlined four different 401(k) allocations. While there are many factors that go into an individual investor’s asset allocation, the portfolios range from 25% to 60% in income producing bonds. Along with bonds, the portfolios invest anywhere from 10% to 54% in large-cap stocks. Assuming that part of the reason for investing in these types of assets is to add income-producing securities to your portfolio, a logical question to ask is: Do these models account for the lower yields that we’re seeing in the current environment? I doubt it. If you’re trying to earn income by investing in large-cap stocks and bonds, you face serious obstacles. Mainly that yields are down across the board…   The average yield in the S&P 500 is only 1.9%. At that rate, you’re not even keeping up with inflation. Read More

But I’ve been very successful in this low-interest-rate environment. I’ve closed 85 straight winning trades in my Income Trader newsletter since its inception in February 2013. And I’m not talking about single-digit gains either. The average trade has provided an annualized return of 53%. #-ad_banner-#Before I get into how I was able to do this, I want to look at the risks income investors face today. I’m sure most traders are aware that when the Fed eventually raises rates, fixed-income investments like bonds will drop in value. But I’m not sure many… Read More

But I’ve been very successful in this low-interest-rate environment. I’ve closed 85 straight winning trades in my Income Trader newsletter since its inception in February 2013. And I’m not talking about single-digit gains either. The average trade has provided an annualized return of 53%. #-ad_banner-#Before I get into how I was able to do this, I want to look at the risks income investors face today. I’m sure most traders are aware that when the Fed eventually raises rates, fixed-income investments like bonds will drop in value. But I’m not sure many understand how much money they will actually lose on their investments. Many analysts expect the Fed to begin raising short-term rates sometime this year. By next summer, the market is predicting they could reach 1%, according to the rate implied by Fed funds futures.  A 1% increase doesn’t sound like much, but this small move could result in very large losses. Investors earning 2.4% in long-term Treasuries could see 17.6% of their principal disappear by next summer. That’s more than seven years’ worth of interest payments at the current yield.  I believe some income investors are taking on more risk… Read More

One of the most important lessons I learned during my days in the Army was the KISS principle: Keep it simple, stupid. #-ad_banner-#Outside of the military, one of the greatest minds of all time believed in the KISS philosophy, but Albert Einstein expressed the idea in more poetic terms: “Everything should be made as simple as possible, but not simpler.” I bring that same mindset to investment analysis. I want every process to be as simple as possible, but not so simple that I’m leaving out anything important. While I have spent a great deal of time studying complex investment… Read More

One of the most important lessons I learned during my days in the Army was the KISS principle: Keep it simple, stupid. #-ad_banner-#Outside of the military, one of the greatest minds of all time believed in the KISS philosophy, but Albert Einstein expressed the idea in more poetic terms: “Everything should be made as simple as possible, but not simpler.” I bring that same mindset to investment analysis. I want every process to be as simple as possible, but not so simple that I’m leaving out anything important. While I have spent a great deal of time studying complex investment techniques, what I discovered is that the KISS principle applies in investment analysis as well as it did in the military. For example, although I look at complex valuation models, the simple PEG ratio consistently identifies undervalued stocks. The PEG ratio compares the price-to-earnings (P/E) ratio to the growth rate of earnings per share (EPS). A stock is considered fairly valued when the PEG ratio is equal to 1, which means the P/E ratio equals the EPS growth rate. I have found the PEG ratio to be a much more useful tool than other fundamental valuation methods for finding a… Read More

One of the best income strategies in the world involves a market some investors completely ignore. It allows individual investors to generate income from the best companies in the world without buying stocks most of the time. #-ad_banner-#I’ve been recommending trades in this market for over a year. And so far, the results have been astounding — each of the 85 trades I’ve closed has been a winner. I don’t want to beat around the bush or make this sound like some super-secret investing strategy only I can tell you about. I am talking about selling options. Now,… Read More

One of the best income strategies in the world involves a market some investors completely ignore. It allows individual investors to generate income from the best companies in the world without buying stocks most of the time. #-ad_banner-#I’ve been recommending trades in this market for over a year. And so far, the results have been astounding — each of the 85 trades I’ve closed has been a winner. I don’t want to beat around the bush or make this sound like some super-secret investing strategy only I can tell you about. I am talking about selling options. Now, before you decide that you never want to try options trading, let me show you what a recent subscriber to my Income Trader newsletter, which focuses on selling options, had to say about my strategy: “When I first started using [Amber’s] picks, my goal was to earn $500. Then I quickly realized I can earn at least $1,000 per month. I use the profits to buy more… Not only are your picks excellent with low risk, it teaches you to look for other options on your own, which… Read More