How to maximize gains while minimizing risk is the quintessential investing query. But while significantly reducing risk is possible (as I’ll show you in a minute), you cannot remove it entirely.  Investors may seek out the “Holy Grail” — a trade with a high return and no risk — but in reality they’re just shifting risk. For example, people who illegally trade on insider information can take huge positions and make an enormous, nearly “guaranteed” reward with seemingly no risk. In reality, the market risk has shifted to a legal one. If caught, the trader faces the potential… Read More

How to maximize gains while minimizing risk is the quintessential investing query. But while significantly reducing risk is possible (as I’ll show you in a minute), you cannot remove it entirely.  Investors may seek out the “Holy Grail” — a trade with a high return and no risk — but in reality they’re just shifting risk. For example, people who illegally trade on insider information can take huge positions and make an enormous, nearly “guaranteed” reward with seemingly no risk. In reality, the market risk has shifted to a legal one. If caught, the trader faces the potential disgorgement of those profits and incarceration. The same is true of fraud such as Ponzi schemes like the Bernie Madoff hedge fund scandal. Risk remains — just in a different form. Law-abiding investors must accept that risk and reward are inseparable. The good news is that maximizing return and minimizing risk is possible using a trend-following system. Or should I say, it is possible when you learn to overcome the emotional difficulties which often stand in the way of profitable trend following. In my 20 years of managing money, I’ve found this is the key to success in the markets. Read More

#-ad_banner-#What separates a successful value investor from the pack? Experience. The world’s top value investors will tell you that they all began their careers by buying value stocks too early. With time, they learned to avoid such a mistake. They all have war stories about such “value traps.” But how can you identify — and avoid — such stocks? And when do these stocks morph into compelling opportunities? The signposts are quite simple. Let me cite large mining equipment provider Joy Global, Inc. (NYSE: JOY) as an example. At the start of 2015, this company’s stock had already seen a… Read More

#-ad_banner-#What separates a successful value investor from the pack? Experience. The world’s top value investors will tell you that they all began their careers by buying value stocks too early. With time, they learned to avoid such a mistake. They all have war stories about such “value traps.” But how can you identify — and avoid — such stocks? And when do these stocks morph into compelling opportunities? The signposts are quite simple. Let me cite large mining equipment provider Joy Global, Inc. (NYSE: JOY) as an example. At the start of 2015, this company’s stock had already seen a 30% pullback from its 52-week-high, and was trading for less than six times cyclical peak earnings (of $7.18 a share, earned back in fiscal (October) 2012). Such low multiples on deep cycle stocks often bring out the value investors, who begin to accumulate shares in anticipation of an eventual cyclical upturn. Not this time. Buying shares in early 2015 would have been disastrous. Why was this a stock to avoid? First, because commodity prices have remained in freefall. As long as prices for iron ore, gold and other metals are falling, demand for mining equipment is bound to continue… Read More

Studies have shown that a large portion of a stock’s gain can be attributed to the sector it is in. With that in mind, the food products group is now outperforming the market, and the Dow Jones U.S. Food Products Index recently broke out to a 52-week high. #-ad_banner-# Within that group is Hershey (NYSE: HSY), which I highlighted last week. Also represented are cereal makers Kellogg (NYSE: K) and General Mills (NYSE: GIS). Both of these brand-name stocks have already scored technical breakouts of their own. Today, I want to highlight a little-known food company that… Read More

Studies have shown that a large portion of a stock’s gain can be attributed to the sector it is in. With that in mind, the food products group is now outperforming the market, and the Dow Jones U.S. Food Products Index recently broke out to a 52-week high. #-ad_banner-# Within that group is Hershey (NYSE: HSY), which I highlighted last week. Also represented are cereal makers Kellogg (NYSE: K) and General Mills (NYSE: GIS). Both of these brand-name stocks have already scored technical breakouts of their own. Today, I want to highlight a little-known food company that is just starting to make a move higher — Flowers Foods (NYSE: FLO). The company makes and markets bakery products, including the Nature’s Own, Wonder and Tastykake brands. What initially put Flowers Foods on my radar screen was the failed rebound attempt in wheat prices. The commodity is now back down near 52-week lows. Beyond the fundamentals of falling input prices, FLO sports a chart with a fledgling technical breakout and is supported by strong sector performance even as the broader market struggles. The technicals are not fancy. On-balance volume during the May-to-July decline was flat instead of… Read More

One of the proven ways to become a great investor is to study great investors. Every time an investing legend makes a successful trade, a clue is left behind. For instance, every buy and sell decision Warren Buffett makes tells us more about his process, and those insights can help us create our own success. Today, I’m going to focus on an important lesson from a lesser-known, but wildly successful investor. While I’m sure you’re familiar with Buffett, Peter Lynch and other well-known investors, you might not be familiar with Lynn Tilton. Tilton is the CEO of the $8 billion… Read More

One of the proven ways to become a great investor is to study great investors. Every time an investing legend makes a successful trade, a clue is left behind. For instance, every buy and sell decision Warren Buffett makes tells us more about his process, and those insights can help us create our own success. Today, I’m going to focus on an important lesson from a lesser-known, but wildly successful investor. While I’m sure you’re familiar with Buffett, Peter Lynch and other well-known investors, you might not be familiar with Lynn Tilton. Tilton is the CEO of the $8 billion private equity firm Patriarch Partners and one of the more obscure money managers I follow. She has a number of critics and has seen her fair share of controversy. But many of her investments have been successful and uncontroversial, and we can learn a great deal from them. Tilton is known for her ability to turn around struggling companies in basic industries, and she’s credited with saving 700,000 jobs at the roughly 75 companies Patriarch invests in, including MD Helicopters, Stila Cosmetics and Gorham Paper and Tissue. Tilton has often pointed out that one of the “universal lies” companies tell… Read More

With all of the recent stock market gyrations associated with events in Greece and China, investors may have failed to notice what is happening in the bond market.  The rate on the 10-year U.S. Treasury has fallen nearly 10% to 2.2% since mid-July, taking corporate bond yields down as well. The yield in one sector has actually increased though and has rarely been higher. Besides the higher yield, values have come down and historical data suggest solid returns over the next year.   #-ad_banner-# Earn A 7% Yield And 40% Potential Upside Strong long-term demand for pipeline transportation and… Read More

With all of the recent stock market gyrations associated with events in Greece and China, investors may have failed to notice what is happening in the bond market.  The rate on the 10-year U.S. Treasury has fallen nearly 10% to 2.2% since mid-July, taking corporate bond yields down as well. The yield in one sector has actually increased though and has rarely been higher. Besides the higher yield, values have come down and historical data suggest solid returns over the next year.   #-ad_banner-# Earn A 7% Yield And 40% Potential Upside Strong long-term demand for pipeline transportation and energy storage has not been enough to save midstream master limited partnerships (MLPs) from their energy-related selloff. Energy may have fallen out of favor lately, but it’s important to remember that the U.S. energy production renaissance is a multi-decade theme. While oil and gas production may ebb and flow, the demand for pipeline transportation will remain extremely strong. A clear sign of industry demand: Roughly 850,000 barrels of oil are transported daily on our nation’s rails, despite relatively higher costs for that mode of transport. The knee-jerk reaction to lower energy prices has led to steep cuts in capital spending… Read More

There’s a financial formula used by some of the largest banks on Wall Street, including Goldman Sachs, Morgan Stanley, JP Morgan and Bank of America. It’s the secret behind many of their top money-making strategies — they’ve been using it for decades to rake in billions for themselves and their wealthy clients. I use the formula myself… and I’ve been able to generate an average annualized return of 18.4% with one of the easiest and most conservative strategies in the market.  The formula I’m talking about is called the Black-Scholes model. Read More

There’s a financial formula used by some of the largest banks on Wall Street, including Goldman Sachs, Morgan Stanley, JP Morgan and Bank of America. It’s the secret behind many of their top money-making strategies — they’ve been using it for decades to rake in billions for themselves and their wealthy clients. I use the formula myself… and I’ve been able to generate an average annualized return of 18.4% with one of the easiest and most conservative strategies in the market.  The formula I’m talking about is called the Black-Scholes model. If you’re at all familiar with options, then you may have heard of it before. It’s the most important development in financial engineering. It allows ordinary investors to profit from options just like Wall Street traders. It was developed by Fischer Black, Myron Scholes and Robert Merton in the early 1970s. Their formula provided a rational way to determine how much an option is worth. Thanks to their discovery, the three received the Nobel Prize in economics. To understand why it’s important, you have to consider how things were before their… Read More

For the fourth time since February, the bellwether S&P 500 tested and successfully rallied last week from its 200-day moving average — a widely watched major trend proxy currently situated at 2,068 — to lead yet another broader market rebound. Last week’s rally was again driven by the Pavlovian “buy the dip” mentality that investors have been conditioned with following years of quantitative easing by the Federal Reserve. While QE officially ended in October, as long as this strategy continues to work, investors are likely to keep doing it. Meanwhile, the S&P 500 continues to ping-pong within a tight, 4%-to-5%… Read More

For the fourth time since February, the bellwether S&P 500 tested and successfully rallied last week from its 200-day moving average — a widely watched major trend proxy currently situated at 2,068 — to lead yet another broader market rebound. Last week’s rally was again driven by the Pavlovian “buy the dip” mentality that investors have been conditioned with following years of quantitative easing by the Federal Reserve. While QE officially ended in October, as long as this strategy continues to work, investors are likely to keep doing it. Meanwhile, the S&P 500 continues to ping-pong within a tight, 4%-to-5% trading range. Despite a lot of choppy trading and historically large daily trading ranges, the index closed July up only a meager 2.2% for the year. #-ad_banner-# All sectors of the S&P 500 ended in positive territory last week except for beleaguered energy, which lost 0.2%. Leading last week’s rebound was defensive utilities, which gained 3.9%, while quietly becoming the best-performing sector of the past month.   Utilities are now on my radar screen as a potential sector to overweight this quarter. However, I want to see a little more price strength amid some positive asset flows… Read More

For the inexperienced, the world of options trading can be daunting… even confusing, but once you understand the basics of how options work, they are as simple as buying or selling stocks. That’s why we recently featured a quick primer on call options (here) and put options (here). Today I’m going to explain how options are priced and how that knowledge has helped my readers and I close 85 straight winning trades. It all starts with the idea of arbitrage, which means looking for assets that are equivalent to each other,… Read More

For the inexperienced, the world of options trading can be daunting… even confusing, but once you understand the basics of how options work, they are as simple as buying or selling stocks. That’s why we recently featured a quick primer on call options (here) and put options (here). Today I’m going to explain how options are priced and how that knowledge has helped my readers and I close 85 straight winning trades. It all starts with the idea of arbitrage, which means looking for assets that are equivalent to each other, but are traded in different markets. If one market is mispricing the asset, an arbitrage trader can make a nearly risk-free profit by buying in the cheaper market and selling in the more expensive market. Let me explain. If bananas cost the same to produce in Brazil and the United States, but are sold for twice as much in the states, then Brazilian producers will ship their product to the more expensive market until prices have corrected. Years ago, the classic example of arbitrage focused on stocks traded… Read More

#-ad_banner-#As the long-running bull market shows signs of tiring, investors are searching for pockets of safety. But even seemingly safe stocks may not always provide a refuge. A clear example: StoneMor Partners LP (NYSE: STON), the nation’s second-largest owner and operator cemeteries and funeral homes, has announced modest dividend increases every year for a decade. But that impressive run may soon end. At first glance, this master limited partnership holds solid appeal. Partnership units currently yield an attention-grabbing 8.2%, and yields have ranged from about 7% to nearly 18% since 2005. However, StoneMor’s operational results tell a different story. The… Read More

#-ad_banner-#As the long-running bull market shows signs of tiring, investors are searching for pockets of safety. But even seemingly safe stocks may not always provide a refuge. A clear example: StoneMor Partners LP (NYSE: STON), the nation’s second-largest owner and operator cemeteries and funeral homes, has announced modest dividend increases every year for a decade. But that impressive run may soon end. At first glance, this master limited partnership holds solid appeal. Partnership units currently yield an attention-grabbing 8.2%, and yields have ranged from about 7% to nearly 18% since 2005. However, StoneMor’s operational results tell a different story. The firm has been unprofitable for nearly seven years, posting per-share losses ranging from $0.09-to-$0.89. And it’s unlikely to get back into the black anytime soon for several reasons. Overpriced Acquisitions Cemeteries and funeral homes are dependable, but stagnant businesses. As a result, StoneMor has only been able to grow through acquisitions. From 2010 through 2014, the firm obtained nearly 90 properties, about half of which were cemeteries. The strategy successfully increased the top line, which has risen 46% in the past five years, to $288 million. However, StoneMor spent $153 million to acquire that additional… Read More

In search of the next great growth stock, investors typically seek out innovative technology companies. Yet one of the most appealing growth stocks in recent memory is a  140 year-old company that makes water tanks and heaters for residential and commercial buildings. Indeed a savvy expansion into new markets has helped A. O. Smith Corp. (NYSE: AOS) generate impressive top- and bottom-line growth. And the business momentum appears set to continue. During the recent domestic housing crisis,  A. O. Smith predictably struggled. This is a stock that will always be correlated with the U.S. housing market, which accounts for more… Read More

In search of the next great growth stock, investors typically seek out innovative technology companies. Yet one of the most appealing growth stocks in recent memory is a  140 year-old company that makes water tanks and heaters for residential and commercial buildings. Indeed a savvy expansion into new markets has helped A. O. Smith Corp. (NYSE: AOS) generate impressive top- and bottom-line growth. And the business momentum appears set to continue. During the recent domestic housing crisis,  A. O. Smith predictably struggled. This is a stock that will always be correlated with the U.S. housing market, which accounts for more than 40% of total company sales. As the U.S. housing market recovered, so too has A.O. Smith. The company has grown its earnings per share 38% annually since 2010. Yet even as the housing market has bounced back from formerly depressed levels, there is still plenty of slack in the housing market. New housing starts bottomed out in the recession and are still below historical averages. At around 1.2 million housing starts per year, the current pace of new home construction is only around half of new household formation. Housing construction still has a lot of… Read More