Easy access to data and charting software has contributed to information overload for many investors. Some investors will spend time looking for the perfect chart while other investors will review charts that really contain nothing of value.#-ad_banner-# Many of the charts we see are useless. And although we don’t believe there is a perfect chart that will identify every market turning point in advance, we find there are some charts that can better help investors understand what to do in the market. It is important to remember that successful investing is not easy. It requires an edge, which… Read More

Easy access to data and charting software has contributed to information overload for many investors. Some investors will spend time looking for the perfect chart while other investors will review charts that really contain nothing of value.#-ad_banner-# Many of the charts we see are useless. And although we don’t believe there is a perfect chart that will identify every market turning point in advance, we find there are some charts that can better help investors understand what to do in the market. It is important to remember that successful investing is not easy. It requires an edge, which can be defined as a unique and repeatable insight into the behavior of markets. To succeed, you will need to understand what your edge is, and a true edge in the markets will not include information that is widely available. You will not find an edge simply by looking at the price-to-earnings (P/E) ratio for a stock or spotting a buy signal with a widely followed technical indicator like stochastics. Old traders summarize this problem with a memorable saying: “To know what everyone knows is to know nothing.” Rather than spending time reviewing what everyone knows,… Read More

Working with hedge funds and money managers has made me aware of certain similarities between nearly all long-term, market-beating professional investors. It doesn’t matter how large (or small) their asset base is, what stocks or other financial instruments they trade, or even their particular strategy. #-ad_banner-#​ This one thing is constant across all successful money managers. It is the most basic tenet of successful portfolio construction. In fact, it’s the most basic concept underlying success in nearly every field. I’m talking about the necessity of having foundational or core holdings in every financial portfolio. It’s a simple concept, once… Read More

Working with hedge funds and money managers has made me aware of certain similarities between nearly all long-term, market-beating professional investors. It doesn’t matter how large (or small) their asset base is, what stocks or other financial instruments they trade, or even their particular strategy. #-ad_banner-#​ This one thing is constant across all successful money managers. It is the most basic tenet of successful portfolio construction. In fact, it’s the most basic concept underlying success in nearly every field. I’m talking about the necessity of having foundational or core holdings in every financial portfolio. It’s a simple concept, once you understand what I mean by “core” or “foundational” holdings. Achievement in any endeavor demands a solid foundation. Everything requires an underlying base to ensure stability and continued successful growth. Two everyday examples are mathematics and construction. It’s impossible to understand advanced mathematics without knowledge of core concepts like arithmetic. The same can be said for construction: All tall buildings designed to withstand the test of time share the same common element of a solid foundation.  This concept can be applied to building a successful long-term investment portfolio: Every successful long-term portfolio is built upon foundational, or core, holdings. These… Read More

Apple (Nasdaq: AAPL) has a monster of a problem. The maker of iPhones and iPads has over $147 billion of cash on its balance sheet. On paper, that looks like $147,000,000,000 — or more than the GDP of Ecuador. That doesn’t even count the money the company is raking in this quarter. It’s just the cash it has sitting in the bank right now. This might seem like a nice problem to have… After all, an ample cash reserve is important for independence and security. But having too much cash, especially at current record low interest rates, may be crippling… Read More

Apple (Nasdaq: AAPL) has a monster of a problem. The maker of iPhones and iPads has over $147 billion of cash on its balance sheet. On paper, that looks like $147,000,000,000 — or more than the GDP of Ecuador. That doesn’t even count the money the company is raking in this quarter. It’s just the cash it has sitting in the bank right now. This might seem like a nice problem to have… After all, an ample cash reserve is important for independence and security. But having too much cash, especially at current record low interest rates, may be crippling Apple’s ability to grow. #-ad_banner-#For the better part of the last decade, Apple was a model of innovation and financial performance. The company enjoyed a track record of introducing sleek, game-changing products and services including the iPod and iTunes. But it wasn’t always a smooth ride for Apple. In 1997, Apple was in deep financial trouble. The company brought back its visionary founder Steve Jobs. But Jobs alone couldn’t save Apple… he needed money. The only way Apple could save itself was to grovel before its arch rival Microsoft (NYSE: MSFT) and borrow $150 million. Apple never wanted to be… Read More

Individual investors often point to the long-term success of Warren Buffett as proof that value investing works. They are correct, and Buffett is just one example of the many long-term investors who have found success with value investing.  However, although value investing can work, many investors fail to succeed with this strategy.#-ad_banner-# I think the reason value investing is so difficult to implement is because it is challenging to define exactly what “value” means. Some investors use the price-to-earnings (P/E) ratio and buy when the P/E ratio is low. Others search for stocks with low price-to-sales (P/S) ratio in… Read More

Individual investors often point to the long-term success of Warren Buffett as proof that value investing works. They are correct, and Buffett is just one example of the many long-term investors who have found success with value investing.  However, although value investing can work, many investors fail to succeed with this strategy.#-ad_banner-# I think the reason value investing is so difficult to implement is because it is challenging to define exactly what “value” means. Some investors use the price-to-earnings (P/E) ratio and buy when the P/E ratio is low. Others search for stocks with low price-to-sales (P/S) ratio in their hunt for value. In addition to these two tools, there are dozens of other ways to measure value. In the right hands, and with enough time, any disciplined approach to value investing should work in the long term. Another well-known investing strategy is buy-and-hold, or index, investing, which is an admission on the part of the individual that they cannot beat the market and are willing to accept all of the losses in a bear market with no chance of outperforming in a bull market. Momentum, or relative strength (RS), investing is a less widely… Read More

Although almost any market action can be explained away — in hindsight — some trends will remain a deep mystery.#-ad_banner-#​ Major biotech stocks rallied sharply throughout 2013, as I noted in this column, but smaller biotechs inexplicably sold off sharply after Labor Day. My view: In the absence of any clear explanation of why smaller biotechs should suddenly fall deeply out of favor, lower stock prices should lead investors to give these stocks a fresh look. Indeed, that scenario played out as expected. Since my mid-November profile of Regulus Therapeutics (Nasdaq: RGLSD), Threshold Phama (Nasdaq: THLD) and Synergy… Read More

Although almost any market action can be explained away — in hindsight — some trends will remain a deep mystery.#-ad_banner-#​ Major biotech stocks rallied sharply throughout 2013, as I noted in this column, but smaller biotechs inexplicably sold off sharply after Labor Day. My view: In the absence of any clear explanation of why smaller biotechs should suddenly fall deeply out of favor, lower stock prices should lead investors to give these stocks a fresh look. Indeed, that scenario played out as expected. Since my mid-November profile of Regulus Therapeutics (Nasdaq: RGLSD), Threshold Phama (Nasdaq: THLD) and Synergy Pharma (Nasdaq: SGYP), these three stocks have rebounded, 24%, 12% and 31% respectively. That’s an impressive six-week rally, and likely signals that this out-of-favor sector is rotating back into favor. I think these three stocks remain undervalued and will be tracking them in the year ahead. With that in mind, here are three other biotechs that have massive potential upside, according to the Wall Street analysts who follow them. 1. Esperion Therapeutics (Nasdaq: ESPR )​ This firm is developing a new drug, ETC-1002, that has shown great promise in treating people with high cholesterol for whom statins have not been helpful or have had problematic… Read More

Seasonality is bullish for gold but bearish for stocks. The outlook for gold is confirmed by more traditional indicators and could provide one of the best trading opportunities in the next few months. Seasonals Favor Lower Prices SPDR S&P 500 (NYSE: SPY) gained 1.26% last week and is now up 31.71% in 2013.#-ad_banner-#​ Seasonals indicate the market could be due for a pullback. There are seasonal trends in almost all markets, and these indicators work with varying degrees of effectiveness. Traders should not base buy and sell decisions solely on seasonals, but… Read More

Seasonality is bullish for gold but bearish for stocks. The outlook for gold is confirmed by more traditional indicators and could provide one of the best trading opportunities in the next few months. Seasonals Favor Lower Prices SPDR S&P 500 (NYSE: SPY) gained 1.26% last week and is now up 31.71% in 2013.#-ad_banner-#​ Seasonals indicate the market could be due for a pullback. There are seasonal trends in almost all markets, and these indicators work with varying degrees of effectiveness. Traders should not base buy and sell decisions solely on seasonals, but they are a factor to consider. While the idea of seasonal tendencies might not be widely followed, they can be profitable as the popular “sell in May and go away” rule often is. The chart below shows the seasonal pattern for SPY. This indicator uses all of the available history and shows how the ETF has done, on average, on any given day. If history repeats, the year-end rally in the stock market could stall as seasonals point toward a flat market with some downside risks for the next three months. Seasonals are known in advance, and the… Read More

Do you want to know the secret to predicting which stock will make you money before it even begins its rise to the top? In a word: trends. Trends are our clues to investing, our road map to the financial world. “History repeats itself” is a cliche for a reason, and so I search for trends when picking stocks for my premium newsletter Stock of the Month. Let me be clear, though. I don’t just go looking for any trend. Any investor can follow the flavor of the month. And while you may have some success doing this, I can… Read More

Do you want to know the secret to predicting which stock will make you money before it even begins its rise to the top? In a word: trends. Trends are our clues to investing, our road map to the financial world. “History repeats itself” is a cliche for a reason, and so I search for trends when picking stocks for my premium newsletter Stock of the Month. Let me be clear, though. I don’t just go looking for any trend. Any investor can follow the flavor of the month. And while you may have some success doing this, I can guarantee it won’t last for long.   #-ad_banner-#​Instead, I spend my time looking for a specific type of trend: companies that are about to disrupt their industry, setting the table for a shift in the balance of power that can reward early investors with sizable gains.  Many companies attempt to be disrupters — but few succeed. Disrupters revolutionize their industries using one common strategy. They find elements of their industry models that customers hate — and make them disappear. For example, broker commissions used to be regulated and set at a flat fee, roughly 1% of the… Read More

I recently noticed an interesting disconnect in the world’s stock markets, one that could mean profits in 2014 for those investors who take advantage. This forecast is based on one of the first short-term investing rules I learned in my initial training class with a proprietary trading firm.#-ad_banner-# The rule is that of correlation. Many stocks and markets appear to be correlated with one another. Simply stated, this means that if one stock out of a correlated pair makes a move, the other generally follows. If the other doesn’t follow, this spells opportunity for the trader. Buying or… Read More

I recently noticed an interesting disconnect in the world’s stock markets, one that could mean profits in 2014 for those investors who take advantage. This forecast is based on one of the first short-term investing rules I learned in my initial training class with a proprietary trading firm.#-ad_banner-# The rule is that of correlation. Many stocks and markets appear to be correlated with one another. Simply stated, this means that if one stock out of a correlated pair makes a move, the other generally follows. If the other doesn’t follow, this spells opportunity for the trader. Buying or selling the stock that disconnects from its historical correlated pattern with its match provides strong odds of profits.  Why is this? Well, based on past behavior, the stock that disconnects from the historical correlation generally will migrate back toward the correlation, producing profits for the investor who acts upon this disconnect.   That said, I am not implying that this is a sure thing. After all, there are no sure things in the stock market. Sometimes, previously correlated stocks become uncorrelated and never fall back in line with each other. But even so, this method can provide a statistical edge… Read More

Investors in small-cap stocks have rarely had it this good. The Russell 2000, which stood below 400 in early 2009, is quickly approaching the 1,200 mark.  It’s as though two decades worth of gains have been packed into just five years. The small-cap surge shouldn’t have come as a total surprise. As I noted on our sister site InvestingAnswers.com a few years ago, small-cap stocks often outperform large-cap stocks when the overall economy is coming out of a recession. Post-Recession Performance (prior to 2009) Yet as we turn the page and head into… Read More

Investors in small-cap stocks have rarely had it this good. The Russell 2000, which stood below 400 in early 2009, is quickly approaching the 1,200 mark.  It’s as though two decades worth of gains have been packed into just five years. The small-cap surge shouldn’t have come as a total surprise. As I noted on our sister site InvestingAnswers.com a few years ago, small-cap stocks often outperform large-cap stocks when the overall economy is coming out of a recession. Post-Recession Performance (prior to 2009) Yet as we turn the page and head into 2014, it’s crucial that you understand how a changing economy will influence this trend. For a host of factors, small caps are likely poised to underperform their large-cap peers.#-ad_banner-# In August, I explained why investors should shift assets into larger companies, and since then, the reasons for owning big-cap companies have only strengthened. First, the market has moved even higher since last August, with the Russell 2000 up another 9% and the S&P 500 Index rising another 8%. If investors are looking to lock in profits in 2014, then larger companies, especially those with robust buyback and dividend policies, are… Read More

In the 1930s, a financial editor at Forbes magazine pieced together chart patterns. Richard Schabacker, who is considered the father of technical analysis, went beyond identifying how patterns looked on charts. He also looked broadly at investor psychology and noticed that it could explain why some chart patterns form. Psychology can be a valuable tool for traders to understand. We have made some notes on the chart below that describe the feelings of some investors at various times during the past few years. #-ad_banner-#Investor psychology does help explain resistance on a chart, for example. After a bear market,… Read More

In the 1930s, a financial editor at Forbes magazine pieced together chart patterns. Richard Schabacker, who is considered the father of technical analysis, went beyond identifying how patterns looked on charts. He also looked broadly at investor psychology and noticed that it could explain why some chart patterns form. Psychology can be a valuable tool for traders to understand. We have made some notes on the chart below that describe the feelings of some investors at various times during the past few years. #-ad_banner-#Investor psychology does help explain resistance on a chart, for example. After a bear market, there will be some investors who will be thankful to recover their losses. They might sell when the market gets back to its old highs. This appears as resistance on the charts. After resistance is broken and prices start moving higher, we often see a market “melt-up” as investors rush in since they are worried about missing out on the upside. This is an oversimplification, but investor psychology does help us to understand a great deal about the market action. This idea was also recognized more than 100 years ago by Charles Dow, the creator of the Dow Jones Industrial… Read More