Some of my readers might wonder why I link to sites like bloomberg futures when they don\’t neccesarrily reflect what the stock markets will actually do the next day… and since I don\’t trade FOREX are of relatively little value.  I suggest that you are probably wrong then, because you are underestimating the value of knowledge in watching the markets.

The futures markets are a great way to investigate into the daily sentiment of the market.  You and I probably shouldn\’t trade on the actual markets based soley on the trends they set, but they can point out the existance of major stories that you haven\’t see yet. Even if you aren\’t trading on the FOREX these need to be followed.

Bloomberg is the CNBC of the UK and a lot of financial news covering many stories, and is not as limited in scope as less international news corporations… even though the New York Times is also a very good source, I think that you will find more and more interesting articles on an easier to use web site at Bloomberg.

Of course, you can also track futures on FOREX, and they have a great free trading trial that you should probably investigate.  Currency trading can be very dangerous, and just remember, for you to win, somebody else has to lose (as is often the case with markets)  and when we are talking about intitial margin accounts, little regulation, and very much prediction based pricing, where even technical analysis gets it wrong sometimes, I\’m weary to enter. But their trading platform has very nice charts and information details for that information.

Some other ideas:

http://finance.yahoo.com tends to have the most complete dividend information.  They have yield, amount, ex div date, and dividend date that are likely to be the most helpful in deciding whether a selected dividend play is worth it or not.

http://finance.google.com, New York Times, Bloomberg all seem to have the most easy to find financial news sections. I follow the NYTimes on Twitter and google wins on this list simply because it coorelates the charts and the news stories so that you might better understand what has been the market movers and what hasn\’t (Like the news story that a huge company like P&G (PNG) layed of an entire 80 employees last week.)

But there is no better place to get the story when investing than the company website and their annual reports. They have marketing departments, so be weary of too biased information, but if you want to compare how companies ideas compare to eachother, take a look at this information.

To be responsible and reasonable it is very important that rules exist to govern how and why you perform certain actions. If you don\’t have rules when you are investing and trading in the stock market, then you are relying on luck absolutely – and even gamblers like to do more than that.

I like the scenes in the transporter movies where Frank makes it clear that he lives his life based on rules. He does break his own rules a couple of times though, but I\’m going to start with the quotes that I can relate to our topic first.

Frank: Rule #1. Never change the deal.

When you make a trade, you need to know what you are getting into and what you hope to get out. Just like a business plan, have an exit strategy. What % loss, % gain will mean that you will exit the position.

Frank Martin: Rule number two?
Jack Billings: Greet the man. Good afternoon, Frank.

If you are trading or investing in anything it is important that you do some homework. Mutual funds can be a little lax here. Don\’t think that it is worth your money to keep track of the financial news? Newsflash, it is, that\’s why you are INVESTING because you think that it is worth your time and money.

I used to have an actual stock broker though, and that can be legitimate, but there is the huge possibility that your representative is not really doing an adequate job of keeping track of your portfolio. In fact, I would suggest that you ask your representative what he and his other accounts are like and follow an asset allocation similar to that, at least then your account is more likely to be watched.

Frank Martin: You know my fourth rule? Never make a promise you can\’t keep.

I\’ve made the mistake of breaking rules and I\’ve gotten burned. If you are blinded by emotion you need to reconsider an investment. Like that REIT dividend payment, seriously consider the news on profits and bad news that happens. Pick some stocks that you are excited about. Under allocate to anything that you wouldn\’t sell.

I lost 75% of my value in $NFI – but I had been buying in as the price decreased with warning articles written by CBS Money. The funny part is that I had had stop orders that I purposely canceled because I was overly optimistic about receiving 9%+ every quarter.

Today I breezed through Swain\’s copy of Dave Ramsey\’s financial management book The Total Money Makeover Workbook and it had a short section on not investing in Gold (and it is Maven IG\’s position as well). I believe that gold and similar commodities are an important part of an investment portfolio.There are really arguments on both sides, and my side is definitely a conservative but insightful one.

Gold is one of those limited natural resources that all of the women and men see as a status symbol in their lives. In the old days it was a major currency, and backed the U.S. dollar into the 1970s. But today, almost every major currency is a fiat (and I don\’t mean the car) imaginary value for currency. Because gold is a limited natural resource (unlike cotton) it theoretically only decreases in value when miners discover more gold.

Why not? Dave has some very good points when it comes to gold

1. Gold rarely outperforms inflation (its recent average is around 2.2% annual)
2. Gold people are out to get you (like the Cash for Gold people and pawn shops) and will get you to buy Gold high in times of economic crisis. (or in the case of cash for gold, give you modest value per the actual value.)

Why? Paul from the GTSF Investments Committee has been fear mongering a lot recently about how the U.S. banking and currency systems are doomed – we were both fans of Congressman/Dr. Ron Paul for Republican Party Presidential Nominee last Spring… partly based on the Gold standard ideas of Dr. Paul.

1. Wouldn\’t it be great if your penny was worth something?
2. What if this private entity the fed could not randomly debase the currency?
3. How can the U.S. be 7 trillion dollars in debt and still be printing money?

What I see as proper portfolio management is that gold and commodities need their own sector in your portfolio. You want to hedge against inflation, currency risk, and global meltdown – but you obviously don\’t want to use your hedge to make great expected returns.  A reasonably amount of your portfolio to have in real assets like Gold is about 10%, which means that when 80% of your portfolio is down, if you needed to access something that has been growing, you could use Gold. Eventually your portfolio should have 10% of high risk (like startups too) so you would have 10% completely safe, and 10% completely at risk.

And like most major portfolio purchases, you should never buy because of the hype (so don\’t buy because I wrote this article) but because it is what\’s best to manage your desired risk/reward.

ETFs make it simple to invest in gold without worrying about storing it where it won\’t degrade. Check out $GLD and $IAU which I have invested in before and made a reasonable amount of money from 2005-2008, and I just held it knowing that on a bad day, it would go up. They store bullion in warehouses and purchase 1/10th of an ounce per share that you buy. It\’s easy, simple, and easy to track.

So don\’t go shore up all of your capital in cash to gold or vice versa. Gold will protect your cash and equities, but it really is not designed for growth… Assuming a stable and intelligent government, value protection should be a part of the currency and so Gold should stay relatively stable. Treat gold as one of your sectors to manage.

Finally though, if you are going to cash out from the stock market and keep cash under your mattress, look into Gold, it\’s better to have something that can\’t be printed than something that can. Check out this video on YouTube from Ducktails on inflation httpv://www.youtube.com/watch?v=t_LWQQrpSc4

In case you don\’t read the news (which would make it similarly unlikely that you are taking time to read my blog,) the Dow Jone Industrial Average DOW dropped 299 points jumping right by technical resistance levels at the 7000 point level. Similar the S&P 500 barely stayed above 700 by the end of the day. These are very interesting times that we are seeing, and today was more a surprise I think, because everybody would have expect $AIG to be the stock losing value as it gets more and more diluted by the U.S. government, but instead we saw everything else (especially the financials) down on rumours of Freddie and Fannie future.

Today I\’ll cover a lot on how the trader protects himself from down markets, and eventually sells. In an ideal world the \”investor\” would only sell when the fundamental strategies behind the company change  – and continually collect a dividend, reinvest it, and trust that the company will grow over the period of infinite. Realistically, the downturn that we\’ve seen should suggest that everybody follow these guidelines to selling a stock.

Trailing Stops

Trailing stops are the best hassle-free way to go about protecting yourself. A trailing stop automatically trails the current price by points or a percentage, so as the price rises, your stop order rises.  So if during the boom times of 2007 and early 2008 maybe your non-volatile stock shot up from $50 to $70 a share and when you bought it you decided to go ahead and protect it with a 5point trailing stop order. This means that you would never lose more than $5 per share, and assuming steady growth with no $5 down days (like we see in 2008-2009)  you would be set until it hit $70 until October 2008 comes and the stock price goes below $65, at which point your broker automatically sells.

What this means is that, if you assume a steady uptrend with no huge spikes in either direction (typically a safe assumption when you want to be standardly long) that your account will automatically switch back to cash when there are major events in the systematic markets… or your company announces in an earnings call that they don\’t plan to be profitable for 5 years.

Stop-Loss orders

This is really what a trailing stop is, except here you do all of the work instead of your broker. Now to keep protecting your losses you need to manually adjust the stop loss to a point value at periodic intervals (say every $5 for kicks.) You should also consider switching brokers, as any broker worth having should offer trailing stops most of the time.

Most of All, Don\’t Hold On to Losers

I\’m not a fan of what a lot of people call dollar cost averaging in a down market. If a stock is trending down, then you seriously need to sell it! Don\’t hang on to a sinking ship, get out and re-analyze. Staying in is a purely emotional play.

The GT Student Foundation should have followed this advice with BAC (Bank of America) and probably would have if it were slightly more actively managed and many swaps of positions were not frowned upon. The Foundation bought originally at $24, bought more to dollar cost average at $17,  then bought more at $12, and finally, bought more at $5. Instead, drop your losers until the price is more certain (yes, you may miss a big jump) When the foundation was down 35% as the price dropped to $17, all positions could have been sold. Then at either $12 or $5 we could have reconsidered, ultimately giving us more share for the same amount of money.

This is really how Trading works. In the last weeks we have seen Bank of America in major channels between $3.40 and $5.80. This is a huge opportunity, you buy low, and have that stop loss limit (potentially mental) at that 5% as it climbs the next two days. Of course we\’re looking for the end of the channel, but momentum tends to be visible.  I\’ve made this tracking trade 3 times now.

Complications

As you know, I am a fan of the covered call trade, which means that these orders can not happen as easily as this makes it seem. If you implement both strategies, you will need to have a double legged order to buy back a (cheaper) call, and then sell the stock. Even fewer brokers do this. Tradeking does though, check them out http://tradeking.com