Archive for October, 2010
Smart Investing Daily – This Simple Step Could Save Your Investment Portfolio
| Written by Jared Levy, Editor, Smart Investing Daily | |
| Friday, 29 October 2010 10:22 | |
 Just about every stockbroker, financial advisor or money manager worth their weight in salt knows that diversification is a major way to us to manage investment risk.
But here’s what most — professionals and retail investors alike fail to remember: Diversification doesn’t just mean choosing to invest in different companies that do different things and that’s it. Creating real diversity and ultimately protecting your investment portfolio involves a little more work, which amazingly, most professionals still get wrong. Here’s the one step that almost everyone misses… The Tricks of the Diversification Trade |
Smart Investing Daily – The Secrets to “Hedging” Like a Professional
Tuesday, 26 October 2010
Remember the old adage that it is much easier and cheaper to buy insurance when the weather is good as opposed to when a tornado is coming down your street?
Here’s a lesson I learned quickly in my early days as a trader:
Professionals almost always have a “hedge” or some form of protection just in case things go wrong. A hedge could be as simple as diversification or an option strategy like a covered call. Hedges can also be done with hard assets like real estate or numismatic coins.
“Hedge” funds are very actively managed and invest in all sorts of assets to try to provide exceptional returns for their investors and minimize volatility when things go south in the markets.
When I was a trader on the floor of the stock exchange, I almost NEVER took on a position without having a full or partial hedge to protect it.
But hedging isn’t just a tool for the pros. You could (and should!) be implementing this technique too, especially now. Here’s what you need to know…
An Easy Example
If I were long 1,000 shares of Apple and thought the market was looking a bit overbought, I might sell 300 shares of the SPY to lower my trading account’s overall “volatility.” In other words, if I am still bullish on Apple and don’t want to sell my Apple position, maybe for tax reasons, my short SPY position helps to buffer my account when the market sells off. I will still make money when it goes up.
Here is what a hedge looks like:
Long Apple Stock Alone:
Apple is down $1 — my account would be down $1,000 (1,000 shares)
Net result is a $1,000 loss on that day
Long Apple Stock With Short SPY Hedge:
Smart Investing Daily – Breakout Chart
I spend most mornings trolling my wheelhouse of sites for charts that look interesting, giant cup of coffee in hand.
I tend to look over a large spread of different sectors, to really get a good lay of the land. This morning I found a chart that just can’t be ignored… and what I liked about it even more than its technicals was where it’s based.
Sure, this has been a good week for U.S. companies, with GOOG, NFLX, UPS and more all reporting blowout numbers and the inflate-a-rally continuing to drive multinational companies like PEP, KO and MCD to all-time highs. (Hopefully, you read my article and positioned yourself appropriately.)
Our guest editor, Kent Lucas, wrote this week about China and how it is vastly misunderstood. In his opinion, which I share, the bulk of Chinese investments are viewed as extremely risky. I believe it’s unfair to make any blanket assumptions without looking deeper into the numbers. Of course, risk is relative in investing and any stock carries with it unique risks that you must understand.
So, in the spirit of reducing risk by diversification and looking for a way for you to invest in China, I found an exceptional ETF that has outperformed the incredibly popular FXI (China 25 index), the GXC (S&P China Index) and the FCHI (China HK listed) over the past year. In fact, this ETF is up more than 20% YTD, while the FXI is only up about 10%.
Smart Investing Daily – Global Growth HERE
2 Major Defense Corporations Will Reap Rewards of Global Growth
Tuesday, 19 October 2010
Over the weekend, I had a conversation with a close friend of mine who is just starting his investment portfolio and we chatted quite a bit about China and India. He still thinks the growth prospects of these two countries remain strong, but he didn’t know how to invest in foreign companies.
When many investors think about global and emerging markets, they think the only way to play the growth is by investing directly in foreign countries.
But the truth is, you don’t have to go outside the U.S. to take advantage of the growth potential around the world…
Smart Investing Daily – The “Inflate-a-Rally”
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We are now officially in the thick of earnings season, which means added volatility for the marketplace. Splashy headlines like Google’s surprise surge in sales are making the bulls bolder by the day.And as long as earnings reports continue to at least meet consensus estimates on average, that most likely won’t be the foundation for a correction… yet.
Handling Risk Around General Electric’s (NYSE:GE) Earnings Report
Handling Risk Around General Electric’s (NYSE:GE) Earnings Report
by Jared Levy on October 14th, 2010
General Electric (NYSE:GE) reports earnings tomorrow before the open. GE has been a leader in the recent rally and has been a major influence on the price of the Dow Jones Industrial Average (DJIA) to the upside along with Caterpillar (NYSE:CAT). GE does not tend to be a volatile stock when compared to its Dow Jones peers. Even though GE is not an extremely volatile stock (relatively speaking) earnings reports can spur abnormal volatility.
Fundamental Analysis
GE obviously has its hands in many different pies spanning across several industries. This can make the shares hard to value, as can the sheer enormity and complexity of the company itself.
Looking at the analyst recommendations, the “outperform” consensus offers a slightly bullish bias from that perspective and the average analyst’s target price is about $18 per share. GE has had a tendency to rally in the weeks following most of its last earnings reports, although remember that past performance does NOT guarantee…
Google (NASDAQ:GOOG) Earnings Strategies
Google (NASDAQ:GOOG) Earnings Strategies
by Jared Levy on October 14th, 2010
Google (NASDAQ:GOOG) is one of my favorite stocks to trade, simply because I know it well and its high stock cost makes it a great potential candidate for option strategies. You should get to know any stock before placing a trade. The more intimate you are with a stock, the more prepared you will be.
GOOG, in typical fashion, reports earnings today, just before October expiration tomorrow. For some traders, using October options to trade GOOG just ahead of the report can be a way for them to speculate on the movement (or lack thereof) in the tech giant. This front-month action can be a risky proposition and will tend to give traders a more binary result, with little or no time to spare.
For most of us, having a little bit of breathing room when it comes to days until expiration may be the preferred choice, if we are not looking for a dramatic (and nearly immediate) resolution.
GOOG’s Technical Landscape…
Smart Investing Daily – Food and Inflation
What the Texas State Fair Taught Me About Inflation
Tuesday, October 12, 2010
I spent my Saturday wandering around the good old Texas State Fair. I walked though the livestock area and stables full of animals of all kinds from all over Texas, and right before exiting I turned to my right to see “Millie” the Brown Swiss cow staring right at me.
My first thought, while staring back into the eyes of this cow, was inflation. Most don’t typically associate cows with inflation, I know. But here’s what that Brown Swiss cow and inflation have to do with one another…
Inflation Is Knocking
Sara and I have discussed printing U.S. dollars, monetary policy, budget deficits, gold prices, silver prices, precious metals and even crude oil as having direct correlations with impending inflation, but we must not forget about the most important commodity of them all… FOOD!
Without getting into gross detail about the world’s eating habits, I wanted to offer some simple examples to help you get a grasp on the importance and consumption of food and, more importantly, the prices of food when inflation comes to roost.
Consumption
Don’t Get Lost in the Computing “Cloud”
by Jared Levy on October 8th, 2010
Wednesday on CNBC’s Fast Money Halftime Report, we focused a good amount of time on the “cloud computing” sector. More specifically, we discussed the pummeling many of these stocks were taking on the day.
I think the phrase “cloud computing” now is analogous to “.com” in the late nineties. Back then, we knew the Internet was going to be big and would change many of our lives. What we didn’t know was which companies were going to be instrumental in not only bringing the net into our homes and workplaces, but also which companies would be able to leverage themselves the most through this new way of connecting the world.
The .Com Craze
Any company that had the suffix “.com” was snapped up by investors because they really had no clue as to how the landscape would shake out. Then of course there was the possibility that a .com company would be acquired by a larger company that wanted their technology, patents, or services. It was a free-for-all that made many people rich but also sent many to the poorhouse after the house of cards fell in 2000/2001.
In reality, the proverbial house of cards didn’t fall, per se; it came together and provided clarity. Soon, investors began to see which companies were going to triumph and which would falter in the Internet space.
Companies like eBay (NASDAQ:EBAY), Amazon (NASDAQ:AMZN), AOL (NYSE:AOL), and Yahoo! (NASDAQ:YHOO) – high-flying stocks in the late 90s – were brought back down to earth in terms of their price. Nevertheless, they were forming the foundations for how we did business on the net….