9 Survival Tips for the Market Shakeout Blues

Keywords:
stocks, investing, uranium, nuclear energy, oil, energy, gas, commodities

Investors who bought during the top of the frothy commodities rally are now panicking or kicking themselves. Neither activity helps an investor or trader think straight. Below are a few tips in dealing with the current market shakeout.

1. If you believe you invested in the right stock(s), then turn off your computer and do something enjoyable. Exercise is a great stress reliever. The market has already begun its shakeout. If you didn’t get stopped out, or failed to place earlier stops, your best opportunity lays ahead in picking up additional shares at a much lower price. Most of the experts we’ve interviewed tell us the next rally should start sometime between late July and Labor Day. In an attempt to interview the uranium guru James Dines in late May, we were told, “Call back in a couple of months.” That was a helpful clue that the markets were less than exciting. Mr. Dines is often eager to be interviewed, but recently he was not.

2. Do you believe the fundamentals which engendered the commodities boom have changed? If they haven’t, then the bullishness is only taking a breather. We don’t see any fundamental change in the markets. Russia still wants nuclear power, and its oil production may be peaking. China hasn’t announced the end of its nuclear expansion program. India wants to spend $40 billion on new nuclear reactors. If you are invested in uranium stocks, spot uranium jumped another dollar to $45/pound this past week. Hardly the end of the bull market.

3. If you worry about your investment in one stock or another, then stop watching the ticker and focus on the company fundamentals. Is the story still true or has it changed? See #7 A, B and C below.

4. There’s an old cliché that the time to buy is when you feel like dumping everything you own in the category. At the exact moment you want to sell your entire portfolio of uranium stocks, it may be wiser to add to your holdings. This applies mainly to the retail investor. Most of the professionals did dump at the top and are now slowly accumulating the shares of the naïve who waited until the washout to start selling off.

5. Has a major, earth-shattering event occurred? The last bull cycle in uranium ended with Three Mile Island (TMI). The last decent rally in the precious metals markets fell off a cliff after it was discovered Bre-X Minerals had perpetrated a fraud about its gold ‘discovery’ in Indonesia. Something significant and newsworthy always transpires, and it is also far-reaching. That is the trigger. As with TMI and Bre-X, those were the first shots which launched a later chain reaction to end those bull markets.

6. Before pulling the sell trigger, ask yourself: Do I really want to give up these shares to a bargain basement hunter, who will make a killing on my losses?

7. Since most of you will still panic, please review the following basics for any of the uranium companies you’ve read about:

A) How much cash does the company have in the bank? During shakeouts, cash is king. Prescient companies, which completed their financings during the recent and robust rally, are sitting pretty. They can weather the short-term storm and are well-oiled to move forward when this correction bottoms and reverses. Those companies are the strongest ones to check out when this correction looks gloomiest.

B) Has the management remained the same? Unless the top financial and/or technical people blew out the door, in recent weeks, the story probably hasn’t changed much. Companies which built a strong technical team are resilient and powerful. They will move forward.

C) Have the properties come up dry? One of the reasons you invested in a uranium company was because it announced it had “pounds in the ground.” Some companies have more than others. Some went to the expense and trouble of completing a National Instrument 43-101, which independently confirmed the quantity and quality of the uranium resource. If that changed – and the company announced, “Sorry, nothing there after all,” or announced, “Hey, we were kidding,” that’s one thing. If you haven’t heard that, or read a news release announcing that, then the uranium didn’t walk away or move onto a competitor’s property. It’s still there.

Next time, when the markets are racing higher, and you feel like you won the lottery, consider this bit of biblical advice. The old joke goes, “When did Noah build his ark?” The answer of course is: Before it began to rain.

A Company’s Story Must Carry Impingement Value to Obtain Widespread Publicity

Keywords:
Publicity, PR, media, advertising, marketing, uranium, coalbed methane, CBM, newspapers, magazines, television, articles, columns, press, China, Russia, Kazakhstan

In two previous columns, we talked about how quality management attracts Publicity, or PR. Nearly every company is constantly trying to attract the attention of the media. What brings the media to a company’s door? That’s what every public relations man or woman would love to know. For this is what PR people get paid to obtain for their clients.

Quality management is certainly a key motivation in attracting a reporter’s attention. This helps persuade the reporter or a radio/TV producer that the proposed interview isn’t going to be with someone who has “nothing to say” or just rehashing a cliché or tired, old story. The higher the title and the better known a company, the greater the “impingement” a PR pitch (that’s what publicity people use to sell a reporter) impacts upon a member of the media. If someone from the publicity department at Microsoft calls Fortune magazine to ask about profiling Bill Gates, the pitch will have major impingement value. Few names have this kind of clout, either personally or corporately.

In any event, the senior editor of the major magazine will still inquire about the story angle. The editor will want to know, “What are we going to talk about?” Ultimately, it is the outstanding story that sells magazines or newspapers, not just the big name. Not all such stories involve a big name speaking or spouting his thoughts for the day. Often, better stories evolve when there is a strong newsworthy angle. Let’s look at two recent stories – one which involves a uranium company and another one about a coalbed methane (CBM) company, which we’ve covered in this column.

On Thursday, Pacific Asia China Energy (PACE) was featured in the Financing section of Canada’s Globe and Mail newspaper. Headlined “High-Energy Performer,” the opening sentences told us why the reporter was interested: “PACE holds contracts to help China explore for and develop its coalbed methane (CBM) resources – fuel China needs to help satisfy its energy demands.”

The big story, which drew the newspaper to Pacific Asia China Energy, was China. PACE piggybacked that story because the company may be helping to offer a legitimate solution to the country’s energy mix. Part of the big story is the possible size of the recoverable gas, estimated in a technical report by Sproule International to be as large as 11.2 trillion cubic feet of gas.

Those two items enhanced the reporter’s interest in PACE. China needs alternative energy sources, such as CBM, to improve their energy mix – from a near total dependence upon coal. And, PACE has a potentially huge resource, which could last a good number of years. Such a gas resource could be sufficiently large to make an impact on China. After all, China has proven reserves of a little more than 30 trillion cubic feet. Another 11 trillion cubic feet, should the potential be proven up, would represent a significant increase of available gas in a very large country. By itself, this could later develop into a major international energy story, reported upon by a great number of news media. Another impingement about the reporter is having the satisfaction of reporting upon a good story, well before others write the story.

Chatter in the newsroom:
“Did you hear about PACE’s gas discovery in China, Bob?”
Bob’s Reply: “Oh that one. Yeah, I wrote about it eight months ago!”

Therefore, there are multiple impingement points in this story. Each “draw,” or a reason to attract eyeballs to the story, is another point the story must score, for the reporter and his editor, to overcome the hurdles of being featured in a major publication. China is a draw. The size of the PACE coalbed methane gas resource is a draw. The potential impact upon China’s energy mix is a draw. Writing about it before the rest of the pack jumps on the bandwagon? That’s a draw, too. In this case, four draws sufficiently attracted media coverage for this small CBM development company.

Sometimes, the timing is just perfect, and the overpowering “big story” accidentally introduces a lucky guy onto the world’s stage. On the same Thursday, the PACE story was carried in the Globe and Mail, the Chief Executive of a tiny Canadian uranium company impinged on a Russian news service reporter in Hong Kong. Such was the good fortune for Craig Lindsay, a Certified Financial Analyst, who has spent more than 16 years in corporate finance, investment banking and business development, according to the website of Magnum Uranium, for which he now serves as Chief Executive.

While Magnum has a market capitalization of about $15 million, and Lindsay is neither a geologist nor engineer, RIA Novosti news agency touted him as a “well-known energy expert.” Admittedly, Lindsay gave a great speech at the Hong Kong Club for foreign correspondents. Cleverly, he announced, “Uranium may be the next oil,” during his speech. As many other industry experts have predicted, Lindsay also forecast uranium “may hit $50/pound by the end of the year.” So many are now announcing this it is likely to become a self-fulfilling prophesy.

What elevated Lindsay’s publicity was not what he said in his speech. Most of his commentary has been already been reported in numerous publications, including in our columns. (What reporters really hate is rehashing old news to give someone publicity!) It was to whom Lindsay was speaking, and especially the “timing” as to when it was said. Here is how Craig Lindsay got his “15 minutes of fame.”

About six hours earlier, the very same Russian news agency reported that Russia and Kazakhstan had signed a uranium deal worth $1 billion. The photos of Russian President Vladimir Putin and Kazakh President Nursultan Nazarbayev appeared as the photo op which goes with such really big stories. This was a major event involving two very big names, and among the biggest names and countries in the uranium sector. This was also Russia’s first contract to import uranium; Kazakhstan is the world’s third largest uranium producer. All of this is “big news.”

The clever Russian freelance reporter, who attended the Lindsay speech in Hong Kong, probably text-messaged or emailed his editor by Blackberry, tried to piggyback the Russian-Kazak story with his own story. Yes, that is how timing works. As soon as a major event takes place, other journalists rush to piggyback the event with “their” story. The Russian reporter scored points with his editor and got his story filed (slang for published).

Two cunning gentlemen, the Russian stringer (slang for freelance reporter), and Craig Lindsay (whose name was spelled Kreig Lindsay in the article), both accomplished their purposes. Mr. Lindsay got his company into the world’s spotlight. The Russian stringer got a great story. The reporter threw up a softball question, for which Mr. Lindsay supplied the desired answer.

What was the question the reporter asked Lindsay? That’s pretty obvious from what the reporter published in his article. Here is a clip from the Moscow News article:

Foreign investors are ready to invest in Russia’s uranium industry, if Moscow wants this to happen and establishes a necessary legal base,” Lindsay said. “I believe that Russia is one of the most promising directions for this kind of investments, it is an undeveloped market, full of opportunities. My company will be the first to come to Russia, if the necessary conditions are created,” he added.


Nowhere in Lindsay’s speech did Magnum Uranium’s Chief Executive discuss investing in Russia. However, the reporter NEEDED a good quote. It had to tie-in with “investing in Russia for uranium development.” Lindsay accommodated. He didn’t commit to investing in Russia, but he kept the door open. Magnum Uranium recently announced the acquisition of a 1,080-acre land package in Converse County, Wyoming. The company is also exploring for uranium in both Wyoming and the Athabasca Basin. Its finances are probably already stretched from both exploration and acquisition activities. Magnum’s market capitalization would probably be insufficient to launch investments into Russia, at this time.

However, Lindsay did a great job getting his company this caliber of publicity. And he got the uranium sector excellent publicity. He capitalized upon an impinging story – a story that did show up on the world’s radar – by correctly supplying an answer the Russian journalist was trying to prod out of him.

This is the essence of how journalists and publicity-seekers work together. If the PR person gives the journalist the story angle he is looking for within the bigger story, chances are it will appear in print. Piggybacking a “main event” is the most common way to increase one’s impingement value to a reporter. And by being a cunning interviewee for his Russian reporter, Craig Lindsay just got Magnum Uranium into this column as well!

A Spiraling Market and Rising Penny Stock Opportunities

Keywords:
penny stock,penny stocks,stocks,investor,investing,investments,stock market

It's been a wild and wooly couple of weeks on the international stock markets. But is the recent slide grinding to a halt...or just taking a breather before tumbling some more? And more importantly, what does it mean to astute penny stock investors?

Wall Street recently stumbled to its worst week of the year, and global stock markets fell dramatically on concerns about rising interest rates and slowing growth. After rising almost 9% in the first four months of the year, the Dow Jones industrial average has fallen about 6.5% from a six-year high, reached May 10, 2006.

Stocks have been ailing because penny stock investors fear the Fed could be so focused on inflation that it ignores signs of an economic slowdown, raises interest rates too high and sends the economy into a recession.

Global stock markets were sent reeling last week after golden-tongued U.S. Federal Reserve Chairman, Ben Bernanke shocked penny stock investors in saying the Fed will continue raising interest rates to keep inflation in check.

And that decision will have a direct impact on the penny stock market. Higher interest rates hurt penny stock prices because investors believe it will curb economic growth and corporate profits.

But why is inflation heating up? Higher energy costs. Traders and penny stock investors are also worried that with the hurricane season officially under way, Gulf Coast refineries and oil production sites could be damaged again this summer and fall.

And higher interest rates have the ability to affect the entire economy. Finance charges on credit cards will rise. So too will rates on mortgages and home equity loans, putting additional pressure on homebuyers and a softening housing market. Ultimately, it will cost more to borrow for expansion.

But does this signal doom-and-gloom for the penny stock market? Au contraire. While the temptation to sell everything can be overwhelming, some see this as a great opportunity. "I would not be selling. I would tend to be buying," said one New York analyst.

So how exactly is this an opportunity? It just so happens that many companies caught in the market's downward spiral are cheaper than they were a few weeks ago. And as any seasoned penny stock investor will tell you, buying a great penny stock when it's been beaten down isn't a bad way to make money over the long haul.

If you can stomach some of the volatility that is. While many blue chip investors have difficulty handling the market's unpredictability...it's par for the course.

So, "snap out of it," said another watcher. A month of dizzying selling has brought the markets into an attractive range. Is it possible the markets will fall more? Absolutely. After all, no penny stock is a sure thing. But one thing is certain: "Stocks are much cheaper now than they were two months ago."

5 Steps To Researching a Stock Trade Before Investing

Keywords:
research, fundamental, technical, investing, analysis, stock, online, trading

Once you determine which business cycle the economy is currently in you can start researching for a trade. It is best to have some sort of a system in place that will be used before EACH trade. Here is a simple 5 Step formula to help get you started.

5 Steps to Investing Online:

1. Find a stock
This is the most obvious and most difficult step in stock trading. With well over 10,000 stocks to trade a good rule of thumb to consider is time of the year. For example, as I write this, it is the beginning of spring. It would make sense to consider stocks that traditionally make runs, or slide if you are bearish, during this time of year.

2. Fundamental Analysis
Many short term traders may disagree with the need to do ANY Fundamental Analysis, however knowing the chart patterns from the past and the news regarding the stock is relevant. An example would be earnings season. If you are planning
on playing a stock to the upside that has missed its earnings target the last 3 quarters, caution could be in order.

3. Technical Analysis
This is the part where indicators come in. Stochastics, the MACD, volume, moving averages, RSI, CCI, support levels, resistance levels and all the rest. The batch of indicators you choose, whether lagging or leading, may depend on where you get your education.

Keep it simple when first starting out, using too many indicators in the beginning is a ticket to the land of big losses. Get very comfortable using one or two indicators first. Learn their intricacies and you'll be sure to make better trades.

4. Follow your picks
Once you have placed a few stock trades you should be managing them properly. If the trade is meant to be a short term trade watch it closely for your exit signal. If it's a swing trade, watch for the indicators that tell you the trend is shifting. If it's a long term trade remember to set weekly or monthly checkups on the stock.

Use this time to keep abreast of the news, determine your price targets, set stop losses, and keep an eye on other stocks that you may want to own as well.

5. The big picture
As the saying goes, all ships rise and fall with the tide. Knowing which sectors are heating up stacks the chips in your favor.
For example, if you are long (expecting price to go up) on an oil stock and most of the oil sector is rising then more likely than not you are on the right side of the trade. Several trading platforms will give you access to sector-wide information so that you can get the education you need.

3 Steps To Profitable Stock Picking

Keywords:
stock, stocks, stock picks, stock picking, stock pick, stock analysis, portfolio management

Stock picking is a very complicated process and investors have different approaches. However, it is wise to follow general steps to minimize the risk of the investments. This article will outline these basic steps for picking high performance stocks.

Step 1. Decide on the time frame and the general strategy of the investment. This step is very important because it will dictate the type of stocks you buy.

Suppose you decide to be a long term investor, you would want to find stocks that have sustainable competitive advantages along with stable growth. The key for finding these stocks is by looking at the historical performance of each stock over the past decades and do a simple business S.W.O.T. (Strength-weakness-opportunity-threat) analysis on the company.

If you decide to be a short term investor, you would like to adhere to one of the following strategies:

a. Momentum Trading. This strategy is to look for stocks that increase in both price and volume over the recent past. Most technical analyses support this trading strategy. My advice on this strategy is to look for stocks that have demonstrated stable and smooth rises in their prices. The idea is that when the stocks are not volatile, you can simply ride the up-trend until the trend breaks.

b. Contrarian Strategy. This strategy is to look for over-reactions in the stock market. Researches show that stock market is not always efficient, which means prices do not always accurately represent the values of the stocks. When a company announces a bad news, people panic and price often drops below the stock's fair value. To decide whether a stock over-reacted to a news, you should look at the possibility of recovery from the impact of the bad news. For example, if the stock drops 20% after the company loses a legal case that has no permanent damage to the business's brand and product, you can be confident that the market over-reacted. My advice on this strategy is to find a list of stocks that have recent drops in prices, analyze the potential for a reversal (through candlestick analysis). If the stocks demonstrate candlestick reversal patterns, I will go through the recent news to analyze the causes of the recent price drops to determine the existence of over-sold opportunities.

Step 2. Conduct researches that give you a selection of stocks that is consistent to your investment time frame and strategy. There are numerous stock screeners on the web that can help you find stocks according to your needs.

Step 3. Once you have a list of stocks to buy, you would need to diversify them in a way that gives the greatest reward/risk ratio. One way to do this is conduct a Markowitz analysis for your portfolio. The analysis will give you the proportions of money you should allocate to each stock. This step is crucial because diversification is one of the free-lunches in the investment world.

These three steps should get you started in your quest to consistently make money in the stock market. They will deepen your knowledge about the financial markets, and would provide a sense of confidence that helps you to make better trading decisions.

5 Tips for Investing in Penny Stocks

Keywords:
penny stocks, stock market, investing

Investing in penny stocks provides traders with the opportunity to dramatically increase their profits, however, it also provides an equal opportunity to lose your trading capital quickly. These 5 tips will help you lower the risk of one of the riskiest investment vehicles.

1. Penny Stocks are a penny for a reason.
While we all dream about investing in the next Microsoft or the next Home Depot, the truth is, the odds of you finding that once in a decade success story are slim. These companies are either starting out and purchased a shell company because it was cheaper than an IPO, or they simply do not have a business plan compelling enough to justify investment banker's money for an IPO. This doesn't make them a bad investment, but it should make you be realistic about the kind of company that you are investing in.

2. Trading Volumes
Look for a consistent high volume of shares being traded. Looking at the average volume can be misleading. If ABC trades 1 million shares today, and doesn't trade for the rest of the week, the daily average will appear to be 200 000 shares. In order to get in and out at an acceptable rate of return, you need consistent volume. Also look at the number of trades per day. Is it 1 insider selling or buying? Liquidity should be the first thing to look at. If there is no volume, you will end up holding "dead money", where the only way of selling shares is to dump at the bid, which will put more selling pressure, resulting in an even lower sell price.

3. Does the company know how to make a profit?
While its not unusual to see a start up company run at a loss, its important to look at why they are losing money. Is it manageable? Will they have to seek further financing (resulting in dilution of your shares) or will they have to seek a joint partnership that favors the other company?

If your company knows how to make a profit, the company can use that money to grow their business, which increases shareholder value. You have to do some research to find these companies, but when you do, you lower the risk of a loss of your capital, and increase the odds of a much higher return.

4. Have an entry and exit plan - and stick to it.
Penny stocks are volitile. They will quickly move up, and move down just as quickly. Remember, if you buy a stock at $0.10 and sell it at $0.12, that represents a 20% return on your investment. A 2 cent decline leaves you with a 20% loss. Many stocks trade in this range on a daily basis. If your investment capital is $10 000, a 20% loss is a $2000 loss. Do this 5 times and you're out of money. Keep your stops close. If you get stopped out, move on to the next opportunity. The market is telling you something, and whether you want to admit it or not, its usually best to listen.

If your plan was to sell at $0.12 and it jumps to $0.13, either take the 30% gain, or better still, place your stop at $0.12. Lock in your profits while not capping the upside potential.

5. How did you find out about the stock?
Most people find out about penny stocks through a mailing list. There are many excellent penny stock newsletters, however, there are just as many who are pumping and dumping. They, along with insiders, will load up on shares, then begin to pump the company to unsuspecting newsletter subscribers. These subscribers buy while insiders are selling. Guess who wins here.

Not all newsletters are bad. Having worked in the industry for the last 8 years, I have seen my share of unscrupulous companies and promoters. Some are paid in shares, sometimes in restricted shares (an agreement whereby the shares cannot be sold for a predetermined period of time), others in cash.

How to spot the good companies from the bad? Simply subscribe, and track the investments. Was there a legitimate opportunity to make money? Do they have a track record of providing subscribers with great opportunities? You'll start to notice quickly if you have subscribed to a good newsletter or not.

One other tip I would offer to you is not to invest more than 20% of your overall portfolio in penny stocks. You are investing to make money and preserve capital to fight another battle. If you put too much of your capital at risk, you increase the odds of losing your capital. If that 20% grows, you'll have more than enough money to make a healthy rate of return. Penny stocks are risky to begin with, why put your money more at risk?

Against The Top Down Approach To Picking Stocks

Keywords:
Stock picking, top down, stocks, picking stocks, investing, stock market, value investing, investor

If you have heard fund managers talk about the way they invest, you know a great many employ a top down approach. First, they decide how much of their portfolio to allocate to stocks and how much to allocate to bonds. At this point, they may also decide upon the relative mix of foreign and domestic securities. Next, they decide upon the industries to invest in. It is not until all these decisions have been made that they actually get down to analyzing any particular securities. If you think logically about this approach for but a moment, you will recognize how truly foolish it is.

A stock’s earnings yield is the inverse of its P/E ratio. So, a stock with a P/E ratio of 25 has an earnings yield of 4%, while a stock with a P/E ratio of 8 has an earnings yield of 12.5%. In this way, a low P/E stock is comparable to a high – yield bond.

Now, if these low P/E stocks had very unstable earnings or carried a great deal of debt, the spread between the long bond yield and the earnings yield of these stocks might be justified. However, many low P/E stocks actually have more stable earnings than their high multiple kin. Some do employ a great deal of debt. Still, within recent memory, one could find a stock with an earnings yield of 8 – 12%, a dividend yield of 3- 5%, and literally no debt, despite some of the lowest bond yields in half a century. This situation could only come about if investors shopped for their bonds without also considering stocks. This makes about as much sense as shopping for a van without also considering a car or truck.

All investments are ultimately cash to cash operations. As such, they should be judged by a single measure: the discounted value of their future cash flows. For this reason, a top down approach to investing is nonsensical. Starting your search by first deciding upon the form of security or the industry is like a general manager deciding upon a left handed or right handed pitcher before evaluating each individual player. In both cases, the choice is not merely hasty; it’s false. Even if pitching left handed is inherently more effective, the general manager is not comparing apples and oranges; he’s comparing pitchers. Whatever inherent advantage or disadvantage exists in a pitcher’s handedness can be reduced to an ultimate value (e.g., run value). For this reason, a pitcher’s handedness is merely one factor (among many) to be considered, not a binding choice to be made. The same is true of the form of security. It is neither more necessary nor more logical for an investor to prefer all bonds over all stocks (or all retailers over all banks) than it is for a general manager to prefer all lefties over all righties. You needn’t determine whether stocks or bonds are attractive; you need only determine whether a particular stock or bond is attractive. Likewise, you needn’t determine whether “the market” is undervalued or overvalued; you need only determine that a particular stock is undervalued. If you’re convinced it is, buy it – the market be damned!

Clearly, the most prudent approach to investing is to evaluate each individual security in relation to all others, and only to consider the form of security insofar as it affects each individual evaluation. A top down approach to investing is an unnecessary hindrance. Some very smart investors have imposed it upon themselves and overcome it; but, there is no need for you to do the same.

Active Stock Market Timing

Keywords:
stock market timing, timing the stock market, market timing

Much has been written about the virtues and dangers of active stock market trading, or “market timing.”

Most of the pundits and so called "experts" will tell you that stock market timing doesn't work, that it's dangerous, and that "buy and hold" is the best and only way to invest.

But this conventional wisdom is patently untrue. Here are the facts based on my research and extensive real time experience.

If you want to be a successful stock market timer, you need three key elements:

1. A system that actually works.

2. Discipline to follow the system.

3. Patience to stick with the system long enough to make it work for you.

And it’s tough to do all three.

Here’s why:

Most market timing systems don’t work. Or don’t work consistently enough to be valid. Some will work in trending markets but get slaughtered during flat times. Most systems don’t work in all markets.

Investors lack the discipline to follow a proven system. Once an investor finds a viable program, he or she needs the discipline to follow it. Sadly, some either can’t or won’t do that. When they let their own judgment or intuitions interfere, they don’t get the results they want or could have enjoyed by simply following the buy and sell signals they receive.

Investors lack the patience to stick with their system. Many investors are constantly in search of the Holy Grail, a program that never loses a trade. The fact is, no method will win every trade, and investors without patience will find themselves hopping from advisor to advisor with no rewards to show for their efforts.

However, there are a number of proven systems available that recognize these pitfalls and successfully time the market to massive profits year after year. Anything you hear or read to the contrary is simply not true. Wall Street has a vested interest in opposing stock market timing because it is a threat to their very existence.

Investors have two choices. They can pursue the conventional wisdom of buy and hold and hope for the best, or the modern investor can educate himself and find a timing system with which he is comfortable to protect and grow his wealth. There are a number of proven options available, but the absolute worst thing one can do is listen to the pundits who tell you that “stock market timing" doesn't work.

A Cheap Strategy to Play Microsoft

Keywords:
stocks,investing,trading,options,technical analysis,george leong,money,finance,small cap stocks

Bill Gates is super rich but his once high-flying software company has been in the doldrums since mid-2002 after falling from the $35 level. The problem with Microsoft (MSFT) has been its failure to grow both its revenues and earnings at the superlative rates the company once enjoyed.

Any company the size of Microsoft, with a market-cap of $242 billion, will find growth an issue because of its size. But this is not to say the stock is dead. Far from it, Microsoft remains a viable long-term software company and is cash rich with $34 billion or $3.28 per share in cash. This gives the stock plenty of financial flexibility to develop or buy growth technologies. Microsoft just announced it would spend $1.1 billion in R&D at its MSN Internet unit in the FY07. And according to the Wall Street Journal, Microsoft is exploring the possibility of taking a stake in Internet media company Yahoo (YHOO) to take on Internet advertising behemoth Google (GOOG).

But with an estimated five-year earnings growth rate of a pitiful 12%, the company has its work cut out for it. Trading at 16.30x its estimated FY07 EPS of $1.44, the stock is not expensive but appears to be priced not as a growth stock.

Its PEG on the surface of 1.51 is not cheap, but if you discount in the cash of $3.28 per share, the estimated PEG falls to around 1,0, a decent valuation. Also, if Microsoft can improve on its estimated 12% growth rate, the PEG would decline further.

The fact is Microsoft at the current price deserves a look. If you want to play the stock but don’t want to shell out the $2,347 for a 100-share block, you may want to take a look at the long-term options, also known as LEAPS. For instance, the in-the-money January 2008 $22.50 Microsoft Call LEAPS not set to expire until January 18, 2008 currently costs $380 a contract (100 shares).

This means you risk a total of $380 for the chance to participate in the potential upside of 100 shares of Microsoft over the next 20 months. The breakeven price is $26.30. If Microsoft breaks $26.30, you would begin to make money on your LEAPS. Conversely, if Microsoft fails to do anything, your maximum risk is $380 on the initial option play.

Warning: The aforementioned example is for illustrative purposes only and not to be construed as an actual option strategy. Due to the higher risk inherent in options, I recommend you speak with an investment professional before deciding to employ any strategy involving options.

10 Golden Rules for Stock Trading Success

Keywords:
stock market trading rules

Your stock trading rules are your money. When you follow your rules you make money. However if you break your own stock trading rules the most likely outcome is that you will lose money.

Once you have a reliable set of stock trading rules it is important to keep them in mind. Here is one discipline that can reap rewards. Read these rules before your day starts and also read the rules when your day ends.

Rule 1: I must follow my rules.

Naturally if you develop a set of rules they are to be followed. It is human nature to want to vary or break rules and it takes discipline to continue to act in accordance with the established rules.

Rule 2: I will never risk more than 3% of my total portfolio on any one stock trade.

There are many old traders. There are many bold traders. But there are never any old bold traders. Protecting your capital base is fundamental to successful stock market trading over time.

Rule 3: I will cut my losses at 5% to 15% when I am wrong without question.

Some traders have an even lower tolerance for loss. The key point here is to have set points (stop loss) within the limits of your tolerance for loss. Stay informed about the performance of you stock and stick to your stop loss point.

Rule 4: Never set price targets.

This is a style that will allow me to get the most out of rising stocks. Simply let the profits run. Realistically, I can never pick tops. Never feel a stock has risen too high too quickly. Be willing to give back a good percentage of profits in the hope of much bigger profits.

The big money is made from trading the really BIG moves that I can occasionally catch.

Rule 5: Master one style.

Keep learning and getting better at this one method of trading. Never jump from one trading style to another. Master one style rather than become average at implementing several styles.

Rule 6: Let price and volume be my guides.

Never listen to any opinion about the stock market or individual stocks you are considering trading or are already trading. Everything is reflected in the price and volume.

Rule 7: Take all valid signals that show up.

Don't make excuses. If an entry signal shows up you have no excuse not to take it.

Rule 8: Never trade from intra-day data. There is always stock price variation within the course of any trading day. Relying on this data for momentum trading can lead to some wrong decisions.

Rule 9: Take time out.

Successful stock trading isn't solely about trading. It's also about emotional strength and physical fitness. Reduce the stress every day by taking time off the computer and working on other areas. A stressful trader will not make it in the long term.

Rule 10: Be an above average trader.

In order to succeed in the stock market you don't need to do anything exceptional. You simply need to not do what the average trader does. The average trader is inconsistent and undisciplined. Ask yourself every day, "Did I follow my method today?" If your answer is no then you are in trouble and it's time to recommit yourself to your stock trading rules.