Trading sideways

To a trader on the Zorro (http://zorro-trader.com/) platform:

Hi Sundance

I've noted your pessimism and have held off with my penny-worth.  However, if its any comfort, I also confirm that my account, which went live after some paper trading with Z12, has just been treading water since late April.

I expect the reasons are un-knowable, but of course all traders must endure draw-down.  The test of them, though, is whether they stay the course, and have bomb-proof faith in what they're doing.

My reading around the topic shows how many really successful traders have endured heavy draw-downs, but survived with good cash and risk management.

The markets are currently all in thrall to what central bankers around the world may or may not do, and that isn't helping.  But with Z12 retraining regularly, that should ameliorate the issue.  I firmly believe that Z12 will spring back into life over the next 6 to 12 months.  I say this because my studies surrounding markets led me to this http://www.economicconfidencemodels.com/ by Martin Armstrong (http://armstrongeconomics.com/).  I think the markets are simply going sideways currently.  I'm expecting a return to action during or after the Autumn.

I'm considering bringing Z3 on-line also.  I understand it is not correlated with Z12, and may therefore smooth things out a little.  However, with the bozos in control at the central banks, it may not, as all markets may be currently be in a deathly synchronicity, with cash being the only counter-trend bet!

Stock screening and picking - “Monkey with a pin” style

A little time ago I read Pete Comley’s excellent -and free! - ebook, “Monkey with a pin”.  You can get it here (http://monkeywithapin.com/), and in addition he has released it in audio form, again free.  He deserves thanks and praise for this effort.

I think every investor should read it (see my post on here, “I thought I was an OK investor, now I know I'm not”, 17th May 2012).

Now that I’ve had a little time to think about it, I think a way forward might be this:
 

• Choose an amount you wish to put into the market (say £1m over 10 years), and then how much you will invest every month to achieve this (in this case, £8,340 per month).

• From the world’s stock markets find companies that match the following screener:

Zero debt.

At or near a 52 week price low.

Yield 3.5% or greater - consistently (i.e. over, say, 10 years or more).

Consistently generates free cash flow, every year (i.e. the company has money left over after meeting all its obligations - its defined here: http://www.moneyweek.com/investment-advice/glossary/f/free-cash-flow). (See video here: http://www.moneyweek.com/freecashflow).

Isn’t a “small cap” (i.e. with a market capitalisation of less than $1bn US or around £700 million).

 

• Then do a randomised pick of the resultant list of the above.

I suppose one would use the stock exchanges of London, Japan, US, Europe (Berlin, Paris, etc.), and far east (Singapore).  Choose a broker with a good global spread.

As long as you don’t breach the 3% rule, you can invest in an individual stock as often and as regularly as the randomised picking system instructs you to.

 

• Benefits:

Pound cost averaging - i.e., smooths out the highs and lows in the markets.

Market top or bottom agnostic (ignore the news!).

Takes little time, probably just an evening a month, after you’ve set up your screening and spreadsheets.

Entirely “mechanical”.  Your emotions won’t get in the way of making stock picks, and emotions are a big problem for stock pickers.

Simplicity.

 

• Rules:

Don’t trade (i.e. buy or sell on news).

Keep holdings for the long term (more than 3 years).

Be disciplined, and don’t fall to temptation.

Ignore “gurus” and tipsters.

No stock holding to exceed 3% of your overall initial pot (in this case £30k, or 3% of £1m).

If the screen of the above brings up nothing, or just ones you are fully invested in, then don’t invest this month, and hold your cash pot over till something comes along.  In other words, be patient!

Stick to the rules!

I have not tested this method, it is just a theory, and I have no results to show for it.  However, I have read extensively elsewhere regarding making stock picks, and this one seems to me to be as good as any.

How Money Dies

"We can guarantee cash benefits as far out and whatever size you like, but we cannot guarantee the purchasing power."

So said former Chairman of the Federal Reserve, Alan Greenspan, 1 minute 50 seconds into this video.

Give this a moment's thought, and you'll realise he is talking about inflation, or even hyper-inflation.  What have we had for the last goodness knows how long?  Inflation.

Here's an example.  Over the weekend my wife and I replaced a rose that had died.  At the base of the old rose was it's name tag, with a price of £3.30.  The cost of the replacement?  £16.00.  The difference in time? About 20 years.

The video talks mainly about the US Dollar, but it applies to the Pound Sterling, Euro, and all other debt based fiat currencies.

• How Money Dies

I thought I was an OK investor, now I know I'm not

I thought I was an OK investor, now I know I'm not; I just got lucky.

Pete Comley's book is free and excellent.  Even if you are not new to investing, there is much that will surprise you.  In any event, I feel sure you will want change something about how you invest.

The book is written with the UK investor in mind, but in fact has lessons for all.

I may have further thoughts after digesting this book.  For now,  follow this link to download his book:

Monkey with a pin

Eric Sprott Discusses Europe, Gold, Silver and the World Economy

Even though this is a truly huge subject, this short interview video packs a great deal of insight.  Another one worth watching.  Just ignore the marketing...

Click this link:

• Eric Sprott Discusses Europe, Gold, Silver and the World Economy

Hello investors

thocht n. Thought. Anxiety, care, trouble, a cause of concern or anxiety, a burden, worry.
dim. thochtie A thought, an idea. A very small amount, a very little, of a substance, time or distance etc.
twa n. Two.
Source: My head, confirmed by http://www.scots-online.org/dictionary

Twa Thouchties is my take on the global scene of investing, seen from a parochial Scottish viewpoint.  It isn't much, but its mine.  I offer no personal advice or explanation; I just say what I've done.  Occasionally I might voice an opinion, concern or other, or even a response to something or someone.  Time will tell.  That's all.

Why the name?  "Twa" as I don't have too many; "Thochtie" as invariably they are small ones.

Regards,

James.