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The Truth about Education

March 18, 2007 by 5 Comments

“WE SIMPLY CANNOT sustain an economy based on innovation unless our citizens are educated in math, science and engineering,” said Microsoft Chairman Bill Gates, who recommended that the nation double its graduates by 2015. Gates testified on U.S. competitiveness before a Senate committee Wednesday on Capitol Hill.

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I travel and write on a popular forum started by the author of Rich Dad Poor Dad, Robert Kiyosaki, and I can’t believe the vast amount of ignorance towards basic education (and higher education). Many people of the forum believe that math, science and engineering are worthless in today’s society and argue that business is the “way to go”. They argue that they don’t need a public education or a college education to succeed and actually want to do away with advanced mathematics and science because they “don’t use them in the real world”. One guy actually said that schools should offer classes in critical thinking and common sense instead of advanced math and science. Really? I guess he will just invent the next microchip or vaccine using common sense while walking down the street. Last time I checked, mathematics is the sharpest tool for developing a critically thinking mind.

Too many of these people complain (or place blame) that society and the government wasted their time in school. Maybe so but I attended public school and graduated with a degree from college and never blamed anyone for wasted time because if I did waste anything; it was my own fault.

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You don’t need a college or even high school degree to become wealthy and successful but the country and human evolution needs educated people that can fuel the growth of the economy. Maybe some of these ignorant people just can’t see past their own false beliefs and fall prey to an author that continues to sell fear to make his own fortune. It’s easy to place blame on others for your own faults in life but remember that only you can change your path in life; educate yourself!

If it wasn’t for people that have acquired this advanced knowledge, some Rich Dad followers wouldn’t be writing on their computers on the World Wide Web by using a wireless router on a broadband connection while watching HDTV on a 60” flat panel LCD. They seem to forget that technology advances society and business can only succeed, grow and increase revenue by taking advantage of these technologies.

How can our society advance technologies if we eliminate the basic subjects in schools? We can’t have 100% business people and 0% intellects and inventors. Only so many people can run successful businesses if the country lacks intelligent minds that increase and develop future technologies. And education is the only way to develop these minds in the fields of MATH, SCIENCE and ENGINEERING.

Too many people on the RichDad forums talk down to these subjects and completely miss the point of human evolution. Without technology – you and I have NOTHING!

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What is technology?

Technology is a broad concept that deals with a species’ usage and knowledge of tools and crafts, and how it affects a species’ ability to control and adapt to its environment. In human society, it is a consequence of science and engineering, although several technological advances predate the two concepts.

Technology has affected society and its surroundings in a number of ways. In many societies, technology has helped develop more advanced economies (including today’s global economy) and has allowed the rise of a leisure class.

We use technology to control the world in which we live. Technology is people using knowledge, tools, and systems to make their lives easier and better. People use technology to improve their ability to do work and increase wealth.

Bottom line: I enjoyed the original book Rich Dad Poor Dad but I feel that Robert Kiyosaki’s latest books and herd of sheep are feeding on fear and false pretenses. I have argued in these forums that the same people who argue against basic education also make numerous spelling and grammatical mistakes in their writings. I pointed this out and they explained that they don’t have the time to check their spelling. Maybe they didn’t learn how to use a spell check (a simple technology) or they are just too lazy to care. Either way, I wouldn’t want to do business with them. Our education system could use a makeover but eliminating math, science and engineering would be devastating. The lack of promoting these subjects is already hurting us around the world.

Filed Under: Education, Misc.

A Study in Human Psychology

March 7, 2007 by 2 Comments

The stock market is a study in human psychology with human emotion driving all market action. The market acts as a pendulum, which swings with emotion and psychology. These emotions can include but are not limited to greed, fear, hope, excitement, sadness, etc. Since the market is fueled by humans, these emotions never change. As Jesse Livermore once pointed out; the names change, the players change and the prices change but the patterns always repeat because they are patterns based on human emotion.

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Emotions can and will determine your success or failure while trading the stock market. When you learn to control emotions, you are at least half way towards winning the battle. Without control of your emotions, no matter how successful a system or set of rules, consistent profits will be difficult to obtain.

The stock market is not the only place in life where human emotions are constantly flowing and can be followed or charted. While driving in the car over the past few weeks, I have heard human emotions at their highest and lowest levels while listening to sports talk radio. I am in the NY metropolitan area so the main subjects are the Yankees, Mets, Giants and Knicks. It amazes me to hear callers on a day after their team loses versus callers on a day after their team wins (many times the same exact callers).

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I want to present two examples of human emotions at their best. One from the stock market and one from the sports world; the same emotions surface but they take place in different entities.

Stock Market Example:
How does the average investor react after buying a stock that:

a. Goes up in price:
b. Goes down in price:

When scenario ‘A’ takes place, most average investors will start to hope that it keeps going up but as the stock continues its advance, fear starts to overcome their emotions. They now fear that the stock may come back down and they will lose the current profit. On up days, the investor feels like a genius but is scared to allow the profit to deteriorate so he looks for every reason to sell and hate the stock. On down days, the investor has all the hope in the world that the stock will recover and he loves the stock even though it is telling him that his judgment may be wrong. As a result of these emotions, they will sell the stock with a small profit with no other reason justifying the sell. The investors kicks himself when he sees that the stock he sold for a small profit is now trading 50% higher without any major selling violations along the way.

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In scenario ‘B’, the investor starts to hope that the price will rebound and the negative action is temporary. The proper research was done and the investor believes that he has a great stock and it has to be successful (the market is wrong he thinks to himself). The investor starts making excuses as to why the stock is now in negative territory. He continues to hope for a recovery and will actually purchase additional shares at the lower price by averaging down. By averaging down, he convinces himself that the entry price is now more favorable with a potential for a larger profit. The stock continues to slide and he keeps hoping for a rebound and may buy more shares by putting good money after bad.

As the stock slides, he promises himself that he will sell on the first rebound to get out with minimal damage. Finally, the stock is up a few percent but volume is higher so he talks himself into holding onto the stock because this is the start of a rebound. Emotions play with his mind and he completely ignores his rules and system. As the rebound dries up, the downtrend continues and he is now just looking to get out on the next rebound. The rollercoaster will continue until he can’t take it anymore and probably sells near the bottom. He finally sells for a large loss and walks away with his tail between his legs.

Sports Talk Radio Example:
How does the average sports fan react and feel after a win or a loss by their team:

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a. Their team Wins:
b. Their team Loses:

In scenario ‘A’, fans will call up the radio station and explain why their team is the best in their division and how they are going to win it all. Some fans suggest that the coach should be given a contract extension and the management is the best in all of sports. Other fans are already talking about a dynasty and a championship next year before even reaching and winning the championship game this year. Players should get contract extensions and everyone is an MVP candidate. Nothing can go wrong because their team just won (one game – that’s all).

In scenario ‘B’, fans will completely flip flop from what they were saying last week, last month or even last night. The change of emotion is absolutely amazing when listing to sports talk radio on a daily basis. Yesterday they were crowing the team champions and today they explain why the team is a bunch of bums that won’t make the playoffs. The coach should be fired, the general manager is garbage and everyone should be traded.

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By listening to the radio, I can hear human emotion whip around the same way it does on a daily chart when news hits the wire. Looking at my charts last night; I can see human emotions and reaction over the past week. Up and down with wild swings and great volatility. The newspapers are spilling over with articles from talking heads about what is happening. The evening and local news stations are now featuring so-called experts on the market after the 400 point slide. They have every Tom, Dick and Harry claiming to be an expert on knowing why the market dropped, how the glitch happened and where the market is headed. I wonder what these fools will say if the market gains 450 points today; I bet they will completely flip-flop like the sports fan.

Human emotion is amazing and I would love to study psychology on a higher level because it fascinates me. Watching the market, playing sports and listening to sports talk radio gives me a front row seat as to how most people react to nonsense. I never realized this until I started to trade but people are neurotic and change their thoughts as quickly as the second hand changes on a clock. I see these reactions at the poker as well but the clearest change in human emotion must be on the radio. Try it out and listen to how fans can switch from one extreme to another in the matter of one day and one win or loss.

As Jesse Livermore said: “There is nothing more important than your emotional balance”

But even he couldn’t follow his own advice in the end. Maybe because he was only human!

Market cartoons courtesy of www.jsdykes.com

Filed Under: Education, Psychology, Sports

History & Experience Tell All

March 5, 2007 by 3 Comments

I am going to repeat the quote that I wrote last Monday in the post titled General Market Update; from a fund manger from Oppenheimer Capital named Eugene D. Brody:
“Sell stocks whenever the market is 30% higher over a year ago”

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Here’s another quote from Victor Sperandeo (I highly recommend his book):

“…the median extent for an intermediate swing in the DOW during a bull market is 20 percent. This doesn’t mean that when the market is up 20 percent, it’s going to top; sometimes it will top earlier, sometimes later. However, what it does mean is that when the market is up more than 20 percent, the odds for further appreciation begin to decline significantly.”

“Thus, if the market has been up more than 20 percent and you begin to see other evidence of a possible top, it’s important to pay close attention to that information.”

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I tend to agree with what Vic Sperandeo says especially since I think his book is one of the best around. By reading his entire book, you will understand where he is coming from and how he concluded that 20% represents a key number where odds decrease significantly. History always repeats!

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Filed Under: Education, General Market, Misc.

Indicators and Research Save me Money

February 28, 2007 by 3 Comments

I often write about secondary indicators when watching the market and posted a chart to my MSW community members last week highlighting a pattern for the number of stocks trading above their 50-day moving averages on the S&P 500. This chart shows how the market may be ready to roll over as it did in April of 2006. See my original blog entry on this possibility back in November 2006 named:
Secondary Indicators telling Stories

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This is what I said in November when writing about the possibility of a market reversal:

“The number of stocks trading above their 50-d moving average in the chart titled $SPXA50R is flirting around the extended area of 80 for the first time since November and December of last year. The lesson we can learn here is the fact that the market didn’t roll over until May of 2006 which means that this secondary indicator is a warning of what may come in the future. I can say this with confidence because the indicator also bottomed a full month in advance of the NASDAQ bottom in July but predicted the move perfectly. Again, this is only a secondary indicator but we are now one month removed from the first peak above the 80% level which could be the start of the warning bells and red flags that the up-trend is winding down. The last topping warning took almost five months to materialize so keep that in mind.”

The last breakdown took slightly longer than four months to materialize according to this secondary indictor. Well, the current pattern is now in the fourth month. Is this coincidence? I don’t know but many secondary indicators have been lining up, calling for a possible reversal.

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After writing my general market update thread on Monday which stemmed from my in-depth analysis for MSW members over the weekend, I decided to write this on the MSW Daily Screen Monday night after performing my research (2/26/07):

“I am only listing ticker symbols with brief analysis tonight because the market is looking weak. I ran multiple fundamental scans that turned up about 170 stocks but after doing technical analysis, I could barely come up with ten ideal stocks. Take this as another signal that the market may be near a top. I will stress once again that the trend is still higher but some minor flags are starting to creep into my research. This will be an interesting week to watch as I look to close another existing position now that it has hit its target and scan for new opportunities. I will not hesitate to short stocks in the portfolio if a trend reversal becomes obvious.”

Talk about multiple clues from my basic system of research. Now I just hope that most of my members took advantage of the information I have been writing over the past several trading days. We can’t do anything about yesterday as I was also caught on the long side of a couple positions but I did sell out of a position Friday and on Monday in real time in the MSW Portfolio. I send a real-time text message to all MSW members when I buy and sell into the portfolio. I saved the portfolio $4,000 in profits from my sales on Friday and Monday (GRMN and SLW). I still managed to give back several thousand dollars yesterday but the damage was much less because I was already getting sell signals going back to last week.

I finished my daily screen on Monday night with these words:

“I have been closing positions as they meet targets because the market is extended when viewing historical terms. I want my profits now before the market can get a chance to drop heavily one of these days. Don’t let this talk scare you because the overall trend is still higher and I will not hesitate to buy high quality stocks such as a PTR after the strength today.”

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I am patting myself on the back because experience and nothing else made me sell and I am extremely happy. I am finally listening to my research, system and rules and not my gut and it is paying off!

Filed Under: Education, General Market

What is MSW?

February 17, 2007 by Leave a Comment

I run this blog as an extension from my equity research business that resides at MarketStockWatch.com. The business originates from my own personal research and also provides an additional stream of income for me and my family. It’s not my sole source of income or the largest income but it does well and I love every second of teaching. Believe it or not, teaching and running a real-time portfolio actually makes me a better investor as I must be completely honest with myself and my rules. I am not shy to admit that I run the site as a profitable business as I don’t trade for a living at this time. I aspire to trade for a living as some point in my life but for now, I trade for capital appreciation. In other words: to build wealth (my net worth).

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I have been (trend) trading for ten years and love every second of the challenge and don’t mind if I don’t ever do it for a living. I am an entrepreneur at heart with interests in business, trading, real estate and education and I understand and prefer multiple streams of income to support my family. Trading for a living would need my undivided attention and I not ready to do that at this time. My main focus and goal in life is to stay out of the “rat race” or the so-called 9-to-5 job that I can’t stand. Time is more valuable to me than money and a job exchanges time for money so I understand that this path limits my freedom and monetary success. Therefore, I invest to increase my net worth, I run a profitable business that I started from nothing, I consult full time within the big builder industry and I own some real estate. I am by no means a real estate investor but I also have some aspirations to run a small business that buys distressed properties and hires a crew to restore the structure and sell it for a profit (that’s the architect in me speaking). I won’t get my hands dirty because that would just be another job; I envision myself as the business brains behind the operation.

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Anyway (I’m getting off on a rant)…

I wanted to share with all the readers of this blog what I do over at MarketStockWatch.com. Yes, this is a plug so stop reading if you are not interested!

My research breaks down into several categories and sections throughout the week.

The MSW Index is the official “Watch List” of MarketStockWatch and serves as the main list to select buying and selling opportunities. Daily screens are the tool that gathers stocks during the week in order to add the best candidates to the MSW Index. From there, all stocks with potential money making opportunities will be purchased into the MSW portfolio. The MSW portfolio will highlight several key factors that all investors should be tracking when buying and/or sell securities.

An example MSW Index is located through this PDF link.

An example Weekly Analysis is located through this PDF link.

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A sample MSW Portfolio Spreadsheet is located through this link. It’s a fully interactive spreadsheet that incorporates my position sizing calculator, sell stops, target prices, R-calculations that help determine the risk-to-reward ratio and other key factors. Download it for free and modify it to use for your own trading portfolio.

The most viewed page from this blog is the position sizing spreadsheet and I would be willing to bet that this will be the second most downloaded spreadsheet heading into the future.

The Daily Screens:
This screen looks for new stocks making strong moves during the trading week with the types of characteristics that are explained on the Buying Strategy Page. A stock can be purchased from the daily screen but the MSW strategy is to look at these stocks further and allow them to prove their strength by watching them form patterns and entry opportunities on the MSW Index. These screens will take place on Monday, Tuesday and Thursday of each week. General market analysis on the major market indexes may be given during daily screens along with major emphasis on the strongest industries and sectors of the day.

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The Weekly Screens:
The weekly screens will highlight the action among the major market indexes, the top performing sectors and/or industry groups from the previous week and the underlying trends in the market. The New High – New Low Ratio will also be highlighted during the weekly screen with key 52-week highs and lows. Changes to the MSW Index and the MSW Portfolio will be highlighted on the weekly screen. Links to the MSW Index and the MSW Portfolio will be located at the bottom of the screen. This screen will take place one time per week and will be uploaded no later than Sunday of each week.

The MSW Index:
This tool will be presented in PDF format and will focus on the strongest stocks from the daily screens; the stocks that make it onto the MSW Index will be analyzed deeper on both a fundamental and technical basis. This Index will look at things such as current price, support, resistance, buy-hold-sell ratings, target entry areas, stop loss areas, target gain and percentage gain on the MSW Index (general idea of trend). The MSW Index will also be the central place for detailed analysis on each stock that makes it to this level. The MSW Index will be offered each week at the same time as the weekly screen.

The MSW Portfolio:
The MSW Portfolio is a list of stocks that have been virtually bought and sold by MSW in 2007. Each stock has been bought or sold using the basic rules stated on the buying strategy page and employ the position sizing and risk techniques explained on this blog. This portfolio will give the community an idea of how I actually buy and sell stocks myself and how I perform against the major market averages and similar equity research services on the web. The MSW Portfolio includes key areas such as ticker, date bought, share price, portfolio size, percentage of portfolio risked, total dollars risked, stop loss in percent, position size, number of shares bought, 1-R risk, actual stop loss in price, target price, risk ratio, date sold, percentage gain/loss and notes on the entire transaction. (please view the upload example images in this post).

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MSW Charts Page:
This page will house annotated stocks that are located on the MSW Index and the MSW Portfolio. This page can and will be updated on a weekly basis with key information located directly on the charts. The charts page will also have additional charts for the major market indexes, commodities, sector performances and other important technical screen shots.

The chrisperruna.com Blog:
The blog will serve as my platform to explain in further detail how I trade. It will cover the rules, the systems and learning experiences during my trading career. The blog will cover topics related to the stock market, success in life and anything I feel is important to talk about. I will highlight “stocks of the day” every week and will perform case studies that will focus on what I did right or wrong after a transaction has been closed on the MSW portfolio. The blog will be filled with colorful charts that will help everyone become a better trader – it’s the ultimate real time teaching and learning tool.

So that’s it. Enjoy the example MSW Index from earlier this year and the latest portfolio spreadsheet!

Filed Under: Education, Misc.
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