Archives for August 2008

10 Secrets to Success

Investor’s Business Daily (IBD) has become a great resource for me and should be on every investor’s reading list. If you aren’t familiar with this daily newspaper I encourage you to go to their website and sign up for a free trial. I like the paper because it contains an abundance of relevant information on a daily basis.

In addition to the excellent coverage of the stock market the paper does a great job of pointing out some of the best leaders in business. IBD has spent years analyzing leaders and successful people in all walks of life. Most have 10 traits that, when combined, can turn dreams into reality. Each day, on the Leaders & Success page, the paper will highlight one of those traits.

Here are IBD’s 10 Secrets To Success:

  1. HOW YOU THINK IS EVERYTHING: Always be positive. Think success, not failure. Beware of a negative environment.
  2. DECIDE UPON YOUR TRUE DREAMS AND GOALS: Write down your specific goals and develop a plan to reach them.
  3. TAKE ACTION: Goals are nothing without action. Don’t be afraid to get started. Just do it.
  4. NEVER STOP LEARNING: Go back to school or read books. Get training and acquire skills.
  5. BE PERSISTENT AND WORK HARD: Success is a marathon, not a sprint. Never give up.
  6. LEARN TO ANALYZE DETAILS: Get all the facts, all the input. Learn from your mistakes.
  7. FOCUS YOUR TIME AND MONEY: Don’t let other people or things distract you.
  8. DON’T BE AFRAID TO INNOVATE; BE DIFFERENT: Following the herd is a sure way to mediocrity.
  9. DEAL AND COMMUNICATE WITH PEOPLE EFFECTIVELY: No person is an island. Learn to understand and motivate others.
  10. BE HONEST AND DEPENDABLE; TAKE RESPONSIBILITY: Otherwise, #s 1-9 won’t matter.

THE UPSHOT: What a great list of leadership traits! I couldn’t have written the list any better. It is this combination of traits that I strive to execute in my life. You can turn dreams into reality by executing these traits.

McCain & Obama Tax Plans

This week’s cover article in Barron’s compares John McCain’s and Barack Obama’s tax plans. Each plan has different implications for the U.S. economy. This is recommended reading before you vote. The article is available here for free.

Table courtesy of Barron’s

Healing an Ailing Stock Market

Over the last 3 months health care stocks have offered a cure for the sick stock market. The chart below (courtesy of FINVIZ.com) shows that the health care sector has been the only sector to offer positive returns for the past 3 months.

The next chart compares the Health Care SPDR (XLV) with the S&P 500 SPDR (SPY) over the last 3 months.

The health care sector has clearly outperformed the broad market with a positive return for XLV of 4.3% versus a negative return for SPY of -8.3%. In other words, the health care sector ETF has outperformed the S&P 500 ETF by 12.6% over the last 3 months.

As I like to say, “There’s always a bull market somewhere!” These days, it has admittedly been a challenge to find an abundance of bullish trends as the market has been rather choppy lately.

Take another look at the chart above. You will see that most of the gains in health care have been generated since late July. Let’s take a look at a 1-year weekly chart of XLV:

  • As indicated by the blue trend line, XLV started rising in July. The price crossed both the 10-week and the 40-week moving averages by early August.
  • The volume has been strong. We saw price increases on rising volume in four out of the last nine weeks. Seven out of nine weeks were positive, and the two weeks with price declines have shown volume lower than the previous weeks. All of this points to a rising trend with healthy volume.

Now take a look at the daily chart for XLV:

  • This week we have seen some selling on higher than average volume. The price has pulled back a little bit, but remains above both the 50-day and 200-day moving averages.

THE UPSHOT: Health care is in the beginning stages of a bull market. Is the the trend sustainable? Will it continue? Trend followers always take the position that a trend is your friend until proven otherwise. In other words, I don’t know what the future will bring. However, I can identify trends that are present today. Since trends always last longer than you think, you should operate on the assumption that a trend will continue until proven otherwise. You must look for bullish indicators and signs that the trend will continue. Be cautious when you see signs that a trend might be close to reversing. The key going forward for the health care ETF (XLV) will be the July trend line and the 40-week moving average. Today it is testing it’s July trend line as well as the 40-week moving average. Look for the 40-week moving average to act as support for this trend to continue. If the price bounces off the trend line and the 40-week moving average this would be another sign of a bullish trend with the potential to be sustainable.

[DISCLOSURE: Some clients of Freedom Financial Solutions, LLC and/or Adam Zuercher’s family accounts own shares of XLV.]

Outwork Your Competition

Earlier this week I was talking to a friend who was about to speak to our local high school football team. The takeaway from his message was going to be that success requires an attitude that you will outwork your competition. Winners outwork their opponents. Not just on game day, but everyday. In order to be the best football team in the conference every player on the team must come to each practice 100% committed to outworking the opponent. Success takes work. Hard work produces winners.

As I thought about this I realized how similar this philosophy is to investing. I was reminded of what William O’Neil said in his book, How to Make Money in Stocks:

Many long evenings of study led to precise rules, disciplines, and a plan that finally worked. Luck had nothing to do with it; it was persistence and hard work. You can’t expect to watch television, drink beer every night, or party with all your friends and still find the answers to something as complex as the stock market or the American economy. In America, anyone can do anything by working at it. If you get discouraged, don’t ever give up. Go back and put in some detailed extra effort. It’s always the study and learning time you put in after nine to five, Monday through Friday, that ultimately makes the difference between winning and reaching your goals or missing out on truly great (and profitable!) opportunities.

This is great advice from two people whom I highly respect. You can’t expect to succeed with your investments without doing your homework. To truly understand the markets and to exploit trends you’ve got to do some work. Spend some time reading how others have been successful. Study charts, price action, and company fundamentals. Learn what works and what doesn’t. And most importantly, be sure you understand what NOT to do. Have a plan and set some rules regarding buying, selling, and risk management.

Sound overwhelming? Don’t have the time or desire to do the work? That’s fine. My firm can do it for you. Contact us to see how we might be able to help you.