Livermore's Careful Mike Sucker

Although today's rebound in the averages returned me to the black for the first two months of 2007, as I was going through the nightly charts this evening, I felt that my confidence was shaken.

In Edwin LeFevre's "Reminiscences of a Stock Operator", Larry Livingston a.k.a. Jesse Livermore recounts how after the second time his account was blown out, he returned to Wall Street and traded like a "Careful Mike Sucker" for about one to two years.

Years later, Livermore would recount to his sons, that the cumulative effect of his first two blow outs had affected his confidence more than he would admit. While his analysis of market conditions and the overriding trend were accurate, he wasn't making as much money as he thought he should.

Instead of trusting his hunches, Livermore would trade very conservatively compared to his previous attempts. This had three negative implications: 1) He would wait for first pullbacks on momentum stocks that never occurred while watching in dismay as the stock would rise another forty points without him. 2) He would trade in smaller lots thereby limiting his potential maximum gain. 3) He was questioning his own decisions before the trade was even placed.

I get the sense that for the past several months, I have pretty much fallen into this category, and it took a market reaction to admit it. So what am I going to do to change it? I thought of doing the following (since what I'm doing now is obviously not working): reducing the number of positions, making concentrated bets, tighten stop losses, and using more auto alerts for automatic buys and sells.

Livermore stated one of the principal rules of any trader is "Don't be a sucker!" It is ok to have one bad day, but it is unacceptable to wallow around like a deer in the headlights. When it came down to it, everyone has a choice. Do I choose to be: a broker, a customer, a sucker, or a trader? If I can rediscover what it means to be a proficient trader, I will be one step closer in being a better person.

Thank the ladies for having stops

With the Dow Jones Industrial Average dropping over 400 points, readers are wondering how could there be anything good to write about. In fact, there is something positive, it could have been much worse for me personally.

Last year, in 2006, I suffered through the May-July market downturn because I did not have any stop losses on my positions. Thankfully, after this experience, all of the ladies in unison made sure that going forward I would always have some type of stop on every position.

Fast forward to today, having those stops in place took me out of many trades during the first and second hour when there was plenty of volume to cover the trades. Had I waited until the debacle of the final hour, it's quite likely I would be a nervous wreck tonight. But instead, I have a 50% cash position, and I will sleep better knowing that a few friends saved me a bunch of money.

Whether you use mechanical, trailing, hard, order, or paper stops. ALWAYS have them. Because there will more days like today in the future, that you will wish you had them.

Prophet.net and sticking to what works

Most daytraders use a variety of screens to search for daily stock plays. Because I don't trade as often as my fellow brethren, I pretty much rely on a set pattern of looking at various industry screens to make sure I hold at least two core positions that deliver gains to the bottom line.

Prophet.net has treated me well for about two years now. For me, it confirms whether I should be long or short specific sectors. I usually have to go through each sector at least once every two weeks because it always seems I'm having to blow out of one position thats starting to rollover.

While I would prefer to possess some of the techniques of my fellow traders; in my case, I've been more successful with sticking to the sectors where I have historically done well. Sticking to what works may not be the optimum strategy, but history has taught me that going way outside of one's box has been an expensive tuition lesson.

Earnings, federal telephone tax credit, balance transfer game, and credit line increases

On the earnings watch for Feb 26 - Mar 2:

Mon - JWN
Tue - DECK, FD, FWLT, PSA, TGT, WYNN
Wed - TS

This weekend I was helping my sister file her tax return. Thank goodness she still asks me for financial advice, because she would have missed out on the one time federal telephone excise tax credit given to everyone who files a return for the 2006 tax year.

So a reminder, EVERYONE should file the BLUE 1040 federal tax return for the 2006 tax year regardless of your filing status or income level and make sure you fill in Line 71. You're only cheating yourself of at least $30 if you omit this credit.

I was also perusing the stories of investors who took their 0% balance transfer credit card offers and rolled them directly into 4.9% savings accounts for one year at their local banks. Doing the math, even in the worse case scenario and knowing my financial tendencies, after taxes I would have earned a risk free return of $136 for every $5,000 transferred or a 2.7% return.

Now of course there are caveats: 1) For each card, I apply for, whether approved or declined, I would suffer an immediate 5 point hit to my FICO credit score. 2) The average FICO point decline for the investors who have done this since 2000 has been 50 points within one month of the balance transfers. It usually took at least 14 months before 80% of the points to return to their FICO score. 3) The ideal investor for this "risk-free" return is one that a) owns their home and has less than a 80% mortgage and b) owns their car with no payments. So if I'm applying for some type of loan within the next 15 months, going for this "free" money would be a poor idea from a statistical point of view.

However on the lighter side, one thing I haven't done in awhile is request a credit increase in my credit cards. The ideal way is to make the request through the online access of your credit card account. Citicard is known to have the easiest option and ideally, one should go online versus the telephone to ensure your request is a "soft" inquiry versus the "hard" inquiry that shows up on your credit report. Citicard is easy because all one has to do is go to "Manage My Accounts", then select "Credit Line Increase Request". One of two things will happen: a) the screen will show your account number followed by the words "Congratulations" and list the amount your credit line increases, or b) the words "Manual Review" will appear. If you see the words "Manual Review", you want to click on the "Cancel" button so that you don't get a "hard" inquiry on your credit report. But if you see the "Congratulations", it's up to you if you want to accept the credit line increase. In 90% of the cases you want to accept because part of your credit score is based on the outstanding balance divided by your total credit lines. So obviously, the higher your credit lines on your existing cards, the likelihood your credit score will rise by a few points, given the same payment history and debt balance levels.

The trick is to find a balance on requesting credit line increases. While some have stated you should apply every 3 months, I'm thinking along the lines of once every six to twelve months might be the better play for my situation.

Some Short Index Exchange Traded Funds

It's hard to believe there are over 300 Exchange Traded Funds (ETF's) to choose from today. Before the year 2000, investors pretty much had to be content with their stock picking ability or by staying with vanilla index etf's such as the dia or spy. It was especially hard for retirement accounts between 2000 and 2003 because most were unable to either hedge their long positions or take advantage of short funds to profit from the most recent market downturn.

Over the recent holiday, my aunt wanted to be aware of some of the Short ETF funds offered by ProShares and traded on the AMEX. It's always wise to understand both sides of the market especially when you are unable to locate individual stocks on certain trends. By participating in these index ETF's, an investor with a retirement account no longer has to give up potential gains when the markets are no longer rising. Beware of investor fees however, as there are periodic holding costs to pay, so timing is more crucial with these investments.

DXD - Ultra Short Dow 30
MZZ - Ultra Short S&P MidCap 400
QID - Ultra Short Nasdaq 100
TWM - Ultra Short Russell 2000
SDS - Ultra Short S&P 500
SDD - Ultra Short S&P Small Cap 600

Earnings watch - President's Day Holiday

Just a few for me to watch on this holiday shortened week.

Tuesday - BYD, CBRL
Wednesday - AEM, JBX, PAAS, WFMI
Thursday - BRY, CHK, JCP, PSA, TOL

S&P's Dividend Aristocrats

Standard and Poors published their annual list of the publicly traded companies that have increased their dividends every year for at least 25 years. In my younger days, I focused a lot on dividend payers and enjoyed seeing that quarterly payment being rolled over into additional shares. So are there any on this list that I would avoid? Well on a personal level, I would avoid Bank of America and SLM Corporation. Thomas K. Brown from bankstocks.com is one of the hedge managers I trust regarding the financial industry. When he says something about a specific company, it pays to listen to his opinion.

Abbott Labs (ABT)
Archer-Daniels-Midland (ADM)
Automatic Data Processing (ADP)
Avery Dennison (AVY)
Bank of America (BAC)
BB&T Corporation (BBT)
Bard (C.R.) Inc. (BCR)
Becton, Dickinson (BDX)
Anheuser-Busch (BUD)
Chubb (CB)
Compass Bancshares (CBSS)
Cincinnati Financial (CINF)
Clorox (CLX)
Comerica (CMA)
Century Telephone (CTL)
Dover (DOV)
Consolidated Edison (ED)
Emerson Electric (EMR)
Family Dollar Stores (FDO)
First Horizon National (FHN)
Fifth Third Bancorp (FITB)
Gannett (GCI)
General Electric (GE)
Grainger (W.W.) Inc. (GWW)
Johnson Controls (JCI)
Johnson & Johnson (JNJ)
KeyCorp (KEY)
Kimberly-Clark (KMB)
Coca Cola (KO)
Leggett & Platt (LEG)
Lilly (Eli) & Co. (LLY)
Lowe's (LOW)
McDonald's (MCD)
McGraw-Hill (MHP)
3M Company (MMM)
Altria (MO)
M&T Bank (MTB)
Nucor (NUE)
PepsiCo (PEP)
Pfizer (PFE)
Procter & Gamble (PG)
Progressive (PGR)
PPG Industries (PPG)
Regions Financial (RF)
Rohm & Haas (ROH)
Sherwin-Williams (SHW)
Sigma-Aldrich (SIAL)
SLM Corporation (SLM)
Synovus Financial (SNV)
Questar (STR)
State Street (STT)
Supervalu (SVU)
Stanley Works (SWK)
Target (TGT)
U.S. Bancorp (USB)
V.F. Corp. (VFC)
Walgreen (WAG)
Wal-Mart (WMT)
Wrigley (WWY)

Livermore's four traits of successful traders

In his book, How to Trade in Stocks, one of the most successful investors during the 1920's, Jesse Livermore, stated a successful trader must have all four of these traits if they are to be successful in the markets: observation, memory, mathematics, and experience.

Observation - the ability to observe facts without prejudice.

Memory - the ability to remember key events correctly and objectively.

Mathematics - the ability to calculate numbers easily.

Experience - the ability to learn, retain, and call upon knowledge at will.

With today's markets up .7% today, I'm reminded that to me, the portfolio is a constant exercise in money management. Ideally, my portfolio should be structured so that it exceeds the market averages during up days and either generates small gains or negligible losses on down days.

Because I underperformed the market by .2% today, I'm looking at what caused the underperformance and where I'm likely to pull the trigger to remedy the situation for the next trading day.

For me, my experience has taught me that this is the most effective means of money management. When you are faced with difficult decisions especially with regards to your money, sometimes you have to look at your portfolio from different perspectives in order to arrive at an answer. Once you realize what you have to do, you stand one step closer towards your financial goals.

Comparing credit cards

These days, one has to have at least one credit card in order to make travel reservations such as lodging or for tickets to see events at major entertainment venues.

At a minimum, the credit card you use to make those reservations should have some type of rebate policy so that at some specified period you get a percentage of your purchases back in either cash or some other rebate such as points or rewards.

The next time you consider adding or changing a credit card, compare its rebate policies with its competitors at the following sites so that you get the possible deal. After all, it's your money.

http://www.cardratings.com
http://www.debtsmart.com
http://www.cardweb.com

Alternative Airfare websites

While perusing travel sites, wejustgotback.com had an article on searching alternative airfare websites. For those with extra time, sometimes it pays to look at the following sites:

For travel in the U.S.:

http://www.kayak.com
http://www.farechase.com
http://www.smartfares.com
http://www.farecompare.com

For travel outside the U.S.:

http://www.mobissimo.com
http://www.flycheapabroad.com

Supposedly, the following sites keep an eye on travel deals. Might be best to use a spam email account just in case:

http://www.travelzoo.com
http://www.shermanstravel.com
http://www.bookingbuddy.com

Some frequent flyers have posted their travel notes here:

http://www.seatguru.com
Think your row and seat number is comfortable?

http://www.flightstats.com
Listing the fastest security lines at some of America's busiest terminals.

http://www.longtermparking.com
If you thought the lots at Denver International were a long way from the passenger terminals, there are others with even longer commutes.

Earnings watch for friends

Each week, I peruse the calendar to determine if any company I or a friend has a position in, is reporting their quarterly earnings.

For example, for this week I will watch:

Monday: PCLN, FDG
Tuesday: KBH, ITRI
Wednesday: DADE, TEX
Thursday: LH, PSYS
Friday: BUCY

The goal is not necessarily to enter a new position, but to log the tape action before and after the earnings announcement. During earnings season, when investing outside of the small cap arena, the performance of most companies in a subsector move together. Before adding or reducing a position, I want to be aware of the current sector trend so that I am not taking a position that is contrary to the tape action.