10 Trading Rules
By 'Tet'
1. Everything flows from this first rule and this is the only rule you
really need to know. The Federal Reserve ALWAYS wins. The Fed can
make the rules, change the rules or simply choose to ignore the rules and
you can't do this. The game we're playing is a Zero Sum game and the object
of this game is simply for the Fed to take more money away from the cows
than the cows take away from the Fed. You can either bet like the Federal
Reserve does and be a winner or be a cow. These are your only choices. The
Federal Reserve takes trillions away from cows each and every year and if
you just take a small piece of that action the Federal Reserve certainly
isn't going to miss it. It is the Fed's job to make you think the Fed is
doing something they clearly aren't doing and it's your job to figure out
what the Federal Reserve is truly up to and place your bets like they do.
2. Yes, Virginia, you can time the market, in fact if you want to
take some of what the Fed is taking that's the ONLY way to make money. Being
diversified ONLY guarantees that you're going to be a loser. Some things go
up, some things go down and some things go sideways. You can profit from the
market going up or down and conserve your assets by the market going
sideways. These are the only directions the market is going to go, betting
up when the market is heading down is why the Fed spends billions of dollars
on misleading advertising called editorial to make sure cows are betting the
wrong direction. Remember the Fed is making Trillions and spending tens of
billions on misleading advertisement is a good investment for them.
Two easy cow timing formulas both have over a 90% chance of working each
year.
- 1. Sell in May and go away is the best timing rule a cow should follow,
meaning come May you sell your positions and revert to cash. Come October you
take your cash and start buying stocks again. Had you followed this one simple
rule this year you'd probably be up about 6%-10% right now instead of down
about 3%-5%.
- 2. Never buy in December, December is historically a 90% up month. If your
need to sell some stock December is a very good month to do so. This requires
that you do your tax planning in October or November but it is well worth
doing so. Resume buying in January.
3. Don't sweat getting in a little early or getting out a little early
this is better than getting in too late or out too late. What this means
is at the beginning of your investment cycle you should be prepared to take
some loses and by getting out a little early you should be prepared to be
happy with the profits you made and not worry about what you could have
made. Set targets and if you exit after you made your target of 40% and the
stock goes up 50% who gives a shit. Set a loss target and be prepared to say
you got in too early or you misread the direction all together. Get out at a
2 or 3% loss before it turns into 10 or 20%.
4. Limit your investment choices, there is too much out there to
choose from and trying to follow them all will only screw you up. Don't buy
penny stocks or funds; the definition I follow is if it's not selling for at
least $15 don't buy it. This makes things a lot easier, because it removes a
lot of the noise and distraction from your investment choices. I've recently
added funds to this $15 limit and in the past I violated this rule. I used
to buy BEARX which is a short fund I used when I felt the market was heading
lower that sells for about $6. In the future I'll be using one of the Rydex
funds to short the market.
5. Everything that you read in a newspaper or magazine, everything you
listen to on the radio and everything you watch on TV is either an
advertisement or a paid for editorial. There is no investment advice to
follow in the newspaper; your 50 cent investment for knowledge is not going
to get you any. Every outlet of mass media is a set-up to get you to
invest the wrong way with your money. Certainly there are short-term
opportunities, Buffett says to do something and maybe for a few weeks there
can be some gain to be made. There is nothing I have read from Buffett for
over the last five years that I've been paying attention that it wasn't
abundantly clear six months later that Buffett was unloading at the time
whatever it was he wanted you to purchase. There is NO other way to read a
paper than with a contrarian point of view. If the paper says buy, you
should sell and if the paper says sell, you most certainly should buy. If
they're hyping it you should be getting ready to sell it and if they're
trashing it you should be getting yourself ready to purchase. In a zero sum
game this is the ONLY way for the big money to make money, they don't steal
a billion from each other to make a billion they steal $10 from hundred
million cows in order to make a billion.
6. Make sure to keep all your eggs in one basket and make sure to keep a
very close eye on that basket. The brokers and the financial advisors
will preach diversification and diversification just means more fees for the
brokers and smaller returns if any for you. Currently I have only three
things going on, cash, one stock and a bond fund, I try to always have cash,
because who knows when a real bargain is going to present itself. If I'm in
the process of a rotation I might have up to eight different things going
on. I know my company's 401K advisor recommends having eight to ten
different funds going all the time, I know of no one making much of a return
with eight to ten funds.
7. Know what you are going to do in many different types of environments.
You should have a plan if you believe the market is heading lower, direction
is all you need to know and there is just as much money to be gained in a
falling market as there is a rising market, maybe more so. Do you have an
inflationary strategy? A deflationary strategy? Rising or falling interest
rates you should have a plan for as well. If the market is going sideways
you should have a plan. Everything is an opportunity and the trick is
recognizing which environment the market is in. Typically if you asked ten
cows what they thought was going on eight of them will tell you the same
answer, from this you know to do the opposite. Have a financial plan and
always work and refine your plan.
8. ALWAYS play with somebody else's money and never create a lot of money
for somebody else. If you're a cow there is only one way to play with
somebody else's money, your trading account needs to be in your tax deferred
savings account. If you have a 401K plan check with the plan administrator
to see if there is a brokerage option for your plan. Why make 40% on
something only to pay the government back about 40% of that gain in income
tax? A 40% gain in a 401K plan costs you nothing and on top of that your
gains should be compounding at a much higher rate. Make sure to check and
understand fees, if you're the one doing the work you certainly shouldn't be
paying a full service charge. Having someone taking 2% of your action in
fees is insane, especially when the advice they're peddling is bad to begin
with.
9. Never buy stock or bonds over the fifty day moving average, just as
you should never short a stock when it is selling below it's fifty day
moving average. Once again the banksters will tell you to cost average
your investments, this is a guaranteed method to lower your returns and help
your broker earn more fees. Your 401K contributions should be set-up to flow
100% into cash and you purchase the investment options when they are a good
deal for you, not a good deal for whose selling them to you. When you
realize that the cows money is flowing into these funds on the 1st and 15th
of each month and on Fridays as well you know that buying when all the cows
are buying will only get you ripped off. This also means you should never
buy anything that can't be charted. If the 401K plan that you're in doesn't
offer funds that can be charted talk to the plan administrator to find out
which chartable fund the one you're buying is trying to emulate and chart
that. The best choice still is to have a trading account in your 401K so
that you can purchase anything you want to, not what they are making you
purchase. Buy low and sell high is what you're trying to accomplish and you
certainly can�t do that when you're paying too much for something from the
get go.
10. Don't get caught up in either the doomsayer's advice or the market
only goes up super bullish advice, because this will only lead to heartache.
As far as the doomsayer's go there is nothing going on in the economy that
real money can't fix. History teaches us that when things get bad enough,
real money has always been created and added to the economy, over 50 times
in our nations history this has occurred with the last time being 1973 and
surprisingly the president wasn't shot for doing this. Sorry but once again
the world is not going to end and even our adversaries have no desires to
crash the US economy. On the other side of the coin the super bullish crowd
is just plain silly. One need only look at a long-term chart of the market
to see that this is not going to happen. The Jim Cramer's of the world will
only end up costing you money and the reality of the situation is that if
you would have followed Cramer's advice for the last four years you would
have lost money. Once again, up, down and sideways are the only directions
the market can go and there's money to be made from any of these directions.
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