Friday, April 28, 2006

A New Speculation Rules Coming At Ya

Not quite ready for the financial prime time.

Sometime in the next week there will be a switch over at the personal financial resource site - The Spec has been a simple holding site with a few investment articles until this speculation journal got established here.

The new site will organize our journal entries and articles into an easy to retrieve whole. There will also be tools available to help you with your speculation decisions.

Take a look at the current site and you will get a feel for what basic is all about. Come back to it in a week and you will see the framework of a solid financial, speculation, and investment resource.

Over the next several months the site should fill up with helpful material, let me know if there is a speculation topic that you would like addressed. We will try to make the Spec easy to use and navigate - let us know how we fare.

Once you look at the framework you may also have some suggestions on improving the financial usefulness of Speculation Rules - I would love to hear them.

It will be fun - when is done.


Wednesday, April 26, 2006

Online Future Trading

The first thing you will hear is that online future trading is risky.

Online future trading is risky.

But then it is risky to drive down the street or go to work.

Everything - including doing nothing - has a risk attached. Bury your money in the back yard and it is at risk both to gophers and the Federal Reserve inflation machine.

The key is not to avoid risk - you can't. What you can do is embrace risk and learn to manage it.

Your first online futures trading risk management decision is to get the book Hot Commodities by Jim Rogers that I reviewed in a prior post.

The second step is imperative - don't get greedy.

You have to limit your exposure in - the currency or forex markets, commodity future trading, future option trading, and in fact all future markets - or your speculation life span will be very short.

Be wary of any futures trading system - they are almost guaranteed not to work - except to bring revenue to the person selling the future trading system.

Here are some key points:

  • you can't win if you do not play
  • you can't play if you don't have chips
  • keep your bets small
  • keep your losses small
  • maximize your profits - let them run

You do not have to use maximum leverage - you do not have to keep all your money in play.

If you are considering online future trading start small after you have read the book.

I'll repeat that important speculation rule - one that particularly applies if you are considering online future trading:

Always read the book before you make a speculation.


Tuesday, April 25, 2006

Stock Market Newsletters


Find your own financial service advisers. If they call you first, hang up.

You want a financial service adviser picked by you for price and quality.

If they call you, an "investment adviser" wants a quick commission, and then it's on to the next prospect. These are salesmen - you probably already know more about investments than they ever will. Do your own research, or pick a financial adviser after you have researched them. You should to be in charge.

I currently have only two financial advisory services where I am quite comfortable using their newsletters as a starting point in my speculation thought process.

There used to be three – sadly you can no longer profit from the Ney Report by Richard Ney.

Richard Ney was author of several useful books in the 1960s including The Wall Street Jungle, Mr. Ney is no longer with us; look for his books in a used book store. His unique insights are well worth considering as you make your investments.

The other two are the Elliott Wave Theorist and the International Speculator. Look at these and get some of their great information.

Join Club EWI from Elliott Wave International for free and read their articles and get free speculation training. Elliott Wave International also provides fresh and insightful financial market news of an unusual type.

Doug Casey has several services besides the International Speculator, but it is is a good risk free place to start. You will learn much more from Doug than just market knowledge.

No one cares more about your personal finances than you. You have a huge advantage over professional investors.

Professionals get their MBA and dive right into a specialized financial niche. As a private investor you will not be better at analyzing bonds than a bonds pro, or better at trading wheat than a wheat specialist. You can be good at guessing what's next, and learning how to profit in the almost now best sector to invest.

If you think metals will take off as China's growth accelerates, you can research iron, gold, and uranium. The bond and wheat trader will still be great at their niche, but that's it.

When in a decade or two you decide everyone hates stocks and bonds, switch back and by some stocks. If the professional bond trader is still in business, he'll still be great at bonds.

You can be a generalist, you can switch asset classes at will - you can succeed.

It is a great advantage.

Remember to think for yourself. Many advisor's ideas will be good, and some will be timely; but only a few will be both good and timely for you.

Make up your own mind.

No one cares more about your money than you.


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Tuesday, April 18, 2006

The Economic Aspects Of Financial Planning

Financial planning itself is a very slippery subject - trying to slide it successfully into the protean aspects of any economic model is often a futile effort.

Of course we can pretend it works, talk about various financial aspects of our projections, and make some pretty graphs.

I don't remember which economist said a truth that went something like the following "
All economic models are false - but some are useful."

If your base assumptions are false, each level of abstraction built upon them becomes more ephemeral. On top of this loose structure of shifting sand we are then expected to commence financial planning.

We can assume that inflation will be low, that the stock market will grow at 8% per year, and the dollar will remain stable. We could possibly be wrong on all counts - although it might be useful as an exercise.

tomorrow is an unknown.

Not only can no one predict the future, we don't understand the present – and there isn't even any certainty about the past. – Harry Browne

Therefore the economic aspects of financial planning are also an unknown.

To pretend we know the future is dangerous and leads to complacency.

Far better than considering the economic aspects of financial planning is too consider the current economic climate and cautiously speculate. Keep that fear of loss as a sharp pain.

If you are not worried - you are in danger.

Remember the standard speculation rule:
Keep your losses small - let your profits run.

Leave the Economic Aspects Of Financial Planning to the financial news and to investment focused magazine articles.

The pretty graphs and accompanying projections will still be impressive - the long term conclusions will be very dangerous.


Saturday, April 15, 2006

Financial News and Speculating

Most financial news is repetition of sound bites provided by the stock exchanges and brokers.

If you are watching the financial news as it happens you will see “reasons” for the market's activity rise and fall with the markets.

An event happens – the market goes up – positive spin is generated. The same market then drops quickly – the spin stops and reverses. By the end of the day the market is back up – and the nightly financial news spins the old positive take on the markets one more time.

You will not learn why the markets are acting a particular way by watching financial news.

On the bottom of this page you will find a different style of financial news.

These are headlines you will not find elsewhere. This set of financial news is not necessarily correct – but it will help you balance what you receive from the mainstream sources.

You may want to bookmark this Speculation Rules journal just for that financial news -- and return to it often.

If you do watch the financial news pay attention as the excuses journey back and fourth. The market moves create the financial news – the financial news does not create the market moves.

If you would like a more in depth discussion of how public mood creates the market moves that create the financial news – watch the free documentary History's Hidden Engine.


The Other Side Of Phinance

One of the pleasures of speculation is the crisp and clean reality of interacting on a level playing field.

Of course there are cheats and inside dealers - but you are aware of their presence and can defend yourself. Remember our primary speculation rule:

No one cares more about your money than you do - unless they plan on stealing your money.

Using that speculation rule as groundwork we can set some guidelines to protect ourselves

  • contact the brokers you have researched - hang up on unsolicited calls
  • start small with new accounts - see how they are managed before you commit more
  • don't trust huge promises - if someone recommends 1000 penny stocks - a few will probably give a basis for great profit stories
  • use independent research - a broker's analyst is there to make money for the broker
  • and other logical controls - you want to be in control of your own money

A much nastier felon exists that wants to steal from you - the identity thief. As can be seen from the comment on this Trans Union credit report article, you do not have to be rich to be attacked.

But wealth does make you a bigger target.

One of the reasons to take assets offshore is to protect yourself by geographical diversification, the others include asset protection from aggressive law suits and finding the internationally competitive balance of lower taxes on business.

Finance or Phinance - the eventual return of your money is more important than the promised return on your money.


Tuesday, April 11, 2006

Investment Ideas Inspired by Monkeys


That at least is the subtitle of a news letter, Capuchinomics, that has some valuable speculation insights this week.

The article is based on the housing bubble and the excuses made to support it. What it is in reality is a short lesson in
keeping your head when everyone else is losing theirs.

The author never quotes the infamous line that appears so often at market tops "Its different this time," but you can feel his understanding of why it isn't different.

Housing is a regional phenomena - so it is more like soap suds than a single balloon.

He compares housing with the stock markets in 2000, not a novel comparison, but here it is a well done comparison with some novel insights.

This of course does not mean all the housing soap suds bubbles will pop tomorrow.

Just because we become aware of a danger does not imply the danger will soon increase, subside, or destroy.

Read that article - it has information that will help you understand speculating.

That brings us to a true Speculation Rule:

inevitable is not the same as immediate.


Monday, April 10, 2006

The Egg Man - A Peter Schiff Story

Peter Schiff has a cute story I have heard before in many forms - but that does not keep it from being true.

This is actually one of the best forms of the story I have heard, and it requires no further explanation.


A client called his broker inquiring about egg futures and is quoted a price of 25 cents per contract. Having a hunch about the egg market he buys 100 contracts. A week later he calls his broker to get a quote. Pleased to learn that the price of eggs has risen to 35 cents he decides to buy another 1,000 contracts. A few days later, eager to check on the progress of his investment, he is amazed to learn that the price has now risen to 50 cents per contract, twice the price he paid for his original 100 contracts. Sensing a trend, he steps it up, this time buying 100,000 contracts. The next day, ecstatic to learn that egg prices have now risen to 65 cents, he gets even more aggressive, buying 1,000,000 contracts. Sure enough, the following day the price of eggs rises to 95 cents, prompting him to order an additional million contracts. The day after that, as rising prices further validate his intuition, he buys yet another million contracts, this time paying $1.25.

The next day, with egg contracts trading at $1.75, he senses that the market has risen too far too fast, and places an order to sell 2,000,000 contracts. After a pregnant pause his broker replies, "Sell to whom, you're the egg man."


For the rest of the article, and the relevant conclusions Peter Schiff draws from the story this time -

visit The Egg Man story at 321Gold.


Saturday, April 08, 2006

Root In People - Not Things

Avoid putting down psychological roots.

Do not become tied to a speculation because of misplaced loyalty. If you drive a Chevy, you don't have to keep your GM stock. In fact if you work for GM you probably don't want to own any of their stock. With your pension and your job there - you need to diversify away from the company.

This warning is probably too late for GM employees, but the advice holds with any company that you might work for,

Don't marry your investments, they don't love you.

The stock does not know you bought it, and will not care that you sold it. Take small losses and find better ventures.

Time = Money, don't put them on hold. Never hesitate to abandon a deal if something more attractive comes into view. Jump at the better looking venture.

Don't let short term blips distract you from a formulated goal; know the volatility of an investment before you purchase it.

In fact study your speculations before you enter them. Always buy the book before the speculation.

Let me suggest the Market Wizards books, buy all three at once - once you read the first you will want to read the other two.

On any speculations you make - don't put down roots.

Remember that basic speculation rule :

Cut losses short - let profits run.


Thursday, April 06, 2006

Speculate In What You Know

Yes speculating is better than investment - but where do you start speculating?

Are you an artist, a doctor, a workman?

Consider speculating first in what you know by analyzing trends in your area of knowledge.

A bricklayer that invests in diamonds is probably buying cut glass. A bricklayer that sees growth in his geographical area and buys a local gravel pit may find it more valuable than diamonds.

When someone calls you about their great opportunity, hang up. Research what you know, and seek out your own opportunity. If someone calls you it is to sell you something to benefit themselves - when you are ready call the best source and control your own transaction.

Plan your speculation, speculate your plan.

Don't suddenly switch due to a news report or a friend's report of success. If everyone that is excited has bought, who will they sell to? Know well in advance what you plan to do, when the moment arrives, do it.

A solid
Speculation Rule: Buy when almost everyone has sold, sell when almost everyone has bought.

But what is most important?

Speculate in what you know.


Wednesday, April 05, 2006

Our Roots In Poker - Now Growing Macintosh Apples

As noted in A Sovereign Speculator's title, exploration of fads is one of our objectives - The Sovereign Speculator started as a poker blog.

Back when A Sovereign Speculator was The Tsunami Hitchhiker we compared finance and poker - and we rode the early ripples of poker awareness.

One way to tell when a fad has reached a peak is to visit a large news stand. When we started covering poker the only poker magazines available were the free ones at poker rooms. Today Several new glossies have been started, the fad has taken hold.

(Look for magazines on Precious metals and coin collecting today - when there are three or more for sale it may be time to trim your gold and silver positions.)

Today is past the early days of fad, and that has changed the texture of the poker phenomenon.

Poker is mainly a solitary pursuit, kids are bowling now for community recreation. Poker is however great training for speculating, and you do not have to play for money to learn some important speculation rules.

Understanding concepts such as expected value (ev), protecting your bank roll, and pot odds should make today's youth better speculators.

That brings us to another sign that poker is maturing as a fad - universal access. Apple Macintosh users have had limited options in accessing poker sites - most of the options poor.

That has now changed for the small but influential Mac users group.

Full Tilt Poker has designed a version of their popular online poker room as a poker site for Apple Macintosh users. This is the first poker site with fully functional and compatible online Mac poker. Full Tilt is the first to innovate in this way, but they are one of the best poker sites for a reason.

Reaching to ever smaller market segments means the easily available fruit is vanishing - growth of the poker fad may have passed its peak. The casinos of course will keep building new poker rooms until the floor space is better utilized in other ways.

Banks will of course lend to build poker rooms until they get some back in foreclosure. Banks are usually about as good a contrary indicator as governments - making the right move at the wrong time and in the wrong direction.

I would expect poker to stay around for a long time, I think it will be more like base ball card collecting than tickle me Elmo.

It will be interesting to watch.