Stock and Bond Trading as a Conservative Investment Strategy

It’s likely that either curiosity or skepticism led you to this article, and I would agree that, for most individual investors, trading is approached in a totally speculative manner. Stock trading, in its more popular forms (Day Trading, Swing Trading, Penny Stock Speculating, etc.) includes none of the elements that a conservative investment strategy would have at its very core: Little if any attention is given to the fundamental Quality of the equities selected. Any Diversification that exists in the portfolio is determined by chance alone and is, at best, a transient result of the selection guesswork. No attempt whatever is made to develop an increasing and dependable stream of Income. But stock trading by individual investors doesn’t deserve quite as bad a “rep” as it has earned. After all, its very foundation is Profit Taking, probably the most important (and possibly the most often neglected) of the activities required for successful investment portfolio management. Unfortunately for most non-professional equity traders, loss taking is a more common occurrence.

Bond, (and other Income Security) trading is generally avoided by most non-professional traders. Obviously, it takes more investment capital to establish positions in Corporate and Municipal Bonds, Real Estate, or Government Securities than it does in Equities, and the volatility that traders thrive upon is just not a standard feature of the mundane world of debt securities. Surprisingly, most investment advisors and stock brokers have not discovered that there is a more exciting approach to Income Investing that is actually safer for investors and less inflexible in the face of changing interest rate expectation scenarios. Certainly, Wall Street financial institutions pressure their representatives to push individual new issues and/or investment products, but I think that the Market Value fixation that stretches from Wall Street to Main Street is the real culprit. Income securities need to be “valued” for long-term income growth and traded with great pleasure… albeit much less frequently.

Consequently, most trading is done in an Equity only environment that, by its very nature, is too speculative for most mature (in whatever sense you choose) investors. But this is not the way it needs to be. Since stock prices are likely to remain volatile in the short run and cyclical in the long run, there will always be opportunities for profit taking. [Note that it is the combination of volatility, market accessibility, universal equity ownership, and confiscatory taxation that have made “Buy ‘n Hold” a tar pit Investment strategy.] Similarly, there are no rules against taking advantage of the cyclical nature of interest rate sensitive security prices. Trading is the world’s oldest form of commercial activity, and it is unfortunate that it is treated with such disrespect by our dysfunctional tax code. It is even more unfortunate that it is looked at askance by client attorneys and brokerage firm compliance officers… masters of hindsight that they are.

Trading does not have to be done quickly to be productive, and it doesn’t have to focus on higher risk securities to be profitable. And perhaps most importantly, it doesn’t have to avoid the interest rate sensitive income securities that are so important to the long-term success of any true investment portfolio. No matter how beaten up a speculative day trader becomes, whatever profit taking experience there has been is invaluable. Once a trader/speculator is weaned off the gambling mentality that brought him to the “shock market” in the first place, he can apply his trading skills to investing and to portfolio management. The transition from trader/speculator to trader/investor requires some education… education that cannot be obtained from product salespersons.

Step One is to gain an appreciation of the power of Asset Allocation using the principles of The Working Capital Model. Asset Allocation is the process of dividing the portfolio into two conceptual “buckets”. The first of these will contain Equity Securities, whose primary purpose is to produce growth in the form of Realized Capital Gains. The other bucket will contain various securities whose primary purpose is to produce some form of regular income… dividends, interest, rents, royalties, etc. The percentage allocated to each is a function of a short list of personal facts, concerns, goals, and objectives. The cost basis of the securities, absolutely not their constantly changing Market Values, must be used in all Asset Allocation calculations. Asset Allocation is a critical portfolio planning exercise that is: based on the purpose of the securities to be purchased, long term in nature, and never “rebalanced’ or altered due either to current market circumstances, hedging, or some form of market timing (which, of course, is impossible).

Market Values are used in the selection process that identifies trading candidates that will fill the buckets… cash from all income sources, by the way, is always “destined” for one bucket or the other, and may be held unused if no proper candidates exist. Selecting potential Equities must first be “fundamental”, then “technical”… i.e. based on the Quality of the security first, and the price second. My experience is that higher quality companies purchased at a 20% or more discount from the 52-week high, with a profit target of approximately 10% (realized as quickly as possible) is a very manageable approach. The proceeds find their way back into the “smart cash” pot for Asset Allocation according to formula. There will be times when “smart cash” grows quickly while the list of new trading candidates shrinks, but when trading candidates are all over the place, “smart cash” is replenished with a portion of every income dollar produced by both fully invested buckets! Thus, insistence upon some form of income from all securities owned makes enormous sense!

But what about trading the Income Bucket securities? Enter the Closed End Income Fund, in the form of a common stock, and in a surprising variety of income producing specialties ranging from Preferred Stocks to Oil Royalties, Treasury Securities to Municipal Bonds, and REITs to Mortgage Income. No more worries about liquidity and hidden markups. No more cash flow positioning or laddering of maturities. And best of all, no more calls of your highest yielding paper when interest rates fall. Instead, you are taking capital gains, compounding your yield, and paying your dues to the Equity Bucket. And when interest rates move back up… you’ll have the luxury of reducing your cost basis by adding additional shares. Of course its magic… that’s what we do here on Wall Street!

Effective Tips For Secure Trading

Internet is the great source of information that brings a revolutionary change in the lives of the businessmen and common people. Internet has specially brought a sensational boom in the world of business with the introduction of the Ecommerce and online trading that allows people to expand their business all over the world. People do not need to travel far and wide areas around the globe to increase the branches of their business and the numbers of customers.

People now easily start any type of business while sitting at their home office location just the use of internet. Many people are not in favor of internet or ecommerce business because of the theft of sensitive financial information of the consumers and the firms, internet fraud and hackers attack. It is really a daunting task to start online trading if you do not have enough expertise of working on the internet trading applications. You should need to know the basic secrets that involve in the successful online secure trading because things are not easy as they seem people on the internet.

You can easily save yourself from internet fraud if you follow some precautions when you start online trading. First you should perform the background search on your business when you are going to deal with a trade on internet. You can easily get information about it from the trade institutes and credit agencies with the help of the search engines. Chamber of commerce is the most trusted and reliable source of information about the trading business.

You should try to clear and precise in your judgment and decision while starting any type of business and you should not hesitate to ask questions from the helping and guiding authorities. Always consults to the legitimate traders who answer all your questions helpful to solve all your confusions relating to your trading business problem. These traders sometimes provide you references on demands to resolve complicated trading issues easily.

These legitimate traders have extensive experience that you can utilize in the maintenance of secure trading business online free from all possible risks and threads. When you are working on internet especially in the area of trading, you need to keep in mind the fact that appearances can be very deceptive.

Many hackers make fool to new traders with the attractive display of websites as these people try to throw the honest impression through the attractive trapping words and offers. You should need to be careful from the firms located in the third world countries as scammers are found everywhere. You should not give any type of the information like email and fax numbers to any firm without confirmation. When you suspect that you have become the target of the fraud, you should try to contact to your trading partner to matter easily.

FOREX – Benefits and Secure Trade

Foreign exchange, shortly mentioned as FOREX, Fx and Currency market is the biggest of the most of the markets in the world. It is easier to invest in FOREX and to acquire a profit without suffering any loss. The main purpose of FOREX is to promote trade and investment.

One of the biggest benefits of investing in FOREX is its high liquidity and flexible working hour format, in sense, it works 24 hours a day. As result of cash transactions performed here are in a large manner, even a low margin of profit would mean a lot of returns in the hands.

In stock exchanges, an investor to trade for the first time has to invest thousands of dollars for trading. But in the case FOREX, if you have got 300 dollars, that is more than enough to perform trading in FOREX. How cool it will be for an investor to invest a less amount and to get a handful of profit!

Another drawback in stock market is the investor has to trade according to the conditions of the market, which means, either the market is in bullish state or a bear one. But FOREX outsmarts other markets in this feature; FOREX can provide the investor with some profit regardless the direction of the market, there is no need to bother whether the market is up or down.

What the investor has to do is just to formulate some ideas about the company which he is going to trade, the complete details of the company’s financial statements, its management, he could really acquire a handful of returns.

All these factors indicate one thing that FOREX is a secure place to invest and trade.