Finance and Investing Related Posts

How to achieve financial planning, management, and investing success. How to become a successful investor in stocks and other investment alternatives.

Factors to Consider When Managing Risk and Adjusting Investment Strategies Over Time

Posted on by Joseph M. Brennan Jr.

This article is about some of the factors a solid investor considers when managing risk and making adjustments in investment strategies over time. I recently made the decision to remove funds from my investment account to pay off my mortgage on my investment property as well as the second mortgage on my home. You might question such a decision given that, significant gains can generally be made in the stock market over time and, from a seasonal standpoint, the highest gains typically occur in the stock market between November and April. Well, there were two primary reasons why I made this decision:

(1) The primary stock market index that I track, the S&P 500 (SPX), has gained over 200% over the past six years while the long term average is approximately 7% per year. This indicates that, at some point, it is likely these more recent outsized gains will revert to the mean perhaps by the SPX registering several years of mediocre gains or perhaps even substantial losses. Paying off these mortgages is essentially the equivalent of experiencing guaranteed 4-5% annual gains over the next twenty to thirty years and, given the outsized gains experienced to date, and the potential for mean reversion, this might turn out to be a much better gain over the long term versus risking what I have and investing in something that is far less certain.

(2) Substantially reducing the size of my investment account curbs my risk taking in the stock market and, should substantial losses be experienced in the future, these will have a much more limited impact on my financial position overall.

Years ago I was firmly against using investment funds to pay off mortgages, because the potential stock market gains far outweighed the typical interest rates and the associated tax benefits, but the times have changed and I am now in favor of doing just that; especially for those investors within six or seven years of retirement. I recommend, however, that investors 10+ years away from retirement instead regularly sell shares of their investments so that they will have cash available to take advantage of stock market declines when they happen. In the present investing environment, I prefer cash over investing in bonds or bond funds due to interest rates being at historical lows and the likelihood that interest rates will begin rising over the next few years. According to one article, based on historical data, even as little as a 1% rise in interest rates over a period of six months (a 0.25% rate hike per Fed meeting – the Fed meets every six weeks), which is a reasonable expectation, could result in a 5.4% loss in bonds and the bond funds which track them. So I recommend steering clear of bonds and bond funds at least until interest rates “normalize” a bit. Cash might be a better option until this happens, because you would then only experience losses due to inflation (about a 2% inflation rate per year is a reasonable expectation). However, the losses experienced in bonds and bond funds would be in addition to losses due to inflation. So that 5.4% loss I alluded to earlier would effectively amount to a 7.4% loss overall when also including the inflationary effect. Of course, there are times when the bond market might do well, especially when there is substantial fear in the stock market and people sell their stocks and buy bonds instead, but it is likely that these spikes will be short lived and temporary in nature. Furthermore, timing these spikes is likely to prove to be difficult both when buying into and when selling out of these. I believe a much safer way to invest going forward is cashing out from time to time and using that cash to buy stocks during stock market declines. Another option would be to purchase portfolio protection such as volatility products which rise when overall stock markets fall.

In summary, the risk-reward of the overall stock market is no longer as favorable as it has been in the past, the risk-reward of the overall bond market appears to be highly unfavorable in nature with the exception of short term spikes due to fear in the stock market, and cash appears to be “king” given the investing environment we are rapidly approaching so that we can capitalize on potential stock market declines. I have a solid risk management strategy that I developed specifically for use in investing environments such as this, for the clients that I work with, so feel free to contact me if you’d like to find out more.

Each of the above are indications that it might make sense to tread carefully going forward with respect to your investments. Effectively managing your risk and having cash available to take advantage of future compelling investment opportunities will allow you to succeed in this kind of investing environment. Being a solid investor involves effectively managing risk and taking actions to exit investments which become unfavorable in nature and capitalizing on new investment opportunities which become favorable in nature. By periodically rotating out of investments which become less favorable and into investment opportunities which become more favorable in nature you will realize consistent investment success over time. You won’t make winning investments all of the time, but the point is to use strategies and techniques which allow you to make winning investments for much of the time. I can help in these regards.

This article informs some of the factors a solid investor considers when managing risk and making adjustments in investment strategies over time. Part of being a successful investor, and realizing consistent gains over time, involves recognizing indicators of when to reduce your exposure to certain investment alternatives, and risk overall, when to increase your exposure to certain investment alternatives, and risk overall, and when to cash out and sit on the sidelines patiently awaiting the next compelling investment opportunities and favorable investing environments overall.

Please contact me if you need any assistance with any of your financial planning, management, and/or investing needs as this is one of the areas that I actively perform life coaching and training in. Also feel free to click on “Financial Planning, Management, and Investing Related Posts” to the sidebar on the right or below (depending upon which device you are using to view this article) for helpful tips on how to become a solid investor.

Other articles that I’ve written related to financial planning, management, and investing include:
(1) Reasons to Sell or Short-Sell Stocks and Other Investments
(2) Risk: How Much Should You Take When Investing Your Money?
(3) Using Technical Indicators and Charts to Guide Stock Market Activities and Using Price Averaging to Manage Risk
(4) Using Bollinger Bands, Stochastics, and Other Indicators to Guide Stock Market Activities
(5) Using Moving Averages and Price Averaging to Realize Consistent Gains in the Stock Market

These articles provide helpful tips on how to become a solid investor so read through some of these if you think they might be helpful to you. In addition, in case some of you would like to follow along, here is where I regularly post about my stock market activities. So feel free to visit this page if you’d like to follow what I’m doing in the stock market at any given time.

For those that did not know, I generally perform life coaching and training services in two primary areas: 1) Personal and Professional Improvement, Development, and Growth, and 2) Financial Planning, Management, and Investing. As such, I generally alternate the articles that I write via my blogs between these two topic areas. This particular article is associated with the second area that I life coach in. So if you don’t have much interest in financial planning, management, and investing, rest assured that the next article that I write will be in the area that you might have greater interest in; the personal and professional improvement, development, and growth area. You can also follow me on Twitter if you like at: Joseph M Brennan Jr @ BrighterDaysLC

Joseph M. Brennan Jr.
CEO/Life Coach – Brighter Days Life Coaching
“Your Brighter Days Life Coach for Life”

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Make a Bad Day Better
Make a Good Day Better
Create a Brighter Life

 

Reasons to Sell or Short-Sell Stocks and Other Investments

Posted on by Joseph M. Brennan Jr.

This article is about some of the factors a disciplined investor considers when deciding whether or not to sell or short-sell stocks and other investments. Short-selling is a practice where an investor borrows shares of a stock or other investments, with the anticipation that prices will fall, and buys them later at hopefully lower prices. If the prices rise instead then the investor loses money. I’m not fond of short-selling myself, but at least wanted to share it since the factors that influence when to sell stocks or other investments are often some of the same factors an investor might consider when short-selling.

If you follow my stock market activities then you know that I have done quite a bit of selling lately and am now completely out of the stock market. From a seasonal standpoint, November is typically the time to buy (and not sell) stocks since the highest gains typically occur between November and April so you might question why I decided to sell out of this market. Well, there were two primary reasons: 1) I bought into the mid September-to-mid October market slump where the stock market lost nearly 10% and since then the stock market has gained over 11% over a period of about 3 weeks or so which is about a year and a half gain (on average) over a period of weeks. 2) My year end “stretch” goal for my investment account was 12% and I gained 16% as of Friday which is over a two year gain on average. When the overall market bottomed in mid-October, and I kept buying into it, my investment account was at a 6% loss, so it has risen 22% since then. Rather than continue taking risk I sold what I had to realize this gain and await an overall market pullback or other compelling investment opportunities before putting my cash to work.

Below are factors that I frequently consider when evaluating whether or not to sell shares of stocks or other investments that I’m holding at the time:

(1) Technical charts and indicators approaching extreme levels. For example, if you take a look at the slow stochastics chart below, at the bottom of the chart, for the S&P 500 Index (SPX) you can see that the lines are above 80 which indicates, from a statistical perspective, that the stock is overbought and is due for for a pullback. In addition, in the top chart, the prices are approaching the upper Bollinger Band at ~ 2067, another statistical indicator, which is perhaps even more concerning due to the significant widening of the upper and lower bands associated with the extreme price declines and the rapid recovery between 19 September and 7 November. I typically look at a variety of charts and indicators and generally take a “weighted average” across those that appear to best reflect the “personality” of the stocks or other investments that I am tracking to aid in “buy” and “sell” decision making. Tracking the S&P 500 Index (SPX) is a good index to track, because about 60% of stocks rise when the SPX rises and about 80% of stocks decline when the SPX falls. So the SPX is worth paying attention to.

Chart courtesy of stocks.com

Chart courtesy of stocks.com

(2) Stocks or other investments rising significantly above their means. Stocks tend to be mean reverting over time so prices significantly above or below the mean(s) tend to reverse and revert back to the means at some point.

(3) Stock prices approaching or exceeding their 1 year price targets. Analysts generally provide 12 month price targets for the stocks that they cover and they revise these over time. As such, it is likely that prices approaching or exceeding their 1 year price targets will have limited upside unless significant upside revisions are made by the analysts that cover the stock at some point in the future.

(4) Stocks or other investments which previously declined significantly, but have since nearly reverted back to their means or have recovered nicely from their previous declines.

(5) Stocks or other investments which previously gapped down significantly on a decline begin “filling in the gap”.

(6) Prices approaching resistance zones represented by moving averages or trend analyses.

(7) The percentage gain to date. I always try to lock-in a good gain when I see one even if the other indicators I look at are favorable towards the stocks or other investments that I am holding. This allows me to have cash available to take advantage of any other investment opportunities which might become highly favorable, in the future, in terms of the indicators that I generally look at to evaluate stocks. I typically consider about 7% per year to be an average annual return in the stock market although far above average returns have been observed in the past few years. It is likely, however, that annual gains will begin reverting back to their means at some point in the future.

(8) The risk-reward indicators that I generally look at become unfavorable in nature such as some of the factors indicated above or some of the fundamental indicators that I frequently look at.

(9) Other investment opportunities start becoming much more favorable than some of the ones I’m holding, but I am fully invested and have no cash on hand at the time to take advantage of these opportunities. When this happens I look to sell some of the stocks that I’m holding to free up cash so that I might capitalize on these other potentially more compelling opportunities.

(10) Reaching or exceeding my ultimate or year end target goals for my overall investment account. Anytime that you begin approaching your ultimate or year end target goals this should prompt you to reduce your stock market exposure to manage your risk.

Each of the above are indications that it might make sense to sell some shares; especially when two or more of these factors are present. Selling shares when such opportunities arise allows you to effectively manage risk and have cash available to take advantage of future compelling investment opportunities.

Being a disciplined investor involves tracking multiple investment alternatives and taking actions to capitalize on those which become highly favorable investment opportunities over time and exiting those which become less favorable. By periodically rotating out of investments which become less favorable and into investment opportunities which become more favorable in nature you will realize consistent gains over time. You won’t make winning investments all of the time, but the point is to use strategies and techniques which allow you to make winning investments for much of the time

This article informs some of the factors a disciplined investor considers when deciding whether or not to sell or short-sell stocks and other investments. Part of being a successful investor, and realizing consistent gains over time, involves recognizing indicators of when to reduce your stock market exposure, and risk overall, by selling shares of stocks or other investments.

Please contact me if you need any assistance with any of your financial planning, management, and/or investing needs as this is one of the areas that I actively perform life coaching and training in. Also feel free to click on “Financial Planning, Management, and Investing Related Posts” on the sidebar to the right or below (depending on which device you are using)  for helpful tips on how to become a solid investor.

Other articles that I’ve written related to financial planning, management, and investing include:

(1) Risk: How Much Should You Take When Investing Your Money?
(2) Using Technical Indicators and Charts to Guide Stock Market Activities and Using Price Averaging to Manage Risk
(3) Using Bollinger Bands, Stochastics, and Other Indicators to Guide Stock Market Activities
(4) Using Moving Averages and Price Averaging to Realize Consistent Gains in the Stock Market

These articles provide helpful tips on how to become a solid investor so read through some of these if you think they might be helpful to you. In addition, in case some of you would like to follow along, here is where I regularly post about my stock market activities. So feel free to visit this page if you’d like to follow what I’m doing in the stock market at any given time.

For those that did not know, I generally perform life coaching and training services in two primary areas: 1) Personal and Professional Improvement, Development, and Growth, and 2) Financial Planning, Management, and Investing. As such, I generally alternate the articles that I write via my blogs between these two topic areas. This particular article is associated with the second area that I life coach in. So if you don’t have much interest in financial planning, management, and investing, rest assured that the next article that I write will be in the area that you might have greater interest in; the personal and professional improvement, development, and growth area. You can also follow me on Twitter if you like at: Joseph M Brennan Jr @ BrighterDaysLC

 

Joseph M. Brennan Jr.
CEO/Life Coach – Brighter Days Life Coaching
“Your Brighter Days Life Coach for Life”

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Make a Bad Day Better
Make a Good Day Better
Create a Brighter Life

Risk: How Much Should You Take When Investing Your Money?

Posted on by Joseph M. Brennan Jr.

Perhaps the most important consideration when making investment decisions involves risk. However, what many people fail to realize is that not only can it be detrimental to their financial future to take too much risk, but it can also be detrimental to their financial future to not take enough risk. Largely, due to the bursting of the dot com bubble in 2000 and the subsequent financial crisis of 2008, many of today’s investors associate risk with emotional comfort level and, as such, primarily rely on cash savings or conservative investments to empower their financial future. However, what many of these investors fail to realize is that it could take a lifetime (or longer) to reach their financial goals in this fashion. Thus, even though they might tell themselves that they are taking little or no risk at all via the financial decisions they are making today they are, in fact, taking substantial risks in terms of empowering their financial future.

So, just what is the right balance between taking too much risk and not taking enough risk? This is a question that I frequently work with people to determine when coaching them on how to manage risk over the life of their investments. I do this in several ways to include:

A. Determining the risk category for each investment goal whether it’s a down payment for a home, an education fund, down payments for investment properties, or a retirement fund. The two primary considerations for determining the appropriate risk categories are:

(1) The defined amount needed upon reaching the investment goal (i.e., how do you know when the goal has been met?). To remain relevant, this amount may need to be adjusted over time. For example, when first establishing a financial goal for a down payment on a home you might initially estimate that you need $20,000 for this down payment, but later, due to home price increases and the type, size, and location of the home that you then desire you might discover that you actually need $30,000.

(2) How much money you presently have, how much money you still need to reach your latest adjusted goal, and what your time horizon is for reaching this goal. If, for a given investment goal, an analysis is performed and the determination made that it falls into a high risk category then you will need to invest in higher risk investments in order to meet this financial goal within your desired time frame. Otherwise it will take longer to reach this goal. The good news about being in a high risk category is that you do not have to be very precise in terms of market timing and/or the investment selected to progress towards the financial goal. On the other hand, if, for a given investment goal, this analysis is performed and a determination made that it falls into a low risk category than you will need to invest in lower risk investments to better ensure that you will not lose a significant portion of what you presently have should the markets experience significant declines. Otherwise, you run the risk, again, that it will take longer to reach this goal. In other words, it doesn’t make sense to take a lot of risk when you do not have to if you can meet this financial goal without taking this additional risk. The bad news about being in a low risk category is that you have to be much more precise in terms of not buying at the wrong time, or not buying the wrong investments, in order to sufficiently progress towards the financial goal. Unfortunately, as stated previously, many of today’s investors associate risk with emotional comfort level and thus rely on cash savings or conservative investments to empower their financial future. Furthermore, many of them have not even taken the steps to define what each of their investment goals are. If they did, they might be surprised at how long it might take to reach these investment goals by relying on cash savings and conservative investments. For example, if you had a total of $10,000 today, save an additional $2,000 per year plus a 5% increase for each future year, and invest all of this in emotionally comfortable conservative investments earning 3% a year, and plan to retire when you have a million dollars then it would take you 67 years to reach this retirement goal. Sixty seven years! However, it’s actually much worse than that. If you estimate that you might need $1,000,000 in today’s dollars to retire how much would that need to be 67 years from now? Well, assuming an average inflation rate of 2% per year, then your investment goal would need to be $3,800,000 dollars. So, although many of today’s investors invest in emotionally, comfortable, conservative investments what they do not realize is that they may not be able to reach their financial goals in their entire lifetimes! So, defining and refining their investment goals and re-evaluating progress and time frames are essential to ensure the appropriate investment risks are being taken. An investment which is emotionally comfortable today may not result in the gains needed to realize the investment goals within the desired timeframes. Recently, I coached a woman who wanted to retire in five years time, but was investing all of her money in a conservative bond fund. After performing some analyses we determined that her current savings would have to grow ten fold in order to reach her investment goal. Using an above average return rate of 8% per year it would take about 28 years or so to reach this goal. If she wanted to retire much sooner than that then the only chance she’d have of making it would be via high risk investments. Please do not wait until you are five years from reaching a major financial goal without understanding the appropriate level of risk to take to ensure your success. You don’t want to be forced into a high risk investment with little time to recover should the markets not cooperate. Making these assessments early on, and making adjustments and managing risk all along the way, is critical and will accelerate your progress towards reaching each of your financial goals.

B. Track and perform risk-reward assessments across various investment alternatives and invest in those which are appropriate with respect to the risk category associated with each investment goal. I perform risk-reward assessments based on various indicators and financial data that I regularly review and evaluate. I’ve discussed some of these via some of my previous articles: Using Bollinger Bands, Stochastics, and Other Indicators to Guide Stock Market Activities and Using Technical Indicators and Charts to Guide Stock Market Activities and Using Price Averaging to Manage Risk.

C. Invest in a disciplined fashion in accordance with the risk category associated with each investment goal using investment strategies appropriate for the risk category. I work with people to develop investment strategies in this fashion. One of the many strategies that I use is averaging into the stock pricing when buying and averaging out of the stock pricing when selling which is something that I discussed in one of my previous articles: Using Technical Indicators and Charts to Guide Stock Market Activities and Using Price Averaging to Manage Risk.

So, effectively managing risk and finding the right balance between taking too much risk and not taking enough risk, all along the way, is critical for empowering your financial future. Do not rely on cash savings and conservative investments if it will take nearly a lifetime (or longer) to reach your financial goals. Likewise, if you have made substantial progress towards reaching your financial goals, do not take so much risk that you stand to lose a large percentage of this progress if the markets significantly decline. I can help you to determine the right balance between these two extremes. And achieving the correct balance is critical if you hope to have the money you need to reach each of your future financial goals.

Managing risk and maintaining the correct balance of risk is key to progressing towards your financial future and the freedom that it brings. The impact of not doing this smartly is the same either way. If you do not take enough risk you will not reach your financial goals within your desired timeframes and if you take too much risk you will not reach your financial goals within your desired timeframes. The optimal level of risk to take at any given time is fluid and dependent upon your specific financial goal, the progress to date, and the associated timeframe. Any change to any one of these aspects will influence the level of risk appropriate for meeting the specified or refined financial goal within the specified or refined timeframe. Sticking to the same plan independent of these considerations will threaten your financial future and the financial freedom that it brings. I can help you to achieve this balance every step of the way.

This article informs how to manage risk and how to find the right balance between taking too much risk and not taking enough risk for each of your investment goals. Part of being a successful investor, and realizing consistent gains over time, involves managing risk and finding the right balance between these two extremes in a fluid, disciplined fashion over time.

For those that did not know, I generally perform life coaching and training services in two primary areas: 1) Personal and Professional Improvement, Development, and Growth, and 2) Financial Planning, Management, and Investing. As such, I generally alternate the articles that I write via my blogs between these two topic areas. This particular article is associated with the second area that I life coach in. So if you don’t have much interest in financial planning, management, and investing, rest assured that the next article that I write will be in the area that you might have greater interest in; the personal and professional improvement, development, and growth area.

 

Joseph M. Brennan Jr.
CEO/Life Coach – Brighter Days Life Coaching
“Your Brighter Days Life Coach for Life”

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Make a Bad Day Better
Make a Good Day Better
Create a Brighter Life

 

Using Technical Indicators and Charts to Guide Stock Market Activities and Using Price Averaging to Manage Risk

Posted on by Joseph M. Brennan Jr.

Generally, I like to use a series of indicators to evaluate the risk-reward potential of various stocks as well as inform and guide actions that I take in the stock market in a disciplined fashion. Two of these I discussed in a previous article, Using Bollinger Bands, Stochastics, and Other Indicators to Guide Stock Market Activities. This article discusses the Relative Strength Index (RSI) and ways to manage risk via price averaging. A couple of days ago, in the stock market, I decided to sell additional shares of my Unisys (UIS) stock based on the RSI and other indicators and financial data that I generally look at while using dollar cost averaging to manage risk.

I initially bought the UIS stock a few months ago, because the risk-reward indicators and financial data that I generally look at appeared to be highly favorable at that time. Since then, the stock had both declined significantly and increased significantly at various points in time. When the stock declined significantly, I performed a risk-reward assessment based on the indicators, charts, and financial data that I frequently look at and determined that the pricing of the stock was highly favorable. I then started aggressively buying as a result. When the stock began to rise I continued performing risk-reward assessments and when the pricing of the stock began to approach less favorable conditions I started selling shares. One of the indicators that I sometimes look at when making these determinations is the RSI as depicted on the following chart.

UIS Candlestick and RSI Chart courtesy of StockCharts.com

UIS Candlestick and RSI Chart courtesy of StockCharts.com

When the RSI line rises above the 70 level and then hooks down then that is the textbook definition of a sell signal. When the RSI line falls below the 30 level and then hooks upwards then that is the textbook definition of a buy signal. In my experience, I’ve found that doing some buying and selling as the RSI line approaches those two extremes has resulted in consistent gains over time. I don’t usually like to wait until the textbook definition is met before starting to buy and sell as it will most likely take a long time for these conditions to be met. I just execute my “buy” and “sell” activities in accordance with the risk profile associated with the investment goal I am trying to reach. If the investment goal I am trying to reach is in a high risk category then I will most likely wait at least until the textbook definition is met for the RSI before selling shares and not wait for the textbook definition to be met for the RSI when buying shares. If the investment goal I am trying to reach is in a low risk category then I will most likely do the opposite; only buying shares when the textbook definition is met for the RSI and selling shares prior to the textbook definition to be met on the sell side.

As I discussed in a previous article, Using Bollinger Bands, Stochastics, and Other Indicators to Guide Stock Market Activities, other potential reasons for selling shares of the UIS stock still held true in that the UIS stock had not only “reverted to the mean” but had risen above both the 20 day and 50 day Exponential Moving Averages (EMA). I discuss moving averages in further detail in my article, Using Moving Averages and Price Averaging to Realize Consistent Gains in the Stock Market. In addition to the EMA aspects, the UIS stock had continued “filling in the gap” between the 23 July gap down in the stock price and the previous day’s closing stock price.

Each of these were indications that the UIS stock might have been getting a little pricey and that it might have made sense to sell some shares to manage risk and have cash available to take advantage of future investment opportunities that became available. The UIS stock has had a pretty good run since the 23 July drop, gaining nearly 20%, so it made sense to sell some shares and await the next favorable investment opportunity to put those dollars to work.

Price averaging is a technique that I frequently use to manage risk and to realize consistent gains in the stock market. I like to price average into stocks when buying them and to price average out of stocks when selling them. It is nearly impossible to get the absolute best price when buying and selling stocks, but via price averaging you will often get a good price. I generally use this price averaging process over multiple time frames. For example, when my risk reward assessment of a stock becomes highly favorable, via the indicators and financial data that I generally look at, and I plan to begin purchasing shares of the stock then I will usually monitor the stock price during the day and try to buy about half of the stock when the price approaches the low of the mid-morning part of the day and then buy the remaining half towards the end of the day; resulting in a price that is the average between these two prices. This ensures that at least I did not buy the stock at the highest point during the day and that I purchased the shares for a somewhat reasonable price. Following these initial purchases, I generally monitor the price of the shares throughout the days and weeks that follow and anytime the stock falls significantly from my currently averaged price point, and my risk-reward assessment for the stock remains favorable, I buy additional shares which essentially brings down the average price that I paid for the shares overall.

In a similar fashion, I price average out of stocks when selling shares. For example, when my risk reward assessment of a stock becomes unfavorable in nature, via the indicators and financial data that I generally look at, and I decide that I want to begin selling shares of the stock then I will usually monitor the stock price during the day and try to sell about half of the stock when the price approaches the high of the mid-morning part of the day and then sell the remaining half towards the end of the day; again resulting in a price that is the average between these two prices. This ensures that at least I did not sell the stock at the lowest point of the day and that I sold the shares for a somewhat reasonable price. Following the initial sales of my shares, I then generally monitor the price of the shares throughout the days and weeks that follow and anytime the stock rises significantly from my currently averaged price point, and my risk-reward assessment for the stock remains unfavorable, I sell additional shares which brings up the average price that I sold the shares for overall.

Price averaging is a wonderful way in which to manage risk and to realize consistent gains over time. So I encourage you to use this price averaging process when performing your investment activities. Again, it is extremely difficult to get the “best” price, but not so difficult to get a “good” price. Price averaging can help to ensure that you always get a decent price both when buying and selling shares. I have even successfully used this price averaging process to transform large initial losses into eventual gains. For example, I once experienced a 33% loss on a bad call I made on HG Gregg (HGG), but I kept buying the stock on the way down which eventually resulted in an overall gain of 5%.

So… That’s where things stand for me in the stock market right now. I’ll let you know how things go. Either way I have a plan. If the UIS stock rises significantly, or the risk-reward becomes substantially more unfavorable in nature via the indicators and financial data that I look at, then I’ll be a seller of additional shares, but if the UIS stock falls significantly, and the risk-reward becomes favorable in nature via these indicators and data, then I’ll be a buyer.

This article informs how to evaluate the risk-reward potential of various investment alternatives and how to manage risk and realize consistent gains in your investments over time using techniques such as price averaging and various indicators such as the RSI. Part of being a disciplined investor, and realizing consistent gains over time, involves recognizing favorable versus unfavorable conditions, taking actions accordingly, and patiently waiting until the next compelling buy or sell investment opportunity arises; one in which the risk-reward becomes favorable for you, from either the buyer or seller perspective, according to your risk profile. If you operate in this fashion you will experience much success as an investor.

For those that did not know, I generally perform life coaching and training services in two primary areas: 1) Personal and Professional Improvement, Development, and Growth, and 2) Financial Planning, Management, and Investing. As such, I generally alternate the articles that I write via my blogs between these two topic areas. This particular article is associated with the second area that I life coach in. So if you do not have much interest in financial planning, management, and investing, rest assured that the next article that I write will be in the area that you might have greater interest in; the personal and professional improvement, development, and growth area.

 

Joseph M. Brennan Jr.
CEO/Life Coach – Brighter Days Life Coaching
“Your Brighter Days Life Coach for Life”
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Make a Bad Day Better
Make a Good Day Better
Create a Brighter Life

 

Using Bollinger Bands, Stochastics, and Other Indicators to Guide Stock Market Activities

Posted on by Joseph M. Brennan Jr.

Generally, I like to use a series of indicators to evaluate the risk-reward potential of various stocks and inform and guide actions that I take in the stock market. Two of these include Bollinger Bands and Stochastics. Today, in the stock market, I decided to sell some of my shares of Unisys (UIS) based on these and other indicators that I generally look at.

I initially bought the UIS stock a few months ago, because the risk-reward indicators that I generally look at appeared to be highly favorable at the time. The stock had a pretty good run prior to its earnings release on 23 July so I decided to sell half of my position then, because stocks sometimes move significantly on earnings release day, and in case the stock price declined, I wanted an opportunity to purchase the stock at a lower price. Sure enough the stock did fall significantly and my risk-reward assessment indicated the pricing of the stock became highly favorable. I then started aggressively buying as a result. I decided to sell some shares of this stock today for several reasons such as those indicated by the following chart.

Chart courtesy of StockCharts.com

Chart courtesy of StockCharts.com

My reasons for selling some of my UIS shares today included the following:

1) The stock was converging upon the upper Bollinger Band.

2) The Stochastics Chart was indicating overbought conditions since the Stochastics Line was above the 80 mark.

3) The UIS stock “reverted to the mean” (namely the 50 day EMA and had previously crossed the 20 MA which is represented by the dotted centerline between the upper and lower Bollinger Bands). I discuss this aspect in more detail in my article, Using Moving Averages and Dollar Cost Averaging to Realize Consistent Gains in the Stock Market.

4) The UIS stock has been “filling in the gap” between the 23 July gap down and the previous day’s close. Sometimes, I like to wait patiently for that to happen before selling a stock that I’m holding.

Each of these are indications that the UIS stock might be getting a little pricey and that it might be time to consider selling some shares to manage risk and have cash available to take advantage of future investment opportunities that become available when risk-reward indicators become highly favorable in nature.

The UIS stock still has the potential to continue increasing since the one year price target of $31.00 is about 34% higher than where the stock price stands today. As such, I decided to continue holding some of my shares. In addition, the fundamental data associated with the UIS stock is also favorable which often leads me to patiently hold stocks for longer periods of time than I otherwise might.

So… That’s where things stand for me in the stock market right now… I’ll let you know how things go… Either way I have a plan. If the UIS stock rises significantly, or the risk-reward becomes substantially more unfavorable in nature via the indicators that I look at, then I’ll be a seller of additional shares, but if the UIS stock falls significantly, and the risk-reward becomes favorable in nature via these indicators, then I’ll be a buyer.

Keep in mind, when performing your own investment activities, that evaluating the risk reward of investment alternatives using various indicators such as “Bollinger Bands” and “Stochastics”, and taking actions accordingly, can help you to manage risk and realize consistent gains in your investments over time. Part of being a disciplined investor, and realizing consistent gains over time, involves recognizing unfavorable conditions, taking actions accordingly, and patiently waiting until the next compelling investment opportunity arises; one where the risk-reward becomes favorable for you according to your risk profile. If you operate in this fashion you will experience much success as an investor.

Using Moving Averages and Price Averaging to Realize Consistent Gains in the Stock Market

Posted on by Joseph M. Brennan Jr.

Today, in the stock market, I decided to sell half of my shares of General Motors (GM) for a small gain. I initially bought this stock a few weeks ago, because the risk-reward indicators that I generally look at appeared to be highly favorable. However, the stock continued to fall so I decided to keep buying to price average into it. Often people are tempted to sell stocks that continue to fall, but I decided to continue buying and patiently wait at least until the stock reverted back to the mean before considering to sell the stock. The “price averaging” and “reversion to the mean” techniques are approaches that I’ve used repeatedly when experiencing initial losses to allow me to recover from these losses and manage risk. All stocks eventually revert back to their means so these techniques can be strategies you can use to improve gains, manage risk, and maintain a sense of patience and discipline when performing your investment activities. As you can see from the chart below the GM stock experienced some steady gains over the past several days and has reverted back to the 20 day Exponential Moving Average (EMA).

Chart courtesy of StockCharts.com

Chart courtesy of StockCharts.com

As such, I used this as an opportunity to sell some shares. Frequently, major moving averages such as the 20 day EMA serve as resistance zones and support zones to stocks. Since the GM stock has not yet sustained a move above the 20 day EMA I took it as another sign to sell at least part of my position. Stocks that do not sustain moves above resistance zones often decline. Selling half of my position will allow me to use the freed up cash to buy at a lower price should this decline happen and I decide to capitalize on it. On the other hand, the remaining half of the shares I own will allow me to capitalize should the stock sustain a move above the resistance zone which frequently results in significant price increases. So… That’s where things stand for me in the stock market right now… I’ll let you know how things go… Either way I have a plan. If the GM stock rises significantly, or the risk-reward becomes unfavorable in nature, then I’ll be a seller of additional shares, but if the GM stock falls significantly, and the risk-reward becomes more favorable in nature, then I’ll be a buyer. Keep in mind, when performing your own investment activities, that evaluating risk reward, taking actions accordingly, and using techniques such as “price averaging”, “reversion to the mean”, and “resistance and support zones” can help you to realize consistent gains in your investments over time.

Latest Stock Market Activity (18 Aug 2014)

Posted on by Joseph M. Brennan Jr.

So… Today, in the stock market, I decided to sell my remaining shares of the XIV ETN which I started selling last week (the XIV ETN essentially bets on a fall in volatility). It gained a little over 4% today and has gained a phenomenal gain of over 23% in the past seven days which is nearly a three and a half year gain on average. The stock still appears to have some room to run, but the indicators that I generally look at indicate that the risk-reward is becoming a bit unfavorable. So it probably made sense for me to go ahead and sell instead of taking additional risk for what might amount to be a marginal gain.

Part of being a disciplined investor, and realizing consistent gains over time, involves recognizing solid gains when you see them, taking actions to capitalize on them, and patiently waiting until the next compelling investment opportunity arises; one where the risk-reward becomes favorable for you according to your risk profile. If you operate in this fashion you will experience much success as an investor. And if you need any help with making any of these determinations, you know who to ask… Have a wonderful Monday everyone!

Latest Stock Market Activity (17 Aug 2014)

Posted on by Joseph M. Brennan Jr.

So… The strangest thing happened in the stock market Friday… I was getting ready to sell my remaining shares of the XIV ETN which had gained nearly another 2.5% (for an overall gain of about 16% over a period of a couple of weeks – well over a two year gain on average). Well, as soon as I was getting ready to sell the stock rapidly dropped. It lost about 5% in a matter of minutes! So I then decided to pursue the other side of the trade; being a buyer instead of a seller. A number of times when a stock drops rapidly it falls to such extreme levels due to the fear it generates that it bounces significantly. So I decided to put in a purchase order at a ridiculously low price, because you never know… You might just get it. And if I didn’t I could always monitor the situation and adjust my price upwards if I so desired. Well, as luck would have it, the price dropped another 5% down to the price I had made the purchase order for and I bought the shares. By the end of the day the shares rebounded and I sold them for a 6% gain which is nearly a one year gain on average in a matter of hours! No, I was not going to turn down a gift like that! In the world of investing it is not very often that you can time something as beautifully as this. So I decided to take the cash and run. I will now wait patiently for the next compelling “buy” opportunity to put this cash to work.

This is one example of why it’s good to not always be fully invested so that you have cash available to be able to capitalize on opportunities such as this. You never know when these opportunities might arise so you always want to be prepared by periodically raising cash; rotating out of investments which become less favorable such that you can take advantage of investment opportunities which become favorable over time. You won’t make winning investments all of the time, but the point is to use strategies and techniques which allow you to make winning investments for much of the time.

So… That’s where things stand for me in the stock market right now… Have a wonderful Sunday everyone!