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HOW TO LOSE YOUR SHIRT IN THE STOCK MARKET WITHOUT LOSING YOUR SHORTS TOO (PART ONE)!

Posted on by Joseph M. Brennan Jr.

It’s always a good idea to adjust your investment strategies over time. Those of you who have been following me closely know that I’ve had a real “knack” over the past 6 months for picking losing stocks. However, I refuse to let them go. And I continue buying into them because the buy signals keep getting stronger and stronger with every drop, and they became more and more attractive, with respect to all of the indicators I use to make investment decisions. And, as is usual, I refuse to sell on “buy” signals and frequently do the opposite.

As a result of all the buying I have done, I moved from being a low risk investor to an extremely high risk investor. This can happen from time-to-time and as long as I don’t remain a high risk investor for a long period of time, then that’s probably okay. I haven’t been too concerned because I’ve liked the patient approach I’d been using. And, frequently, losing stocks become leading stocks over time and stocks that continually get clobbered usually experience very strong reversals. So, I keep buying into them.

The low point for me so far this year was Monday (4 days ago – 14 March). I was 140% invested (yes – I was using margin) and down 30.34% for 2022 (and down 34% since September/October 2021). Ordinarily, as a low-risk investor I would rarely be anywhere close to 100% invested in the stock market (much less over-invested). But I was not willing to go down without a fight. And so far it has paid off handsomely. As of today, I am down 9.31% for the year and am 106% invested. So, that’s a huge, 21 percentage point gain in only 4 days. So, I’m very happy about this relatively speaking. It feels like victory even if it’s truly not in terms of me not earning any positive returns so far in 2022.

I haven’t been overly concerned with having a negative return for 2022 because all of the major stock market indexes are getting hammered this year so far (the recent lows being a 13% loss for the S&P 500 Index, a 20% loss for the NASDAQ, and a 14% loss for the Russell 2000). And eventually the market indexes will recover and so will most of the stocks I’m holding. I would be more concerned if I was experiencing substantial losses while the major market indexes were showing significant gains.

Now, a couple of years ago, I would have been “all in” several months ago and have been two or three times more negative using the strategies I had detailed in my “Invest Like a Pro in 10 Minutes a Day!” series of 4 books (https://brighterdayslifecoaching.com/published-books…/). And these might still be very good strategies to use for higher risk investors. But for low risk investors, they may not be. So, I’m very thankful that I modified my approaches quite a bit since then so that I have a chance to experience shallower losses (relatively speaking) and recover from these.

The approach I’m presently using to buy into falling stocks is the following:

  1. If the initial position of a stock I bought drops 10%, and the stock still looks attractive based on the indicators I use to make investment decisions, then I buy 10% more shares than I did the first time (e.g., if I bought 100 shares the first time, then the second time I buy 110 shares: 1.10 x 100 = 110).
  2. If the stock drops another 10%, and the stock still looks attractive based on the indicators I use to make investment decisions, then I buy 10% more shares than I did the second time (e.g., 121 shares: 1.10 x 110 = 121).
  3. I continue this process with every drop.

The approach I am presently using to sell the gains is the following:

  1. I determine what a reasonable gain might be for the stock from the current depressed levels it is trading at (20%? 25%?). If the stock gains that amount from the lowest price I paid, then I sell that set of shares (e.g., if the stock rebounds strongly after the second buy of 121 shares in the above example, then I will go ahead and sell the 121 shares if the gain is substantial enough).
  2. I determine what a reasonable gain might be for the stock from the current level it is trading at after selling the first lot of shares (10%? 15%?). If the stock gains that amount from the most recent sell price, then I sell that next set of shares (e.g., if the stock gains the amount I’m targeting beyond the price I sold the 121 shares for in the above example, then I will go ahead and sell the 100 shares I bought the first time).

So, I am currently using the above process throughout the rises and falls in the stock price no matter what the cycles might turn out to be. If the stock is dropping, I’m buying more. And if it is rising, I’m selling more. I continue the process until I get to the point where I am either “all in” (including margin – at least for now) or exit the position completely.

The above strategy has really worked out well so far. Using my previous strategy, I would have been a much more aggressive buyer on the drops which would have led to much deeper losses and a much longer recovery time.

I’m happy that I modified my investment strategy back in September/October 2021. And this something you always want to get into the practice of doing. Observe what happens and make adjustments to your investment strategies so that you can work towards improving your investment performance over time in accordance with your risk profile. I happen to presently be a low risk investor (although right now I am temporarily high risk) but many of you will probably be higher risk investors. So, your investment strategies will probably be a bit more aggressive than mine.

Another thing I am doing in 2022 to maximize my investment returns is performing tax loss harvesting strategies to offset my realized gains and minimize my tax burden. This essentially, involves selling some of your losses to offset your gains. You can read all about my tax loss harvesting strategies here: https://brighterdayslifecoaching.com/maximize-stock-market-returns-by-performing-tax-loss-harvesting-to-minimize-tax-burden/

To the extent possible, what I plan to do in 2022 to maximize my investment returns will be to hold off on selling until the individual lots of the stocks I purchased passes the one year mark. I rarely do this because I tend to take substantial gains as they happen (and I might continue this practice if the gains are compelling enough). However, if I am successful in waiting a year before selling gains, then I’ll only have to pay 15% taxes on those gains instead of my typical 24% tax bracket. So, the tax incentive is huge for waiting on selling your gains if you have that kind of patience. Often, I don’t. But we’ll see what happens. I know I’ll have to do some additional selling soon since I’m presently 106% invested which is much too high for a low risk investor. But I’ll probably get there eventually.

You can be a very successful investor if you effectively use all of the tools and techniques available to maximize your investment returns. It’s been an interesting investing experiment I’ve been running so far for 2022. We’ll see how things go.

You can learn about all of my investing techniques via my “Invest Like a Pro in 10 Minutes a Day!” series of 4 books where you can learn the “end to end” process to investing and gain key investing insights and skills (https://brighterdayslifecoaching.com/published-books…/)

Also, you can read all about my stock market activities here: https://brighterdayslifecoaching.com/stock-market-activities/

I wish you much success in creating a brighter financial future for yourself, your loved ones, and those who follow.

Happy investing everyone!

#finance #stocks #investing #stockmarket #success #taxes

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!