Many people always wonder whether they should buy Apple (APPL) or Rimm (RIMM) but another strategy you can employ is actually to trade the pairs simultaneously. This means that you aren’t concerned with whether AAPL or RIMM will go up or down but rather which one will go up (or down) the most relative to each other. Market Club has a better explanation through video on how it’s done so check it out.
Click Here for the Video
Usually, trading pairs of stock indicates that the trader isn’t sure about the direction of the general market. What you do, once you figured out which one will move higher than the other one, is to buy the stock that will go up more and short the one that will go down more, creating the relationship.
Let me know if you have any questions and enjoy the video.
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Curb trading was, in the past, stocks that were traded on the street curb as it was considered not appropriate to trade in the New York Stock Exchange. Later, the American Stock Exchange was formed to include many more securities that could be traded in an “exchange”.
Nowadays, although not actually traded on the street, the term basically refers to any trades that happen outside market regulations, whether over the phone or through computer systems.
Every time the stock market plunges like what’s happening lately, I’m thankful that I’m diversified.
Today:
The Dow - Down 2.35%
Nasdaq - Down 3.35%
S&P 500 - Down 3.06%
Yet, my portfolio is down only 0.38%. No, it has nothing to do with good stock picking, nor perfect timing since I didn’t make any trades today. The only reason why I’m doing better is because I’m diversified. For the most part, everything was down but my bigger holdings, a few defensive stocks, didn’t flinch at all.
When diversification comes up, I hear this a lot “But I need the capital to make trades”. Yes dear, but when the market tanks, diversifying is the only protection you have against a total wipe out.
It’s not just me saying this. I know you watch all these so called “professionals” and they talk about buying this and selling that, but if you look at everything they own, you will notice that the majority of their assets are in a diversified portfolio. They do it to manage their risk.
Sure, having more capital will give them a higher chance to make even more, but it also exponentially increases their chances to go broke. To them, it’s called “risk management”. I urge you to do the same.
If you are just starting out, I can understand why you feel the need to put all the capital you have saved up to buy that one stock. If you are at this stage, then I suggest waiting until you have saved more money. The market isn’t going anywhere, and having more capital to play with will also give you more comfort in making calculated and unemotional investments. The easiest way to lose money is when you bet big on any one security and it goes the wrong way. You can either learn the hard way or just listen to people (like me) who’ve already made those mistakes for you.
It’s rough out there. Don’t be stupid and throw everything in one basket
I apologize for the lack of inspiring posts lately but I have a good reason for this behavior - I haven’t been thinking about investing much because I moved a chunk of my net worth into passive funds. Instead of being very in-tuned with the stock market, I was beginning to be a passive investing convert.
For years, I’ve been buying stocks and while the investments were profitable, it was flat out stressful. I didn’t know how much it was consuming me but seeing my net worth jump 3%-5% daily was nerve racking to say the least.
It didn’t start out that way though. At the very beginning, I was excited to see that I could make money in a hurry. Some days, it was awesome, but other days, it just plain sucked. I realized that in order for stock trading to be profitable, I really had to stay on top of the investments. It didn’t give me freedom. It was another job and a very demanding one at that.
As I get ready to buy my house in a year or so, I moved much of my assets into online savings accounts and then it dawned on me to start trying passive investing. With half of my assets virtually safe and another big portion in index funds, volatility went way down and I started noticing that I was happier. That when the market was in flux, it didn’t bother me anymore. In a way, I felt like I was living again. I could play golf without checking on stock prices using my phone. I could have lunch without searching for places that showed CNBC.
Sure, I will still buy and sell stocks in the future, but most of my assets will definitely be in passive funds because even if I can beat the market, it wasn’t worth the time, energy and stress.
If you haven’t tried passive investing, perhaps you should give it a shot.
Here’s another reason why you can’t listen to financial experts.
Recently, the short term moving averages on the S&P 500 are starting to move above the longer term (200 day) moving averages. This, according to financial experts, suggests that the stock market move is real. Huh? The S&P is up 40% from the lows and now you tell me it’s for real? If I waited for this, I would be missing a huge chunk of the move!
Then, in the same article, the experts says that if there’s a reversion (ie, the stock market goes back down), it will send fear that this is a bull run in a longer term bear market. Ehh okay…
“Once you regain the trend, you don’t want to give it up,” says one of the financial experts. Yup. I got it. Awesome advice.
Here’s the full article
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