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Jim Farrish
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Jim Farrish is the Founder of Money Strategies Inc, a registered investment advisory firm. He has professionally managed money for nearly 30 years. His extensive research on the markets is published daily on his proprietary site Jimsnotes.com. His primary goal is to educate people about... More
My company:
JimsNotes.com
My blog:
Jim's Notes
My book:
Money Rules: Rule Your Money vs. Your Money Ruling You
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  • Own Your Trading

    Friday started with a bang as the futures were up 0.8% on news from China an Europe relative to their economic picture or should I say, there willingness to provide stimulus in the form of bond buying and interest rate cuts. This prompted the question for me, what does that have to do with Intel? Apple? Amazon? or any other stock in the US? Indirectly I get that it will help these multi-national companies if the economies improve globally. Directly I don't get how it helped today push prices up 1% or more on stocks? It is news like this that should help you as a trader/investor understand the reaction of your portfolio and or individual holdings within your portfolio. Today's open and the first hour of trading offered the opportunity to lock in some profit on short term trading positions. If you bought oil, gold, China, Europe or any number of assets that were in oversold conditions the last two days, Friday gave you a gift, your profits in one day. Take some off the table, keep some and raise your stops. The point being if you get what you want from the market learn to take it and say thank you. Don't start rethinking the trade and changing the objective of why you bought it to begin with. Stick to your strategy and honor your trading plan. Nobody knows what tomorrow holds relative the markets. Stick to what you know and trade accordingly.

    Earlier this week we talked about the need to create and build disciplined trading strategies. We also discussed that building them is the easier part of the equation, it is honoring the strategy and sticking to the discipline every day that the strategy requires to be successful, that is the hard part. Too often trading days like Thursday and Friday turn us into a three year old in a room full of multicolored bouncy balls. We run from ball to ball wanting to bounce them all and never deciding on any one ball to play with. Markets moving higher have a tendency to play with our emotions and drain our logic. The key is having a clearly defined strategy for every investment we add to our portfolio and then managing that investment according to the strategy. Yes, there will absolutely be times that you could have made more money had you not put your stop at a specific location or sold when you hit the target or any number of scenarios we can think of. You don't tweak your strategy while you own an investment your tweak it afterwards by applying what you learn, testing it with paper trading, then testing it further with small position sizes until you are comfortable with the results, then you can fully implement it in your portfolio. Build a simple process for testing and refining your strategy, and that is not during the heat of the trading battle.

    During my thirty plus years of trading personally and professionally there is one thing I know to be true, and it changed my trading forever… the strategies I use in trading my money must be mine! In some ways that sounds blatantly obvious, but in reality we all learn to trade or invest our money from a mentor, reading books, hiring a professional or trial and error. In doing this the learning curve is smaller, but it also can leave out a key principle for managing money based on a defined strategy… making it your own. When you learn to adapt the strategy to your personality you have greater confidence in the process and you achieve greater levels of success. Learn to do your own trading… make sure your strategy is yours mentally and you will have a greater level of success with the process.ad_webinar2

    If you didn't have a chance to attend the "Creating a Disciplined Strategy"workshop last week we have the recording available. You may also be interested in the three upcoming webinars that will break this concept down into specific strategies we have on our website that I have used personally for years. The first in the series will be Tuesday, December 2nd on the ONLY ETF Strategy. We will cover how to trade ETFs Only in a portfolio to make the process simple, avoid news traps, avoid earnings traps, keep it simple and scan the universe of ETFs based on a defined strategy and implement the trades. Just click on the link to register.

    Nov 24 2:44 PM | Link | Comment!
  • Building YOUR Strategy For Money Management

    When teaching or helping others with the process of trading and investing one of the first questions I ask is, "Why?" What is the purpose you are trading/investing your money for? After more than thirty years of this question I am still amazed at and by the responses. The unequivocal number one answer is…"to make money." I cannot argue with that answer, even though I did raise objections to the answer in my earlier years, but now it truly is the answer that most people believe as to why they should invest or trade their money. The challenge comes with the open endedness (my word) of the answer. You leave yourself subject to emotions in the money management process. By better defining how much you want to make… (I understand it is as much as possible, another open ended answer that can lead to problems) you will need to better define when you need access to the profits, how much tax you will have to pay on the money, do you want to take a long or short-term time horizon, etc. etc. etc. The better you can define and break down the purpose of the money the more directed the process will become.

    Some people refer to this as the strategy for investing your money. I would like to add the word discipline to the strategy. The definition is two fold… first, training to act in accordance with rules; drill. Second, activity, exercise, or a regimen that develops or improves a skill; training. A third is, a set or system of rules and regulations. As you can see when we add the word discipline we put some structure around the strategy that will help us put the strategy to work by learning the necessary rules, exercise and regimen that reaps success. Most people think of discipline in term of a negative process or not having fun, but in reality it is a process or procedure we are in control of developing. We learn rules that apply to our purpose or strategy for investing. We apply them in a way that fits our personality and character to achieve our goals and desires. Simply put… we are in control of the learning, building, testing and validating process of what strategy works best for us. Thus, a learned discipline that you are in complete control of is much easier to implement and practice than one we are told to do or worse, has not flexibility.

    We should take the opportunity to learn from others and use the parts that fit, but equally important is to learn the simple rules of investing or trading. The markets function under a set of regulations and mandates and understanding how those work will make the process much easier to develop. There are so many things you can learn and do when it comes to investing… the key is to gravitate to those that interest your, motivate you, and ring true to your personality and time commitment to the process. If you want to spend two hours per week on the process you will not want to trade complex options strategies in the first week. Match the variables with your parameters and start simple. Then you can grow the complexity to whatever level you want based on the time and desired outcome you are looking for.

    On November 18th we taught a webinar on "Creating a Discipline Strategy" for trading or investing. The objective is to outline the basic parameters to building a disciplined strategy to managing your money. We will cover the ten rules/guidelines you will want to put into the process of building, practicing and implementing your strategy. The most important of which is to answer definitively the why factor. When I first started teaching and working with individuals in the process of managing money I didn't (still don't) understand fully how challenging this is for individuals to define. A good process is to take out a sheet of paper and start writing what you want from your money… retirement, house, car, education for children, charity, travel, etc. When you see what you want you can then assign them a priority within your life going forward. How much time do you have between now and when you want the specific purpose or objective? Be realistic about returns on investments. Be realistic about how much you can save. Be realistic about your current situation relative to what you want to accomplish. If you are retired with $500,000 and want to earn $200,000 per year, you may need take a step back and rethink the objective. It is important/essential to define this prior to developing your strategy for investing your money. In many ways the 'why' will shape and define the 'how'. It will also define risk and what investment vehicles fit the best for what you are attempting to accomplish. The whole process become much easier to define, develop and refine when you know what you want from the process/strategy.

    Jim

    Nov 24 2:42 PM | Link | Comment!
  • Simple Wins For Picking Great Stocks

    Since starting my career in the investment world more than thirty years ago I have struggle, labored and stayed up many late nights fighting for one specific level of accomplishment in my investing process… SIMPLE! If nothing else I have found there to be a strange power in simple that isn't achieved with complex. The challenge however comes in the process, implementation and consistency in keeping it simple. The tendency is to drift towards complex. Why? For whatever reason I feel I can improve on the process, make it better, tweak this, and add that. What really happens in it becomes more complex and less effective. The goal of investing unto itself is simple… Make Money! Then we make it complex by saying, 'Make Money with the least amount of risk possible'. That is where the problem begins, making money isn't good enough, we have to make it with less risk. Less risk relative to what? A benchmark like the S&P 500 index. We then assign the index a beta of one, a what? A beta of one… what is beta? Well that is… you get the point, what we thought was making the process better while keeping it simple actually opens up Pandora's Box and we fall into a trap of adding layers of research and study in an effort to make money, the original goal, but we added less risk. Therefore, we take the simple and make it complex, and in so doing, we forget the original goal… make money. Maybe I should add, "AS SIMPLE AS POSSIBLE".

    Twenty plus years ago I designed a strategy for investing in the S&P 500 index. It was simple, buy the index. Fidelity had a S&P 500 index mutual fund that held the stocks of the S&P 500 index. We used an easy to understand tracking method for owning the fund and selling the fund. In fact, we still use this strategy to manage our 401k money and allocations for clients. It has work very well over the last twenty plus years. We have a similar program that uses the ten sectors that make up the S&P 500 index and allocates according to strength and/or weakness of each individual sector. Likewise this has done very well historically and keeps the available holdings to a scan of 15 items, the ten sectors, treasury bonds, the index itself, the volatility index and a inverse fund of the index. In managing these two portfolios I have discovered one thing… simple works. Why do we need to do more if this accomplishes the goal? Simply put, we don't.

    In a similar fashion the quest to find winning stocks has always been a goal of our investment philosophies and one simple way to accomplish this is to find the winning sectors first. Over the last year one of the winning sectors has been healthcare. Digging further we could see that biotech stocks are one of the key leaders within the sector. If we look at IBB, iShares NASDAQ Biotechnology index ETF we would find it consist of 119 stocks. If we scan them we would find the leadership or winning stocks of the sub-sector. Which if we compared those to the universe of stocks that make up the NASDAQ composite index (2458 currently) we would find it would be one of the top leaders for the universal index. Thus, finding winning stocks can be simplified into a process of finding the winning sectors (only ten), then finding the winning sub-sector (limited number) and then scanning the stocks (again limited number) within the sub-sector to find the leaders… we would find the winning stocks to invest our money into. A simple process of digging into the market part-by-part to find what we are looking for… winning stocks.

    I am not attempting to make this sound easy, it isn't. I am attempting to keep the process simple, which it is. If I start with the process and I can keep it simple, there is a greater likelihood that keeping the investment process simple will follow suit. We make life too complex and if we can find a way to keep it simple and accomplish the goal it makes it all the better. Investing is one of those areas of life that too many people find easier to delegate versus addressing in a manner that is simple enough to accomplish.

    We did a webinar that went this process of, "Picking Great Stocks Using ETFs". The entire premise of the presentation is SIMPLE. The simpler the better for me. Like anything we add complexity, but why should we if we can accomplish the objective without being complex. If it's simple we will do it, if it's complex we will procrastinate. IT's Just That Simple.

    Nov 24 2:40 PM | Link | Comment!
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