After this morning's employment report, all of the hopefulness that surrounded an impending economic recovery is quickly eroding. With total jobs lost coming in at a worse than expected 190,000, and the unemployment rate finally jumping to 10.2% barrier, gloom and doom are reentering the scene. Those searching for glimmers of economic growth are once again scratching their heads and trying to determine when we will finally see the turn from contraction to growth.

As easy as it is to allow ourselves to become enamored with these short-sighted views, as investors we are better served to take a long-term perspective. Economic data is often revised numerous times and the likelihood of this number standing as a definitive statement of the employment market is virtually zero.

So far this week, the economic calendar has featured manufacturing data, pending home sales and factory orders. Despite better than consensus data and an oversold market, bulls have yet to sustain a strong rally. Compared to what is to come, this data will be quickly forgotten as our focus turns to the jobs market.

Wednesday is extremely busy with earnings from Cisco Systems (CSCO) and an interest rate decision from the Federal Reserve Open Market Committee (FOMC). Although this data is important, my focus will be upon the first piece of information released that day -- the ADP employment change report.

Today's release of the Case Shiller home price index (CS) shows that prices fell a better-than-estimated 11.3% year-over-year and actually increased 1.2% from the prior month. We can expect all the perma-bulls to climb atop their soapboxes and declare that housing and the economy have finally turned positive and the stock market will continue marching higher. At the center of their argument is the belief that a slowing rate of decline, where economic data is "less bad", equates to good news. I have never agreed with this view and a deeper look at the data explains why.

As first outlined in EPIC Insights, the 11.3% year-over-year decline is the lowest since January, 2008 and the month-over-month increase is positive, but the Case Shiller Index still remains 29% below its 2006 peak and 3% lower on a year-to-date basis. Examine other housing data and the story is the same. New home sales tomorrow are expected to increase to 440,000. This would be the sixth consecutive monthly increase. However, when you consider the average going back to 1963 is 688,000 and that 440,000 is where new home sales bottomed in every prior recession, the data is not encouraging.

When making fundamental trade recommendations in EPIC Insights, there are two main variables. The first is what we think a stock is worth. This number is under our control and allows for creative thinking to derive the fair value of the operating business. Regardless of what is occurring in the economy and the markets, we can create an estimate of value. While this part of the equation is of our own making, the other piece is not. That piece is what the market believes a stock is worth.

Since buying a stock represents an ownership interest in an operating business, one would imagine that market prices are dependent on evolving business dynamics. Although this is a piece of the puzzle, there are many more pieces. All of us have seen prices react to rumor and emotion as opposed to business development. Therefore, market prices do not always reflect true value.

There are many reasons to enter into a trade. Whether the impetus is a belief about long-term value or focuses on short-term price movements, people arrive at investment decisions in different manners. Seeing no need to delve into the merits of each investor's decision-making process, I will highlight one factor all should share. When you make a decision, it is extremely important to understand what dictated the choice so you can identify reasons for changing your view.

I often write about the need for patience and discipline when investing. As we consider our stock market strategy, we must always keep in mind that the market was invented and is operated by people. Over time it has become a Frankenstein-esque creation with a life of its own. Despite the amount of study and research an investor may employ in his decisions, prices constantly move in an unexpected manner that cannot be controlled or predicted.

Because of so many random moves, the stock market appears determined to deliver one thing to investors- frustration. At times, everything we have predicted will happen and it will seem that years of hard work have finally allowed us to master investing. Unfortunately, those periods will be short-lived and quickly followed by times where we stare at our computer screens and wonder what else can go wrong. This constant shift from investment glory to investment despair affects everyone. The key is determining how to manage the process so we can maximize gains and minimize losses.

As the calendar shifts from September to October, we face a three day focus on the job market. Wednesday will bring employment into focus with the ADP report showing the economy lost an additional 200,000 jobs in September. This would register as the smallest decline since June 2008 and is well below the 736,000 jobs lost in March. Thursday brings the weekly report with initial claims slightly increasing to 535,000 and continuing claims increasing to 6.17 million. Friday ends the week with the September employment report.

As reported Friday, the economy is forecast to have lost an additional 180,000 jobs with the unemployment rate increasing to 9.8%. While the unemployment rate continues its eventual rise above 10%, many will highlight the fact that 180,000 lost jobs is the fewest in over a year and well below the peak of 741,000 jobs lost in January.

Determining the fair value of an asset is both art and science. While traditional metrics such as Price/Earnings (PE), Price/Book (PB), and dividend discount models offer the appearance of precise mathematical answers, these methods are widely used and do not often provide investors an edge. Over the years, I have often used nontraditional metrics as a way to determine fair value targets and identify trading opportunities.

When I first joined the trading desk at Goldman Sachs, I gleaned impressions of how profit-seeking traders looked for opportunities. All of my studies indicated that when expected gains outweighed the risk involved, you took a position. While this was true in practice, there was more I needed to learn. Steady dependable gains were necessary, but there was also a constant search for something more-optionality.

Optionality involves a trade where the expected payoff far exceeds the capital involved. When we find a trade that pays us three or four times our initial position, it morphs a dependable solid position into the opportunity to make great returns.

Option markets live for volatility. Approaching events where the outcome is uncertain, option prices increase in anticipation of the unknown. At times that increase is unwarranted because the news will fail to drive prices widely. Other moments, the unknown sparks wide swings that allow for profits.

Research in Motion (RIMM) reports earnings after the market closes on Thursday afternoon. As a favorite of the momentum crowd, RIMM is subject to large price swings.

Country singer Kenny Rogers has been called many things. Somehow I do not think stock trader is among them. However, some of the famous lines from his songs can be applied to investing. While selecting stocks and deciding what to buy is extremely important, knowing "when to fold them" is just as important.

A key premise that distinguishes me from other professional investors, which I have employed to my advantage in the time I have been writing for EPIC Insights, is that the discipline to sell stocks is extremely important. Many have been so hammered by the dogma of buy-and-hold investing that they never think when the proper time to exit a position is. By constantly assessing and measuring the risk of our portfolio, I have built a track record that clearly shows that adhering to a specific sell discipline is just as important in creating long-term wealth as is deciding what to buy at what time.

At the risk of sounding simplistic, markets are complex. When we combine ownership positions in different operating companies, fiscal and monetary policies that alter the path of the economy, and the never-ending rollercoaster of investors’ emotions, price movements often take on a life of their own. Investors who follow the daily swings are left questioning what factors affected the past and how they will influence the future.

Often, this is a fool’s game. We can never know the true driver of illogical price movements and are better served allocating our time to broad themes. From a high level, three main factors affect stock prices—the macro environment (predominately the economy and interest rates), company fundamentals, and investor emotions (shown through technical analysis).

One of the most controversial topics in all of investing is how to handle positions that have moved against you. Some investors are strict believers that any position showing a loss indicates your initial theory was incorrect and therefore, after a predetermined drop (most use a 10% to 15% loss as their trigger point), the position should be sold. Others take the opposite view and argue that if they liked a stock when the price was 15% higher, they should love it now, and are compelled to buy more shares. I land somewhere in the middle.

When we determine the value of any stock, it is an inherently imprecise process. We may do mountains of research and number crunching to derive a fair value target, but it is only that- a target. As new information becomes available, we must continually reassess our initial theory and determine whether the stock is one to hold.

Long ago, I was taught that everything has value at a certain price. If you perform enough due diligence and think creatively, you can construct a trade where the upside is reasonable and the risk contained.

Following such advice, I have invested in some odd companies over the years. When others were buying hot technology stocks, I was looking at tobacco and chicken producers. Such an approach has yielded some interesting discussions with clients, but positive gains have justified the approach.

With the summer ending in the next few days, most have turned their attention to end of season parties, final vacations, and preparing to send their children back to school. Although I will be partaking in many of these activities, my thoughts are never far from the market.

The recent rally has stirred investors' hopes, but the next couple of months could bring rain to our parade. Historically, September is the worst month for stocks. Also, many large market crashes have taken place in October. Finally, considering the damage done to portfolios and the economy last fall, I am concerned that unexpected events could trigger wild price swings.

When making recommendations in my weekly newsletter EPIC Insights, I have always been wary of our risk profile. The portfolio has done extremely well during sell-offs and rallies and I have no interest in surrendering gains by blindly diving into untested ideas. For that reason, one of my favorite approaches is to construct a pair trade. By being long of one instrument and short of another, we eliminate market direction and trade the basis between the items.

With pair trades, you look for two items that should trade in the same direction yet have experienced a temporary dislocation. By betting on an eventual return to normality, pair traders will make money regardless of the direction the market takes.

Evolution is a powerful force. Over centuries, our need for survival has led human societies to evolve from groups of cave-dwelling hunters and gathers into our Wal-Mart-shopping modern selves.

Just as societies must evolve to survive, so must investors. As a value investor, one of my most basic tenets is that all assets are attractive at the right price. Early in my career I openly espoused the theory that the direction of the broad market did not matter. If we could find the right stock at the right price, gains would come our way.

Warren Buffett once famously quipped that his favorite holding period was forever. In a hyperactive market where investors are bombarded with streaming data, 24-hour business news, and constant investment ideas, it becomes difficult to remain patient and wait for opportunities to develop. Although I do not have the same patience as Buffett, I understand the need to allow ideas to work.

When I analyze a company, I research the operating business, study the financial statements, and prepare forecasts of how the business will perform in the future. By applying a discount factor which allows me to place a current value on a future event, I determine where the stock should trade. On the occasion where the fair value is below the current price, I can buy the shares and wait for the market to acknowledge the true price. Obviously, I prefer that the market act quickly so I can move on to the next target. However, future unknown events can greatly affect price, so patience is needed.

The markets rarely do what we want them to. Instead, they seem determined to act in a manner that causes us confusion, frustration, and pain. However, occasionally market activity does confirm our views and allow for profitable trades. When such opportunities occur, we must not allow them to slip away.

An example is a stock we have traded twice before in EPIC Insights-Cliffs Natural Resources (CLF). We have owned CLF for both fundamental reasons-it was cheap and would benefit from rising commodity prices-and for technical reasons-it was oversold and destined to bounce off support. These two transactions led to gains of 82% and 33% respectively. Now that this familiar pattern is repeating, we will trade CLF a third time.

Fundamental analysis is based on the premise that fair value is a measureable item. By examining financial statements, forecasting future business prospects, and making adjustments for unknown risks, we determine a range of values wherein a stock is cheap and look to buy at a discount to that number,

With respect to currency trading, though, no such framework exists. Some people will argue that based upon econometric modeling they can determine at which prices currencies should trade, but that is folly. With the worldwide monetary system backed by nothing of intrinsic value, currencies tend to take on personalities of their own. Instead of calculating what prices should be, we determine the trends and look for correlation across instruments to deliver profitable trades.