Wednesday, October 19, 2016

Tesla Motors is Exciting... But Its Stock is Stagnant

The internet and tech fans worldwide are buzzing about Tesla Motors' newest product announcement. Will the news send Tesla's stock (TSLA) higher?

The upcoming "reveal" will probably be linked to Tesla's Model 3 car and its internal design, plus some much-anticipated autopilot advancements.

Elon Musk dropped some hints on Twitter today about the nature of tonight's Tesla media event, scheduled for 5pm PST.
Elon Musk Tesla Model 3 event tweets
There is no doubt that Tesla Motors is an incredibly innovative and exciting company, and the Model 3 in question is a major product.

When the Model 3 is released to buyers in late 2017 and 2018, it will mark the full realization of Tesla's mission: to build and deliver an affordable electric car that will help kickstart mass adoption of electric vehicles (EVs). 

 
Tesla Model 3 roadside profile shot car
Tesla Model 3 via Tesla.com


So will this latest product event help Tesla (TSLA) get its stock back in gear? 

After a huge run up in 2013 and 2014, Tesla's stock peaked above $290 and has drifted lower since. The chart below shows TSLA meandering through a rather wide 2-year trading range. TSLA has drifted between $180 (an area of price support) and $280 (price ceiling or resistance) for most of 2014-2016.  


Tesla Motors (TSLA) stock chart trading range
Tesla Motors (TSLA) stock has been fluctuating in a wide 2-year trading range.


Pretty boring right? Well, safe is usually boring, and that's what we have here. 

Once Tesla made good on its early promises, the doubtful traders, fund managers, and industry watchers all climbed aboard. Only they, or many of them, missed out on the powerful advance that occurred in 2013, when TSLA was confounding its doubters and breaking out to new all-time highs

Tesla (TSLA) stock chart: 2013 breakout
Rewind to 2013: Tesla's (TSLA) initial breakout and move to new highs.


Now that is the start of a powerful move (and note to self: get aboard next time you see it taking shape in a new growth leader). 

Sidenote: When you see TSLA or any new growth stock breaking out to new highs, especially on strong volume (note the ramp up in green volume bars confirming strong buyer demand), that is a huge signal that something big is taking shape in the market. 

Take a small position ("don't risk thy whole wad"), set a stop loss order to manage your risk, and see what happens. Believe me, it's better than standing on the sidelines shaking your head in a mixture of awe and regret. Back to the launch, and to the current outlook for Tesla's stock. 

Tonight's product event may help TSLA climb a bit tomorrow, but it would have to be one heck of a humdinger to bring about a powerful, sustained advance in the stock price. 

In order for TSLA to break out of its long trading range, the stock would first need to reclaim the $250 level it last touched in April 2016. It would then need to climb back to the $285-$290 level and break out above that price ceiling to make a new all-time high.  

Tesla Motors (TSLA) stock price: $30 billion market cap TSLA
TSLA current $30 billion market cap, via Yahoo Finance


With a market cap of $30 billion, Tesla (TSLA) is now more of a mature, large-cap growth stock than the young tyro rocketing out of its post-IPO base. 

But don't count Elon Musk & Co. out yet on future stock price appreciation. 

While it may take quite a while for TSLA to regain strong momentum to the upside, especially as R&D spending and recent shareholder dilutions sink profits, the innovations that Tesla will spur in clean energy and EVs are bound to bring more excitement from investors and consumers. That excitement will lead to added demand, for Tesla products and its shares. 

Besides, do you really want to bet against a CEO whose companies can build desirable electric cars (Tesla), land reusable rockets on sea platforms (SpaceX), and redesign your rooftop with new integrated solar panels (SolarCity)? 

Elon Musk offers an exciting vision for Tesla Motors (TSLA), which includes his plans to merge with SolarCity, create a seamless clean energy solution for its customers, and eventually overtake Apple (AAPL) to become the first trillion dollar company. 

If he can get the company 1/10th of the way there, to a $100 billion market cap, it will provide a major long-term boost for Tesla's currently flagging share price. 

Related posts:

1. Tesla Shares Slide to 18-month low: TSLA Chart Review.

2. Tesla Hits New All-Time High: Do Androids Dream of Electric Cars?

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Saturday, September 10, 2016

Paul Tudor Jones on Trading, Ego, and Risk Management

This post originally appeared in issue #3 of the Finance Trends Newsletter. Subscribe to our email list today to receive new updates as soon as they are published.

Hello, subscribers! 

I hope you are enjoying your weekend. Today I'd like to offer you a quick piece of trading wisdom from one of the greats in this business, Paul Tudor Jones.   

If you're not familiar with "PTJ", get yourself a copy of the original Market Wizards book (in which he was interviewed) or Google him.
 

In the trading and hedge fund worlds, Paul Tudor Jones is widely admired and is probably as well known to professional money managers as Warren Buffett is among individual investors. Some have even called Tudor Jones, "the Michael Jordan of trading". 

"So what does that have to do with me?", you may be asking yourself.

Well, if you are a trader or an individual investor, or even if you just know someone (say, a family member) who is investing their own money in the markets, then it has a lot to do with you!

Everyone in the markets is hoping to grow their capital over time, but there are many pitfalls that prevent would-be traders and small investors from reaching their financial goals. 


Today I'd like to briefly touch on two of these trading or investing pitfalls: ego (the need to be "right"), and fear of taking losses, or loss aversion. 

With some help from Paul Tudor Jones, I'll show you how you can address these natural human tendencies, or pitfalls, that may seriously derail your financial success. By becoming aware of these tendencies in ourselves, we can a) acknowledge these potential problems and b) learn to deal with them ahead of time by accounting for the inevitable in our investing and trading plans. 

Now, first thing's first. You will have losing trades or investments that go south. That is a certainty. How you deal with the losing trades will be a crucial part of your eventual success, or failure, as a trader
 
Will you stubbornly hold on to your losers as they move against you and the losses mount up? Or will you learn to cut your losing trades before they drain a significant part of your capital? Remember, preserving your money and your "emotional capital" (your sanity) are key to survival in this money game. 


Now here is what Paul Tudor Jones said about the likelihood of losing trades and cutting his losses. "Every day I assume every position I have is wrong."

Paul Tudor Jones trading risk management wrong assume quote


Did you catch that? One of the greatest traders in the world is saying that he starts off with the assumption that every single trading position he has is wrong or about to be proven wrong. When the market decides that he is "wrong", he simply takes his loss and moves on, or re-enters the trade at a later date. 

If you can determine your "stop point" before you enter a trade, you go a long way towards determining the money you have at risk in the market. By cutting your losses earlier in a trade that goes against you, you are taking steps to preserve your overall account. You survive to trade another day.

Don't let a single losing trade or a series of losing trades blow up your account. 


Next PTJ tip: "Don't have an ego. Always question yourself and your ability."

Paul Tudor Jones trading quote ego question yourself


In other words, don't start to get too cocky when you've had a run of success in the markets. You'll often find that this attitude may bring about your undoing.

You may recall the famous Bible Proverb: "Pride goeth before destruction, and a haughty spirit before a fall." That definitely applies to trading and investing.  

Ego and a stubborn need to be "right" will be your undoing in the market.

Loss aversion is a natural tendency in human beings, so it is one we must account for ahead of time. Plan for the inevitable losses and cut losing trades before they grow beyond your control. Don't let your losers drag down your winners! As Peter Borish, former partner at Tudor Investment Corporation, said in a Bloomberg TV interview last year:

"It's all about making money - not being right.

Too often, people get stubborn. The point is to be flexible. The market is always right. That's one of the main things I learned from Paul... you've got to be around to play for another day. That's capital preservation."

Save these quotes. Bookmark them, print them out and put them on your wall or your trading monitor. Share this wisdom with trusted friends and family members who are navigating their way through the investing jungle.

We can profit from the wisdom of more experienced traders and use their experience to guide us. We may not reach their heights of success and we can't all become the "Michael Jordan of trading", but we should always strive to do our best. Applying the lessons of the masters, or even debating these lessons, puts us on a path towards learning and greater success.  


Related Posts:

1. Maximize Your Gains, Not Wins. William Eckhardt Interview.

2. What I Learned Losing a Million Dollars: Interview with Brendan Moynihan.

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Thursday, August 11, 2016

Maximize Your Gains, Not Wins: William Eckhardt Interview

Maximize your trading gains, not the number of winning trades you might have. This is the advice of famed Chicago futures trader, William Eckhardt.

William Eckhardt Trading Success Rate Quote Traders Wins Losses
William Eckhardt image via azquotes.com

Now, if you're not familiar with Bill Eckhardt by name, perhaps you know him by reputation. With his friend and partner, Richard Dennis, the pair concocted the famous "Turtle Traders" experiment, in which an eclectic group of novices were taught to trade futures with a rules-based trend following system.

An excerpt from Dennis' Wikipedia page on the origins of the Turtle Trading program:

"Dennis believed that successful trading could be taught. To settle a debate on that point with William Eckhardt, a friend and fellow trader, Dennis recruited and trained 21 men and two women, in two groups, one from December 1983, and the other from December 1984. Dennis trained this group, known as Turtles, for only two weeks about a simple trend-following system, trading a range of commodities, currencies, and bond markets, buying when prices increased above their recent range, and selling when they fell below their recent range. 

They were taught to cut position size during losing periods and to pyramid aggressively—up to a third or a half of total exposure, although only 24% of total capital would be exposed at any one time. This type of trading system will generate losses in periods when the market is rangebound, often for months at a time, and profits during large market moves...
...When his experiment ended five years later, his Turtles reportedly had earned an aggregate profit of $175 million..."

Several of the original Turtle Traders went on to successful careers in professional trading and money management. Their success even inspired mentor Eckhardt to join his upstart students in the field of professional investing! 

After a long and lucrative career as an individual trader on and off the floor of the Chicago futures exchanges, he founded his own investment management firm, Eckhardt Trading Company, in 1991. 

According to Altegris managed futures research, Eckhardt's firm has returned nearly 6,000% since inception, with an annualized return of 18%. This far outpaces the total returns of the S&P 500 and the "Altegris 40" benchmark. See the performance graph below.

Eckhardt Trading Company performance managed futures William Eckhardt
Eckhardt Trading Company performance comparison, via Altegris.


William Eckhardt on the importance of winning trades vs. overall performance:

"The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance."

Wait, a high win rate may be inversely related to performance? How's that work?

Well, did you ever meet someone who boasted of using a system with 80% - 90% winning trades? What you may not have heard is that many of these systems sacrifice profit potential in favor of high winning percentages. Some of these systems, and the traders who follow them, may even lose money over time. 

Take for instance, the trader who frequently captures small profits while taking oversized losses. In no time, the large losses from the infrequent losing trades swallow up the meager gains from the more frequent winning trades. High win rates do not necessarily equal profits and performance.

Focusing on capturing frequent wins may be comforting for the human mind and ego, but that psychological comfort comes at a steep price. Eckhardt spoke about our natural tendency to maximize wins over gains in his Market Wizards interview with Jack Schwager. Here is the full passage on the folly of favoring wins and small profits:

"One common adage on this subject that is completely wrongheaded is: You can't go broke taking profits.
That's precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits. 

The problem in a nutshell is that human nature does not operate to maximize gain but rather to maximize the chance of a gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. 

The success rate of trades is the least important performance statistic and may even be inversely related to performance."

Eckhardt's partner Richard Dennis compared the trader's focus on money and "wins" (the hoped for results of trading) to a baseball player's lack of focus at the plate (quote from The Complete Turtle Trader): 

“Trading is a little bit like hitting a ball. If you’re thinking what your batting average should be, you’re not concentrating on the right thing when you bat the ball. Dollars are the batting average of the trader.”

Which brings me back to this recent post on Babe Ruth and persistence. The Babe wasn't too focused on strikes or his batting average. He focused on swinging the bat well and connecting with the ball when he was at the plate.

Ruth's system, as it were, capitalized on his herculean feats of slugging. Rather than avoid strikes, he knew that each strike would bring him "closer to the next home run". With a career batting average of .342 (10th highest on the all-time leaders list), Ruth hit safely in "only" 34 percent of his appearances at the plate. However, that's all he needed in order to score a huge amount of runs and help his storied Yankees win numerous championships.  

What are your trading or investing goals? Do you find yourself harvesting small gains and accepting bigger losses? Or do you strive to boost your performance by keeping a tight reign on losing trades and letting your winners run?    

One thing I've learned: If you focus on improving your swing (process) and give yourself room to maximize your gains, you may just end up hitting the ball out of the park!

Related posts:

1. Marty Schwartz: Market Wizards Interview Insights

2. Vic Sperandeo, Market Wizard: Exclusive Interview on Trading

3. William Eckhardt Interview with Futures Magazine

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Saturday, August 06, 2016

Babe Ruth on Persistence: Keep Swinging Your Bat

"Every strike brings me closer to the next home run." - Babe Ruth.

Legendary slugger, Babe Ruth was not afraid to swing the bat and miss. He was focused on making big plays at the plate and scoring runs. With his towering home runs and overall batting prowess, Ruth helped lead the New York Yankees to 7 league championships and 4 World Series titles.


Ruth seemed to view strikes, and even the odd strikeout (his home run to strikeout ratio was actually quite low), as a simple cost of doing business. Gains vs. losses. Like all great players, he knew that even the inevitable cold streaks and hitting slumps are a passing phase. Sooner or later, the swing would connect and the hits would flow once more.

You can't win 'em all, as we say in America. But you must step onto the playing field in order to take your shot. So get up to the plate and swing. Persist and do your best. If you're doing things correctly, your wins (hits) will more than pay for your losses (strikes).

More on this theme, as it applies to trading, in our next post. Stay tuned!

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Thursday, July 28, 2016

Facebook Stock at New All-Time High as Twitter Sinks

Facebook (FB) stock is at a new all-time high following its latest earnings report. 

Meanwhile, Twitter (TWTR) shares gapped lower this week after another lackluster quarterly earnings report. 

To revisit a theme from my previous Facebook vs. Twitter posts, this is a prime example of why you want to buy strength and avoid (or sell) weakness in the stock market. FB, the strong stock, continues to trounce its weaker rival TWTR in terms of relative stock performance. 

Witness the latest FB vs. TWTR performance chart. Since its IPO in late 2013, TWTR (shown in purple) has declined by 61 per cent (-61%). In that same time frame, FB is up 151 per cent (151%). 

Facebook FB vs. Twitter TWTR stock performance chart


Looking back, which stock would you have rather owned? Of course, hindsight is 20/20, so I'll remind you that this trend towards Facebook's social media and stock market dominance was taking shape (and documented here in real-time) back in 2014 and 2015.

Please see the following posts:

1. Twitter's Big Year: TWTR 2014 in Charts.

2. Facebook vs. Twitter: FB Shares Outperform TWTR.

While I have been an avid user of Twitter since 2009, I have never owned the stock. I have owned Facebook shares in the past, despite never having used the service (in fact, I can't stand Facebook)

Why? Because I am a trader who prefers to buy stocks in uptrends. That means I want a stock that will continue to move higher. I want to own stocks that are being bought by professional investors and are increasingly being discovered by the wider investing public. 

Conversely, I want to avoid stocks that are being sold by these same groups of investors. When the stock chart shows signs of deterioration and increased selling, or the trend is clearly to the downside, I want to sell (or avoid) the stock and move on. Then I keep my money in cash or look for a stronger stock (preferably one in a new uptrend) to buy.

While other investors may follow a different approach, like buying stocks at or near new lows, I find that this is what works best for me. If you are struggling in the stock market, try to study the characteristics of winning stocks. Focus on strong stocks in clear uptrends and sell losing stocks that hamper your overall performance. Over time, you will move towards increasing your exposure to these strong stocks while limiting your exposure to the laggards.

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Tuesday, July 05, 2016

Defensive Themes and Gold Stocks Shine in 2016

Looked at a list of the best performing stocks this year? If you have, you've probably noticed a big concentration of large-cap defensive stocks, gold miners, and basic material stocks among the list of top performers.

Continuing the themes outlined in my January 2016 posts, defensive groups such as food stocks, REITS, and utilities have shined throughout the first half of 2016. Snapshot of these leading groups' ETFs with their year-to-date performance below. Click to enlarge (charts via Finviz.com).

Gold Miners ETF, GDX up 112% YTD.



Consumer Staples ETF, XLP up 10% YTD.



Utilities ETF, XLU up 23% YTD.




Now that we're heading into the summer and the second half of the year, will these trends persist?

Here's our update to email subscribers on gold stocks from Finance Trends Newsletter #2:

"...Let's look at a group that is shifting into a dynamic new uptrend. Gold and silver mining shares have been among the year's top performers. I highlighted several of these mining stocks back in January. Let's see how they, and a few others, have fared since.

Here's a quick roundup of the gold stock leaders in 2016:

Barrick Gold (ABX) +182% YTD
Harmony Gold (HMY) +287% YTD
DRD Gold (DRD) 284% YTD
Richmont Gold (RIC) 189% YTD
Kinross Gold (KGC) 176% YTD

And so on...

Some of the smaller names such as Tower Hill Mines (THM) and Vista (VGZ) have gone up even more. The question is, will the new uptrends in gold and gold mining shares continue into the 2nd half of the year and beyond?"

You can click through above to read more about the gains in defensive shares and dividend payers like RAI, MO, CPB, ED, XEL, and CWT. Many of these names were highlighted as relative strength outperformers in our January posts. They have continued to move higher and reward their holders, even as the S&P 500 and international stock markets have faltered in recent weeks.

If you'd like to keep up with all our updates on these market trends, and find out how I'm investing in some of these themes, sign up for our free newsletter below.

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Thursday, June 09, 2016

Finance Trends Newsletter #1 Published! Email Signup

Thank you to everyone who signed up to receive the free Finance Trends Newsletter

The first issue of our email letter was sent out this week. If you missed it, or haven't joined our subscriber list yet, please sign up now. For those of you who would like to read issue #1, I've archived it for you here. 

Corona typewriter, via Wikipedia.

As you'll see, I used the introductory letter to let you know what you can expect from these email updates. The newsletters will contain my thoughts on the markets and new trading setups and themes, as well as some of the most insightful writing and audio/video content that I gather in the course of my research. 

Much of this content will be unique to the newsletter, and either won't be found on our social media pages, or will appear in the letters first. You'll also find key materials you might have missed on Twitter or on the Finance Trends website, so do subscribe to our email list for these important, time-saving updates

Of course, I'd like to add that your email and contact info will be respected and kept private. I won't share personal subscriber list info with "affiliates" or sell your email info to marketers. Only my email service provider stores this contact info, by necessity.

So read on for more details, and if you're keeping up with Finance Trends posts via email or RSS updates, be sure to join our email newsletter. You'll get all the best insights and you won't miss a thing! 

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