A10, Stock Trader Dude

Our objectives for this course are…

1.      To introduce you to a program that helps you increase the amount of joy/happiness in your life.

This better make me happy otherwise I’m deducting joy & happiness from your personal meter/account.

2.      To introduce you to an advanced model of self-sabotage based upon the idea that self-sabotage occurs when you are not feeling totally joyful for no reason at all. Can you think of a better way to lead your life than to go for being happy for no particular reason whatsoever?

I’m against it. What if I get too happy and it spirals out of control? When the characters in a film walk off into the utmost happiness the film ends and the screen fades to black. That part often scares me and if I was to set the bar for nearly limitless happiness what else would I do? I think that’s why film directors choose not to show what happens next.

3.      To help you gain some understanding of WHO YOU REALLY ARE!

Now, you’re starting to get pushy.

4.      To introduce you to your happiness threshold. You have actually set a limit on your happiness. But once you recognize it, you can start to raise that threshold higher and be happier. Would you like that?

This doesn’t sound like the best idea you’ve had. Couldn’t I just suffer more so it seems like I’m happier when environmental conditions return to a general everyday level?

5.      To help you discover the hidden parts that block your happiness and hold you back.

Are you blocking my happiness? How am I going to get on this happiness track when you’re hanging around telling me I could be happier?

6.      To help you learn how to embrace and then release the thoughts/beliefs that do not serve you and that block your happiness.

I’m not paying for that!

7.      To help you trade from a state of being in the flow in which you can respond to the market directly rather than the thoughts in your head.

Oh, so now you’re implying I can make money?

   8. To help you meet and network with some inspiring people who have a lot in common with you.

But didn’t you just finish telling me that I’m a horrible thinker and on the wrong track to happiness in life? So no, I don’t want to be surrounded with horrible people like myself.

   9. And to provide a six week follow up program for you to begin to apply what you have learned at the workshop.

Dude, I’m not going to that silly thing.

Re: only because you asked 

Dear buddy:

I have been in the business long enough to know that you don’t need 99.99% of what financial “advisors” or what Wall Street firms are selling. 

You haven’t figured that out yet. 

Case in point – you asked me about RITs and I had no idea what you were talking about until we established you were inquiring about REITs. Yes, I’ve dealt with REIT securities – but how could you even consider investing in your precious “RITs”  when you don’t understand them as a real estate entity listed on the exchange? 

Seems foolish to me but to satisfy your curiosity here we go: 

Top five companies in the Mortgage REITs industry as measured by the price to book ratio. Often companies with the lowest ratio present the greatest value to investors. 

RAIT Financial Trust (NYSE:RAS) has a price to book ratio of 0.2x based on a current price of $1.33 and a book value per share of $7.69. 

iStar Financial (NYSE:SFI) has a price to book ratio of 0.2x based on a current price of $3.55 and a book value per share of $19.24. 

NorthStar Realty Finance (NYSE:NRF) has a price to book ratio of 0.2x based on a current price of $3.14 and a book value per share of $15.85. 

Arbor Realty Trust (NYSE:ABR) has a price to book ratio of 0.5x based on a current price of $4.68 and a book value per share of $9.46. 

BRT Realty Trust (NYSE:BRT) has a price to book ratio of 0.6x based on a current price of $5.31 and a book value per share of $9.14. 

SmarTrend is bearish on shares of RAS and submitted an alert to Sell on May 13, 2010 at $3.12. The stock price declined 57% since the alert was issued. 

Let’s talk about more interesting things besides gambling – investing is not of those things for you. Case in point: I recommended MCD to you when it was between $13 to $14 per share. You said you had enough. I said empty out the bank account and buy 1,000 to 10,000 shares because you can never have enough at the best possible price. As it turned out – the share price never dipped beyond that point. It was the safest point of entry – by luck – admittedly. The share price went up over 100 percent in less than a year trading in a range of $30 to $35 and finally around the middle of 2006 the price increased beyond $35. In the middle of 1997 when I was touting MCD it was priced around $40 to $45, then went to $90 and split and did nothing for the longest time (tech stocks were in favor). 

Today MCD trades at $73 per share. 

Today Argus raised the McDonald’s Target Price To $84 On Stronger-Than-Expected $$$ (MCD) 

So, let’s stick to media – everyday has a different kind of potential in media. Work on your media assets, not gambling in the markets.

GM recovers? It’s strange how some of the newscasters think GM applying for an IPO means they are on the right track. The company reduced payroll from 93,000 employees to 53,000 – the jobs that were cut are never coming back. The company wants to raise 18 to 20 billion dollars (the second highest dollar amount for an IPO), but again who’s really paying for that stock – it’s got to be bought by institutions, some of which control the monies of average Jane and average Joe… so to some degree the people pay for it again. And I don’t believe the management is any smarter, although they’ve got a shot at getting richer if they obtain the IPO. Common sense should say that when more “good” jobs are brought on the market the company is on the right track, not an IPO.

In numerous previous posts such as Winning the loser’s game and Mutual fund trap I’ve discussed the foolishness of long-term investing and the lack of performance. This time I’m going to use a graphic to explain it better: 139-Year Total Return Index of the stock market

Bob Bronson of Bronson Capital Markets Research created the image. The Bronson folks spliced two databases: one maintained by Yale’s Robert Shiller going back to 1870 and a second called the Cowles Commission Database, which is a no-survivor-bias database.

The top part of the graph shows a capitalization weighted index of all U.S. common stocks—currently about 6,000 (excluding 4000 “non-common” stocks).  This index has been inflation adjusted and includes the reinvestment of dividends.  The bottom indicator (shown in blue) is a rolling16-year annualized return of the stocks in the database.

The graph is on a log scale so it’s not really linear, but it does offer insight into the stock market pyramid. It depicts a 6.6% annualized growth in common stocks over 139 years – after taking into account commissions/fees, inflation, and taxes there’s nearly nothing left for the average investor.

The decade of the 1970s was a losing period for equities as an asset class for the retail investor, as was the period from 2000 to 2010. 1910 to 1920 also appears to be a losing period. But the difference to folks who speculated in the markets one hundred years ago or more was that they never believed in long-term investing success or held the belief that the stock market served as a retirement vehicle. The stock market, for most of its history was viewed as a gambling den. And make no mistake, it still is gambling, but there’s been a massive PR shift since the early 1980s to convince the public that the stock market represents an important component in retirement planning and affluence.

Institutional investors have made progress in reducing stock market exposure over the last five to ten years after the 2000 to 2002 stock market decline. Pension fund asset levels have not recovered from the stock market exuberance and subsequent decline. No matter who you are – you’ve been fooled.

Quite regularly, I hear people comment, “If Van Tharp is such a great trader/trading coach, then why doesn’t he just trade? He still gives workshops so he probably doesn’t have the secret of success.” [Seems like common sense – I agree – you can tell from his books and newsletter that he doesn’t have any extraordinary insight or experience in applying it to self-directed investment affluence or high performance.] Comments like this originate from the assumption that having lots of money (through trading success) is the ultimate goal in life. But it’s not, it certainly isn’t for me.

When someone says, “You changed my life,” I’m motivated in deep and fulfilling ways that lots of money could never provide.

[Dude, you like charging for seminars – you could distribute the recordings and workbook materials online for free.]

And now the Van Tharp Institute has its own Happiness Workshop: Peak Performance 203. It includes three days of working on yourself to improve your happiness, including some very advanced exercises to show you how most of what you see in the “outside” world is really a projection of what’s inside. This becomes a stepping stone for being naturally happy.

[You’re losing me… so you want people to pay you so that they can learn how to be happy? The Bible doesn’t promise happiness, and it was created with purpose in mind, not so religious leaders who want us to lead good productive lives could get paid to tell people: No happy for you unless you pay! Happy – happy – happy! Trade – trade – trade!]

For those of you who still think, “I’m not interested in happiness, I want trading profits,” I can assure you that trading profits are much easier to come by when you raise your personal level of happiness to new heights. I base that on personal observation of and feedback from a number of our clients. Why don’t you try it and see? As usual, we give a money back offer on the workshop if you are not “happy” with the course.

[Dude, just give it away and make everyone “happy.”]

You can’t trust the media to understand and relate financial concepts — although from time to time you do see reference to “creating money out of thin air” most journalists and other ignorant parties talk about “printing money” regarding the Federal Reserve and the various bailout and stimulus/quantitative easing funds that were spent.

Here are some examples from CBS news where they reference printing money:

(Inflation Could Be Coming To A U.S. Dollar Near You)

(Inflation Fears Grow After Fed Prints $1.2 Trillion)

At least the second report mentions “every dollar electronically printed” and then CBS goes on to make claims about how economic programs affect the marketplace when they really do not grasp, or do not relay that the idea of physically printing $1.2 trillion dollars is silly — worldwide there is approximately 850 billion dollars in total US currency… so, how can CBS and other news organizations be trusted to analyze and accurately report on government and important financial market changes?

So, where does the money come from that enters the financial system?

That’s the magic of the banking system and the Federal Reserve — ask CBS and see if they can come up with the answer.

Hint: money is created out of thin air.

With regard to deficit spending I think the US has sustained a deficit of at least $1.2 trillion from the early 1980s with trillions of dollars more added ever since. The aggregate amount of debt now approaches annual GDP!

But we wouldn’t be doing it unless someone was making money, right?

On Monday August 3, CBS news Katie Couric remarked that the DJIA went up 115 points as if that means positive news or a recovery. A little over a one percent move means nothing. It’s called market noise. Her fellow CBS colleague then comments that the Nasdaq index is over 2000 and the S&P 500 index was as low as 666 in March. He refrains from calling it a recovery and then reports that some analysts are predicting… Wait! Some analysts are always predicting something – it means nothing!  Then the news reports on the Cash for Clunkers rebates. I’ve got news for you: People aren’t turning in Japanese cars.The next news report is the $7 billion post office losses (Now, they’re up there with Worldcom with large losses) and the possible closing of hundreds of post office locations. Hey, fire the guys running the operation. I still can’t figure out why the postal service wastes money advertising on TV. One low flat rate? If, by low, you mean high, and then multiple flat rates making consumers fuss around with different size boxes – then yeah, there might be one flat rate that is relatively low for a box that’s probably too small to ship most things in. Email isn’t diminishing the postal business as the newscast reported – it’s mismanagement, running useless ads, and government efficiency. In the 1980s the post office briefly offered an email service, there wasn’t sufficient demand for them and they canceled it. If they would have gave the email addresses away for free and charged the advertisers instead of the consumer they could have had a business on the digital side.  

So, where’s the broad economic recovery? A contact of mine commented last week about his surprise regarding some of the large and or record profits for some of the large Wall Street investment firms. He remarked that maybe they would be hiring and that could spark a slow recovery. “What if those profits were boosted by special arrangements and it has no bearing on translating to jobs? What happens on Wall Street does not significantly translate to the average family on Main Street.” He hadn’t considered a jobless recovery. For all the speculation about protracted contractions or recoveries it does nothing to address the most overlooked issue, there is some natural stability built into the system – rich people still want to be rich – so I don’t fear any sort of collapse.  

Here’s an interesting comment from an unrelated post, partly relevant to our topic:

7-30-2009 @ 5:04PM Iridium said…There is nothing that could have happened in the past 24 hours that could cause this type of volatility. The global economy doesn’t work on a 24 hour basis. People don’t have 24 hour jobs and corporations don’t have 24 hour profits. The way the market works you would think that 100 million people are hired and fired everyday.

The market can rise or drop 100 points for no apparent reason. This disconnect from reality needs to be remedied. You can’t have a sell off in oil caused by a real fundamental reversed 24 hours later because of some rampant speculation of future economic activity.

I have no doubt in my mind that the traders at Goldman Sachs already have the GDP data. The rest of us are left wondering, are they buying up shorts or buying up longs? No matter what they have the advantage that will make them billions tomorrow.

Despite losing billions in 2008, 4,793 bankers and brokers who work there got paid at least $1 million. Many of these folks worked at firms that lost money. Where did the companies get the money to pay the bonuses if they lost money? Was it from a government bailout – $700 billion TARP?
The worst of the group is Citigroup and Merrill Lynch. Citi paid 738 bankers and traders at least $1 million in 2008 even though it lost $27.7 billion it paid $5.33 billion in bonuses. Merrill Lynch which lost $2.76 billion in 2008 while paying $3.6 billion in bonuses. Merrill’s new parent company, Bank of America, paid a total of $3.3 billion in bonuses on $4 billion in earnings.
Then there were the “winners” who made money in 2008 and paid themselves the biggest bonuses, which resulted in the companies reporting a loss – Goldman Sachs Group, Morgan Stanley, and JPMorgan Chase:
· 953 Goldman bankers and traders took home bonuses worth at least $1 million — it earned $2.3 billion and paid bonuses totaling $4.8 billion;
· 428 Morgan Stanley employees got bonuses over $1 million — it earned $1.7 billion and paid $4.5 billion in total bonuses; and
· 1,626 JPMorgan employees got bonuses of at least $1 million in 2008 — it earned $5.6 billion and paid $8.69 billion in bonuses.
What stock investors sometimes miss is that these companies are run for their employees not for shareholders.Here’s a great comment from an unrelated post:7-23-2009 @ 9:40AMBHarrison said… The reality of our national economic situation is that our primary and most prestigious financial institutions orchestrated what amounts to massive fraud and pyramid schemes that undermined our economy, and continue to undermine our economy. The American people are tacitly allowing our Federal government to further undermine our economy by bailing out the criminal management who orchestrated these frauds and thefts. The end result is the devastation of our businesses and the loss of jobs and job opportunities for all Americans, especially the younger generation. The pivotal question is how long will the American people tolerate the government allowing these criminals to continue profiting from the crimes that they orchestrated and perpetuated? The American people need to vote the vast majority of Congressmen out of office if they want to break the influence of the financial corporations and the pharmaceutical industry on our government. Anyone who thinks that the government “is the solution” obviously is overlooking the fact that all of these economic problems occurred because the government failed to exercise reasonable and prudent oversight and management of the financial institutions and the pharmaceutical industries.

http://www.youtube.com/watch?v=UzsMzpmKCD4

http://www.youtube.com/watch?v=L7dOQjcsho0

http://www.youtube.com/watch?v=Id1voJj08bI