If you plan to match your trading style with the current market cycle and desire to trade growth stocks, it is important to know when to move your investments in and out of the market or from one stock to another. Many people will teach this is the unknowable and encourage you to instead buy many different stocks and hold them all, regardless of the market cycle. If every stock is different and each performs differently depending on the cycle, does this sound like a wise strategy to you?
When I was in business school, I was sitting in a class that taught, “you can’t know when and where to move your money and it was statistically impossible to make money in the stock market unless you buy and hold multiple stocks for long periods of time.
While I was sitting there, about 35 miles east of Waco, my Grandfather was in his office making money in the stock and bond markets, doing what my professor was saying was impossible to do!
The professor made about $80,000/yr. My Grandfather was a multi-millionaire, so you KNOW who I believed. He taught me that there is a time for “buy and hold” but it simply is not all there is. There is a place for shorter-term trades, especially when wealth creation is the goal and/or when markets are “choppy” or highly volatile.
Wall Street trains their sales force (a.k.a. financial advisors) to believe and teach customers, like you, should buy & hold large amounts of differing stocks, to spread your money around and be “safe.” This is called, “diversification.” Unfortunately, it is a naive view of investing, and also a farce. Warren Buffet said:
Diversification is “...Something people do to protect themselves from their own stupidity.”  —Warren Buffett
Philip Fisher, the legendary money manager and author stated that diversification was an idea that caught on…
“…Because it was a simple enough theory for even stock brokers to understand.”
I would say if your goal is to create wealth in your life-time, there is a danger in “over-diversifying.” Just think, if you buy multiple stocks and some stocks go up while others go down, your profits might be offset by your losses. If so and you lose as much money as you make, are you creating wealth?
There is a time for diversification. It is considered a defensive strategy and it is designed to protect wealth, it is not a wealth creation strategy. People, who know what they are doing, recognize that there is a time to buy and a time to sell and take profits—a time to make shorter term trades and sometimes have less diversification when attempting to create wealth.
Today, many people, including business school professors and financial advisors lack the skills to do this. Some even treat shorter-term trading with growth stocks like a “false religion,” claiming serious investors would never use this skill set. However, it has only been condemned for about the last 30 years, because before that, trading was a well-known skill set. My grandfather did not purchase mutual funds—back then, they did not exist! He purchased a few great growth stocks, and held them until the appropriate time in their cycle to sell. Sometimes this was long-term, sometimes short-term, and he never asked his broker for advice. He picked his own stocks, and made his own decisions about buy and sell points. I teach these very skills in our TRADEway events around the country (www.TRADEWay.com).
Have you ever asked those who mock shorter-term trading, “how do the Wall Street boys earn millions in bonuses for the great trades they did for their companies?” What do you think those firms are doing with their customer’s money? Do you think they buy & hold stocks for years in hopes of making a small percentage like they try to get you to do? Is it possible that they make shorter-term trades to profit off of your investments while they leave you exposed to risk year-round?
According to a 2010 article from Bloomberg, most Americans with 401ks LOST 20% to 40% of their life’s savings because financial advisors left their money in the market all the way to the bottom during the Great Recession. (This is exactly why we at TRADEway encourage you to learn how to manage your financial advisor, or perhaps, learn to BE your own financial manager and cut out the middle-man.)
Even so, during this time, five SEC regulated banks made a total of $127.8 billion in profits, and in 2010 these five banks paid $144 billion in bonuses.
To give you an idea of what traders making these bonuses are worth, look at this:
An operation’s analyst makes about $8,600 in bonuses
A vice president of the company earns about $90,512 in bonuses
A great trader for the company earns $8.25 million to $15 million per year in bonuses!
Now, if the business school professor is correct, and your financial advisor is correct, and “it is impossible for one to know the best times to move their money,” then why are these guys paid so much for attempting to do just that?
There is a time to buy and hold with diversification and there is a time to trade with fewer stocks, and often we do both at the same time with different portions of our portfolio. So how do we do this?!
We cannot tell the future. However, all markets have cycles, and many create patterns that repeat themselves several times making them more predictable. You can learn to identify these patterns by using stock charts like the one below. In this chart, the S&P 500 (an index that tracks the progress of 500 industry-leading stocks) formed a bouncing pattern called an “up-trend.”
For almost three years, you could have realized that when the index was bouncing up off that line, there would be many stocks making “up” patterns at good buy points on their own charts.
For example, when the S&P 500 was bouncing up in February 2014 PANW stock was also moving higher as you can see in the chart below.
In this example, you could have:
Purchased 1000 shares of PANW stock on 2/6/14 for $60.00 each share. ($60,000)
Then Sold 1000 shares of PANW stock on 2/24/14 for $76.78 per share. ($76,780)
& Profited $16,780 (trading fees are not deducted, but can be as low as $6)
You could have done this a second time as the S&P 500 and PANW bounced again:
Purchased 1000 shares of PANW stock on 3/7/14 for $70.00 each share ($70,000)
Then Sold 1000 shares of PANW stock on 3/19/14 for $79.79 per share. ($79,790)
& Profited $9,790 (trading fees are not deducted)
This would have been a total profit of $26,570 in about 30 days. The return on investment would be about 44.28%. That’s unheard of when buying mutual funds! If you didn’t have that much money to invest at the time, you could have started with less and still would have experienced a great return.
Since these trades only took 30 days, if you had continued to trade with the same returns on similar trades, every month for 12 months, you could have made 531.4% return. This is called an “Annualized Return on Investment” or AROI. However, in the real world you may not find a similar play every month, and you have to remember that some plays don’t work and instead go against you and you lose money so you would likely never make 531.4% in a year.
But think about it, if you could learn a way to minimize your losses around 8%, you could have a lot of losses at 8% and still make money if your wins were at 44.28%. In fact, you would only have to win 5 out of 10 times to make money! This is because the math gives you great potential with a trading skill set. You “win big, and lose little”—on purpose. It’s all part of the TRADEway system.
So, we have shown that it is possible to make money by knowing when to move your money in and out of shorter-term trades. Here is the bad news. Your financial advisor most likely does not have these skills. This is not his primary job. His primary job is most often to sell you products like mutual funds, annuities, and life insurance.
The good news is YOU can learn these skill sets from TRADEway (see www.TRADEway.com). Visit the website, or call 877-907-TRADE, and find a 2-day training event near you. Learn to manage your financial advisor, or fire him and do it yourself—it’s just a skill set!
Beware, however, that due to emotions you have to be very disciplined to stop out plays that don’t work correctly, and therefore we recommend a 2-day training event with TRADEway to learn all the skills and pitfalls, and how to potentially get the math on your side. Go to www.tradeway.com and select an event near you, or call 877-907-TRADE.
Knowing when to move your money is not about timing the market perfectly, none of us believe you can tell the future. Instead, it is about learning to spot cycles in individual stocks and knowing how to use this information to make “educated guesses” about the best time to enter and exit trades. Combining the principle of knowing when to move, with the principles of identifying market cycles and trading growth stocks, you will begin to trade less like an amateur and more like the Wall Street professionals.
This is similar to a hypothesis in science, and think about it, every plane you ride on, every medicine you take, every medical procedure you undergo, all arose from a hypothesis, or “educated guess” in science. In the business world, I call this “educated risk.” It is so much better than your neighbor who likely has no financial skill set, and cannot make an educated guess as to buy points, which stocks he should be looking at, or how the whole market affects his stock, because he does not have the education.
Attend our 2-day educational event called “Step 1: Start Your Journey.” This 2-day event has a value of $4,000 to $5,000, and will help you learn skills such as recognizing well-known patterns, using charts to identify proper buy & sell points, understanding how the larger market affects your particular stock, understanding how to find good investments and much more.
This 2-day event is for beginners, and starts at ground zero and moves up to the point you will have the foundation for everything you will ever do in the stock market by the time you complete the 2-day training. You will also go home with actual strategies and have the potential to make money immediately after practicing a bit, and doing what we call at our trainings, “small money trades.” Come find out how fun this can be, and you can get a head start with our home study course, just call or e-mail our office!
 William O’Neil, How to Make Money in Stocks (New York: McGraw Hill, 2002), p.91.
 Mary Buffett & David Clark, Buffettology (New York: Simon and Schuster, 1997), p. 173.
 Wall Street Sees Record Revenue in ’09-10 Recovery From Bailout,
By Michael J. Moore, Bloomberg, - December 12, 2010. http://www.bloomberg.com/news/articles/2010-12-13/wall-street-sees-record-revenue-in-09-10-recovery-from-government-bailout.
 What Wall Street Traders Make, Yahoo Finance, May 16, 2015.