Be careful of your own bias and limitations

I was reading Barry Ritholtz's top 10 reading list. I find he has excellent links and skips on the stupid and the spam. He had a graph in there from the Wall Street journal that I thought was excellent. Its a timely graph because today we had an excellent unemployment report and all the Zerohedgers out there are saying how its actually terrible.
Whats a retail investor to do and to believe in?

The economic expansion since the last recession has been 4.8 years... the exact average of expansion timeframes since World War 2. We are not in uncharted territory here where this bull market and economic growth is breaking new boundries and we should be scared and go 100% cash to get ready for another crash. In fact the Fed and CBO are predicting we have another 3+ years coming.

Now I am not saying we are or are not going to have economic growth in the future near term or long term.
What I am saying is I prefer to look at data and THEN make my decision. Most people do not. They have a bias of whats going to happen and look for confirmation. So to say we have gone on for too long and that is the reason to make portfolio changes is flat out false.
Keep in mind these people couldn't spell "fiat currency" before 2009 and now they have a 2 year old blog where they are going to tell us how the world economy is going to be over the next year.

How much experience do you have? How accurate are you at making estimates and getting the timing correct? Do you have a political or economic bias or opinion that shapes your thoughts?
The unrealstic long case is as bad as the unrealistic short case. People that couldn't spell the word "dividend" before 2009 now have a 2 year old blog talking about how investing is as simple as buying a dividend aristocrat at any price and then wait till retirement till they get rich.

I am wiser than this man; neither of us probably knows anything that is really good, but he thinks he has knowledge, when he has not, while I, having no knowledge, do not think I have.” ― Plato, Apology

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial adviser, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

How stress and life can encroach into your portfolio

Its no secret that I have been posting infrequently as of late. No the blog isn't dying. Yes I am still around. However, instead of leaving it just at that I thought that discussion of why I'm posting less recently would be a useful topic.

At work I was on a team of 5 people. We are down to 2 of us as 3 others have moved to different teams and management has been slow in rehiring. The workload has staid the same and the other guy has some chronic health problems and is often out 1 day of the week. We also merged with a team of 6 that is also understaffed. I applied for and got a promotion as the lead over it all. I have no idea what those other 6 does but am no responsible for them now.
I work in I.T. and have to renew a certification by the end of April or I lose my job. Even understaffed, its a requirement without exception. Additionally I am going to college and trying to work that into my time. To say my stress level is high is an understatement.

What does all that have to do with investing and trading? Psychology plays a big role in running a portfolio. More so than I think most people realize. You are taking your income from your day job and trying to grow it and that responsibility is yours alone. You can read blogs and get ideas from others but its your finger on that buy button on your broker's platform. If your mind is on other things can you really be sure that you fully researched this company? Perhaps you missed something during your research because your mind was on other things. Doubt can creep in and you start to second guess your existing positions on if you should stay long or switch to something else.

I've come to learn the hard way over the years to keep an eye on my mentality and psychology to make sure its not interfering with my portfolio. Its surprising sometimes how easy it is to screw up your portfolio when your focus is on something else. I've purchased call options when I wanted puts because I was mentally distracted while placing an order. So when I find myself overwhelmed I have to slow thins down portfolio wise. Cash is a valid position and times like this is a great time to just sit back and sit out a round or two of the markets. They'll always be there for when we are ready but we have to be sure that we and our portfolios will be there in the future and not blown up.

Now dividend investing seems pretty stress free. You buy a solid company and sit back and wait for the dividends to roll in so you can compound. Just look at the solid companies like Johnson & Johnson, Coca-Cola, and other stalwarts of the business world. It's easy to buy a company that will last for decades that will always increase their dividend right?
Well take a look at the historic listing of the Dow Jones. Just 10 years ago it held such solid companies as GM, Eastman Kodak, AIG, and International Paper Company. We have to be aware of survivorship bias where we look at which companies survived and ignore the ones that struggled or went out of business. Dividend investing takes a lot of time to compound in those 2%-3% yields and you may not notice you have a problem right away. Think back to 2008 and ask a person invested in Citigroup or Bank of America how many years (or decades) of dividends will be needed to make up their losses. They might well have been worried about their job and their focus was distracted on other things in their lives.

We are all human and far more than just an investor...
We are mothers with sick children in the hospital.
We are employees stuck in a crappy job thinking about how our last interview went and why won't they call to tell us how we did.
We are husbands and boyfriends going through a rough patch in a relationship.
And yes, we are investors with our finger on the mouse deciding if we should click "buy" or not.

How we deal with stress in our lives can make or break a portfolio quicker then picking the right stock.


Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial adviser, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Rethink your processes

Today is deposit day for me and as I sat down thinking about it, I thought how its more of a legacy process from my previous blog portfolio and not really needed here. I no longer have to make the decision of trading vs savings vs investing. I no longer have multiple strategies requiring separate funding. Now the deposit goes into investing and savings. No conflicts of interest here and lets be honest, that makes for boring reading on your part.

It does however highlight something I think is important. We regularly review our portfolio and positions to make sure they are still on target with our strategies. Is the capital gains position negative or positive? Is it time to sell it? Is the dividend still covered by company profit? These are obviously important but has other aspects of our investing grown outdated or stale?

What is not done as often is reviewing our processes. What used to work when we started or a year ago may not longer be good enough now. As our skill improves with experience and study we can discard what we no longer need. When I first started out with dividend investing I went straight for yield and payout ratio as my only criteria. My first purchase was PFE and there I ignored payout ratio and went crazy for the yield. Along the way I picked up ideas and improved my process to include the CCC spreadsheet from dripinvesting.org. Why is this important? Without reviewing our processes we run the risk of not completing our goals. If we arent working toward our goals, financial or otherwise, in the best possible way... well then whats the point?

I have two reasons for this blog. One is to improve my own skills and knowledge with investing. I have found this blog to be useful for that. The second is to provide an entertaining read to my readers that might help them with their own investing. Few people enjoy going to and following a boring blog that has the same sort of thing over and over again.
So I am discarding my deposit day update. Upon my review it was not contributing to my two goals.

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Why I have multiple savings accounts

It might surprise some that not only do I have multiple savings accounts but I am actively looking to open more. What's the big deal? Just set aside some money for a rainy day and be done with it. I have several reasons for this which I'll share.

Different money has different purposes
I like to keep my portfolios and money organized in a clear cut manner. If I had one savings account then how much would be set aside for an emergency like losing my job and how much would be set aside for a planned vacation that is ok to pull money out of the account? They have different uses. If they have different uses and different goals each would have different funding levels where one might need more money than another to fulfill its purpose. Separate accounts make it easy to see where you stand.

Legal reasons and establishing a business
I consider my rental property its own business. Even though I have a property manager keeping an eye on things I spend a good deal of time on this business and I am in constant communication with the property manager discussing changes, upgrades, repairs, and legal matters. If it were any other business like say a pizza restaurant, well the owner would not pay his groceries out of the restaurant's bank account. It gets everything convoluted and hard to keep straight.

With these two reasons in mind you'll see I have two savings accounts within the Real Estate section of the portfolio. The Real Est Savings is for repairs. I just recently replaced the furnace and installed a new A/C unit but I want to be prepared at any time for a major repair. $2,000 gives me that cushion.
The Real Est Cash is the unused cash that I have available for discretionary spending. Now it has to be spent on things for the rental but I have flexibility in how that gets accomplished.
Sometimes I will make the mortgage payment from that account freeing up income from my paycheck for other things.
Sometimes I will make a payment from both account to speed up paying off the loan.
Sometimes I'll have it sit there if I expect a major expense coming.
The key thing is it brings in flexibility.

Know your psychological limitations
I have something to admit to you guys. I am terrible at saving money. Absolutely terrible. That might sound funny after revealing several savings accounts but its true. I cannot keep money in my main savings account tied to my personal checking account that my debt card pulls out of. The problem is that I do not see it as a savings account as much as an "checking account overdraft fund." For whatever reason I will save up a couple thousand then subconsciously spend a little more with the debit card and overdraft my savings to $0. Funnily enough I never go below that limit and buy something that truly causes a deficit. No matter how mad I get at myself that I will never do it again, I eventually seem to.
So instead of fighting that aspect of myself I work around it with separate accounts.

I am currently in need of yet another savings account. I want it to be a slush overflow fund of a sorts. Where I can apply the cash wherever for whatever reason. CDs at this time are not giving much more over savings accounts but the Fed has hinted that next year it will start raising rates. I want cash ready to go if CDs start offering good rates again.

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Do you want the life of a trader and investor?

Do you want the life that you are working towards? The entire lifestyle...

EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.

As I mention in the video, we don't have to choose now we can work our accounts up in size and see how things progress before we quit our job.

How many times have you taken a job thinking it will be great then you start finding out about how its really going to be like and start focusing on finding a new job. It is something I feel is pretty important to keep in mind as we invest and trade. Is this something we really want to do? The problem with investing and trading is if we spend years towards this goal, quit our jobs, and then later find out it really isnt for us.... is it too late to go back and get back in the work force? You may have to start over in seniority, 401k build up or qualification for a pension. You can always make more money but lost time we cannot make up.


Disclaimer: The investments and trades in my videos and blog entries are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Psychology of Emotions: 6 - Love

The next emotion on the list is love....

EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.

Fear and Greed are the two big easy ones. Anger and Hubris are both negative and apparent when you think about it. As far as emotions that can hurt our portfolio, Love is an odd one.
Most of the time in other areas of our lives, its a positive good thing. This can make it seem like with our finances that there isn't a problem in the first place.


Disclaimer: The investments and trades in my videos and blog entries are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Trading psychology benefits of demo trading.

I entered in today's second forex trade for the coin flip account and noticed something of my mentality that I wanted to share. Here is a screenshot of the trade. Its a 15 minute chart of the EUR/USD. About 4/5ths the way to the right is a green arrow. That shows my trade's entry point.

Notice for most of the recent past the candlesticks were very small. Not much action. Then as I am getting ready to enter my buy trade we get possibly the largest 15 minute candlestick of the day going against me.... as I enter the trade. The next candlestick started to go down further.

What were my thoughts? Was I yelling at the coin for coming up heads? Perhaps yelling at myself for logging on at the time? No. My thoughts were of something new this trade vs other ones.

"Yeah that's not a good start but my trading history shows on average a trade gets me +$0.81. There have been plenty of trades that looked bad at the beginning that turned around. The 50 pip stop loss gives plenty of wiggle room. By entering this trade there is no reason to think this trend shouldn't continue."

At the beginning of this coin flip experiment I was keeping a close eye on each trade. Guessing what was going to happen and guessing where I would be stopped out at.  After 28 trades I have realized that the begging and pleading does little good to will the market into a direction. The trades have become a routine pattern. Flip, enter trade, done.

This is a benefit of demo trading that I think some experts do not realize. The practicing and conditioning of ourselves is as beneficial as practicing our trading strategy.


Disclaimer: The investments and trades in my videos and blog entries are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Psychology of Emotions: 4 - Anger

The two easy emotions that can disrupt our trading and investing are out of the way, Greed and Fear. Its time to talk about the next one...

EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.

Anger can be a powerful negative emotion that takes over our trading and investing. Greed and Fear can have a back and forth argument with logic with the "yeah but..." examples from those videos. Anger though can prevent the discussion in your mind from coming up at all by blocking you from thinking you are doing anything wrong to question in the first place.

It is critical for us as investors and traders in the forex or commodities or whatever it is you trade to start analyzing and dealing with emotions and money together. Finance is extremely math based and that can turn it into a robotic system. Technical analysis has its indicators, trend lines clearly showing make or break lines for entries and exits. Fundamental analysis has a ton of ratios and formulas to evaluate and judge strength and weakness. Yet neither of these two are going to click the mouse button to enter a trade. It is the human being, emotions and all, that does it.

Disclaimer: The investments and trades in my videos and blog entries are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Psychology of Emotions: 3 - Fear

"The only thing we have to fear is fear itself"

Franklin D Roosevelt

EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.

Fear is the natural opposite of Greed when it comes to emotions in Forex trading and dividend investing. Anytime money is on the line actually.

Being human, we will succumb to emotions that's just how that is. I see successful traders mention that even after years of being profitable and knowing better that they still have "oops" moments. It is a big encouraging for us starting out to know that its a problem for everyone.





Disclaimer: The investments and trades in my videos and blog entries are not recommendations for others.
I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Psychology of Emotions: 2 - Greed

The first emotion up is the big one...

EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.

As investor and traders, we will encounter greed at nearly every step of our process. It comes up so often that as I mention in the video, we can think we are aware and careful of one type while succumbing to another.

Yet we have to have some amount of greed to make so how does one maintain balance? Whichever argument gets in the last word is a great indicator as to what your mindset is.
"This is really risky but I can make a lot of money. Lets get into this trade."
"I can make a lot of money but this is really risky. Lets get into this trade."
The difference is slight in words but large in mentality. The second thought process is more inclined to be using money management to protect themselves.



Disclaimer: The investments and trades in my videos and blog entries are not recommendations for others.
I am not a financial planner, financial adviser, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets

Psychology of Trading and Investing: 1 - A curious little box...

So you are all psyched up and ready to start making money by trading and investing. Or are you?

EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.

Out of all my videos and ideas for investing, trading in the forex, and becoming self sufficient, this series I feel will be the most important. If there is only one thing I can share and you guys get from me this is it hands down. Of course, I hope there is more utility found but I want to stress this series as #1.

I have seen the topic of psychology and emotion with money come up a lot in the last couple of years so there is progress. But to be honest I have found it lacking. Its usually only given a token acknowledgement with a small chapter of a book. The message given is extremely short, "Control your emotions." Wow great that's wonderful.  Yes clearly its as simple as that given all the examples of history in which mankind has tried to control its emotion. So what is a new comer to the financial markets to do?

There needs to be more discussion on examples of emotion and psychology. When passing on ideas about charting the trading community doesn't say "Go use some technical analysis tools for your trading." No we see countless hours of charting examples going down to minute detail. Why not the same for psychology?

That's what I propose to do here.


Disclaimer: The investments and trades in my videos and blog entries are not recommendations for others.
I am not a financial planner, financial adviser, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets

Week 31 Update and Psychology in Money Management

EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.

Weekly Activity
$136.09 deposit into Trading
$50 deposit into Savings
$1.62 dividend from ERF


Model Portfolio Totals

Trading Account: $649.33
Estimated Monthly Income: $0 (Not ready to trade until Phase 1 completed)
Max amount in Forex trade (50% of account): $324
Max loss per trade (1% of account): $6
Portfolio stop (3% account): $18

Investing Account: $1,697.00
Estimated Monthly Income: $6.00
Stock
     WMT: $0.53 income/month
Energy
     ERF: $1.70 income/month ($0.019 from DRIP shares)
REITs
     O: $1.07 income/month ($0.009 from DRIP shares)
Bonds
     JNK: $1.61 income/month ($0.020 from DRIP shares)
     PCY: $1.09 income/month ($0.009 from DRIP shares)
Maneuvering Cash: $500

Savings Account: $850
Emergency: $550
Portfolio Protection
     Trading Account: $50
     Investing Account: $250
CDs: $0
Precious Metals: $0

Disclaimer: The investments and trades in my videos and blog entries are not recommendations for others.
I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

The Stock Market "Crash"

After the horrendous day yesterday with stocks how can one possibly recover?

EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.

So to me this "crash" is a whole lot of nothing but there is a self analyzing opportunity for us here to learn from.
What is your mindset? Did you or are you panicking and hitting the refresh button on your broker screen every few seconds? You probably have too much money at risk and you probably haven't been through these moves before. Not to say the later is bad, its a process that every new investor goes through that no book or video can teach. I go through it too.

Why I bring this up is you can tell when you are becoming an "expert" or a "professional" when you are able control your emotions or better yet, when they don't come up at all. This allows you to move more quickly to your mental checklist to go through for major events. This would include things like...
Does this change or impact my portfolio?
Does this change or impact my overall strategy?
Do I need to make any defensive changes?
Do I need to make any profit making changes?

Notice the first three I list are defensive? I always focus on that before going after profits.


Disclaimer: The investments and trades in my videos and blog entries are not recommendations for others.
I am not a financial planner, financial advisor, accountant, or tax advisor. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets