Is it time to buy?

With the September malaise in full swing, and many stocks over 20% off their highs, many people wonder if it is a good time to buy. Normally, the consensus advice for people looking to get into the market, particularly for the first time, is to buy into an index ETF that mimics the S&P 500 (look at SPDR, VOO, and IVV). These funds have low expenses and diversify holdings automatically. If you have limited cash resources and do not have the time or inclination to monitor your holdings, this is the way to go. Most retirement plans only offer these types of funds - it limits decision making for people and allows them to track performance easily - if the index is up, their holdings will be up too. It’s straightforward.

I think a little differently. If you are just starting investing, particularly if you are young, I recommend you actually buy and hold a few stocks. This is because making the effort to find and research a stock, actually putting the order in, seeing it filled and then keeping an eye on your stock is the best way to get comfortable with investing. There is no better way to learn than by doing, and the mistakes you make when just starting out are the best lessons you will ever get. Your first loss is your best loss and it is better that this first loss is a small one on a single stock rather than a large one on many.

The best time to buy a stock is when the market is down, preferable down a lot, or the stock of a good company has dropped a great deal in an over reaction to a market event like weak earnings or a shock to a particular segment. Patience is very important. No one can time the market, but you can get in when the the market is down and have the satisfaction of seeing an immediate return on your investment when the market corrects itself. Mind you, it is hard to buy when the market is down. Warren Buffet said 'Be Fearful When Others Are Greedy and Greedy When Others Are Fearful'. This means that you have to wade in when things look dire and buy. Just try a little at first and over time you will get more comfortable with buying in downturns. I always wait to reinvest the dividends in my IRA until the market is down 5% or more.

So is it time to buy now? Not yet. Again, I think we will see more of a sell off. That said, I did buy little more Freeport McMoran (FCX) today and Wynn Resorts (WYNN.). Both were down a lot this week for different reasons and both are likely to rebound once Covid is under control. I may have bought a little early but I am convinced I will be happy I own them in a year’s time. Mind you , I will sell them both for a trade if they rebound 20% after tax before the year end (unlikely unless Covid is cowed). I will probably buy a bit more if they continue down. Meanwhile I will sell calls on them while I am waiting and I still have cash for the big down turn. (A lot of us have cash on the sidelines waiting for this mythical downturn.)

Market Today: Good news on retail sales (we are all still buying stuff it seems) meant the market started off positive, then fell only to rally later in the day and then fall into the close. All up, DOW and S&P only ending up down slightly for the day (Nasdaq up). A positive Nasdaq meant I could get out of tech puts like PayPal (PYPL), Shopify (SHOP), Nvidia (NVDA) and Crowdstrike (CRWD). A Moderna (MRNA) put gave me a boost. MRNA has replaced SHOP as one of the most reliable puts to make money on - volatile and lots of volume. And I made money on selling and re-selling ROKU calls. Playing with Coinbase (COIN) puts - pure speculation but I am not ready for Bitcoin yet.

Quadruple Witching

This Friday, contracts on four different kinds of financial assets expire. These assets are derivatives of stock index futures, stock index options, stock options, and single stock futures. Since all four happen the same day (which only happens four time a year) this day is referred to as a quadruple witching day. The term witching is used as normally there is a lot of volume and volatility on these days. Transactions take place in in milliseconds and machines are programed to settle outstanding contracts, particularly at market close. The trading volume, volatility and velocity can mean chaos in the market. There may be sudden large swings, particularly at the end of the day. No one know for sure exactly how the day will unfold, but there is generally at least 50% more volume, so it will be busy.

Despite all the talk on business news channels, for investors, quadruple witching days mean very little; just stand back and watch. For traders, there can be price swings in some stocks that can provide an arbitrage opportunity. They may dart in and out of particular stocks or options depending on market swings. The bigger issue for all market participants is that the volume of stocks traded on quad witching days often means the following week, things are quieter than normal as everything settles out. Given that the market is currently in a wait-and-see mode, this quiet may be seen as a further indication that the market is weak. It could tip the market into the negative for the rest of September.

Given I’m an option trader, and the market has been down, I will be put some stocks this weekend. I have four sets of contracts that expire this Friday, so the shares will simply appear in my account on Saturday morning. Of course, there is a corresponding reduction in cash in my account as well to pay for the shares at the strike price I agreed to. I keep cash in my account for just this purpose, I try to have ready cash to pay for any shares I am put. If I did not have the cash, I could borrow on the margin or sell other stock to pay for my new ones. I try very hard to never trigger the use of margin - I pay interest on that.

I’m already writing calls on these soon-to-be owned stocks. Since on quad witching days, options prices tend to fluctuate as well, I want to be in a position to capitalize on it. I am fine being put these stocks as I have wanted to own them. Since I do not really own the stock yet, the calls I am selling are uncovered calls. Normally, I would never write an uncovered call but owning them next week it as close to a sure thing as you can get in the stock market.

So unless you are actively trading, just be aware of quad witching days and their potential impact on the following week. It is good to learn the slang.

Markets Today: After many down days, the market paused and turned up a little. I think it was the a guest on the CNBC half time report that asked people to step back and look at the economy of the US and quit being so pessimistic. Covid will end, the supply bottlenecks will ease and people will get back to work. This bodes well for the market longer term. Basically: Chill. I agree, but meantime I continue to be cautious. Few trades today and I’m still selling more calls than puts. Waiting to get out of the options penalty box I have built for myself - which I will on Friday. Welcome the Witch.

Corrections

September is coming in weak (as predicted). The major indices have been down for six of the last seven days and unrealized gains are slipping away in most people’s accounts. There had been a drop of 1.8 percent since Sept. 1. That is a tangible pullback, painful for most of us in the market. There is probably more to come. Why? Because there is no clear positive catalysts out there. Earnings are over. The Delta variant has delayed the ‘back to normal’ post Labor Day promise. Kids are back in school but for how long? Office returns have been pushed back indefinitely. Meanwhile, tax increases are looming, our government is bickering like spoiled toddlers, the Afghan mess and a variety of economic indicators are suggesting the anticipated re-opening boom may be more like a burp. The mood of the market is cautious and a bit grey.

Market participants seem to be pulling out and cashing up, holding off doing anything until the skies clear a little. With people on the sidelines, there is limited stock purchases going on so nothing to stop the slide. For example, the casino stocks took a dive today as the Chinese continue their shotgun approach to their economy, this time they blasted gambling in Macao. Most of the big casino players fell by 10% or more, which would have normally brought in some bargain hunters. But today, keeping with the sideline mentality, there were very few buyers of these stocks (Mind you, I did buy some MGM). The lack of the ‘buy the dip’ players means that there is no way to halt a downturn and the slide will probably continue.

How much will we slide? Well, 10% off the high will mean we are in a correction. A correction is more than a ‘pullback’ (single digit declines) but less than a ‘crash’ (20% or more). I think we could see correction this month, but it will be selective. A lot of people do not realize that a large portion of the major indices (20% or more) is made up of Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), Amazon.com (AMZN), and Facebook (FB). These stocks need to fall a lot to really see a major slide in the indices. Fortunately, these five stocks are also considered some of the safest stocks in market so people are unlikely to let them go into free-fall. If they do, there is likely to be buyers out there waiting to scoop them up. So any large slides are likely to be driven by the more speculative stocks, which have already been struggling. The correction is likely to hit selectively.

I say the best strategy is to have a shopping list ready. As the slide progresses be prepared to sell losers which are more speculative and don’t have earnings. Understand that many people have ridden out Covid with good jobs and their savings levels are high - what are they likely to spend money on as Covid wanes? Buy the stocks of the companies who will benefit most from consumer’s comeback. Think healthcare, travel and beauty. (Be careful though, people have discovered that they do not need as much ‘stuff’ as they bought before Covid. A new frugality is upon us.) Think also about building materials (the infrastructure bill and housing shortfalls) and environmental related plays (EVs, solar, HVAC improvements.) Use this downturn to get into stocks you have been waiting to buy, and sell losers now to have cash to invest. Look for good companies whose stocks have low P/Es as they generally fall less in downturn. Treat corrections as the opportunities they are. Remember, even if we are down 10% in September, the market will still be up 10% for the year.

Market today: After a muted inflation report, the market rallied only to slide again after the initial thrill wore off. This inability to hold a rally is telling. Again, I held back writing puts as there is an option expiration day this Friday and I will be put a fair bit of stock due to this downturn. I continue to make money on calls, however. I did take advantage of the overreaction of casino stocks to the Chinese government noise over Macau to buy some. If there is a jump tomorrow, I will probably sell for a quick profit.

Cutting losses

One of the most common mistakes new investors make it letting losses get out of hand. There is a saying on Wall Street that you should, ‘Cut your losses. and let your winners run’. This is easier said than done. It is hard to admit that a stock you carefully researched and then bought in cautious thirds has let you down. But it happens. Frequently. The trick is to have a plan.

It always surprises me that there is not more discussion about when to sell a stock. It should be front and center when you buy it. Are you expecting a quick gain or are you holding it for the long term? Is is a volatile stock or a steady, range bound income star? As a general rule, I will sell a stock if it falls 10% or more after I buy it. For stocks I have bought for a quick trade, I will simply put in a stop loss order at 10% below the price I paid. While this loss discipline is helpful, I find it is only applicable in about 40% of the cases. Some stocks I buy, especially if they are well below $100 a share and are volatile, may drop 10% in a few days, only to rebound 15% the following week. Others stocks may drop 10% in an overreaction to an earning report, only to rebound in the same day. A stop loss set at 10% would get me out of the stock but I would lose the rebound gain. Some other stocks pay a dividend of 5% or more, so a 10% drop in the price, is more like a 5% drop. One of the reasons you should not have more than 50 stock positions is that you need to be familiar enough with each position to know what the exit plan is for each one. And attentive enough to act, or not act, on a specific stock’s exit plan. It is helpful to commit yourself to that plan in writing - say on a printed spreadsheet or list clearly visible from the monitor you trade at.

Having a written plan is like making a contract with yourself. Keeping it front and center, visible where you trade, helps you keep to your strategy.

I rarely sell stocks I have bought for their dividend, even when they fall. If the reason for the drop is temporary, say a drop because of a natural disaster or a one-off earnings miss, I may even buy more if the price drops below my average cost per share. I will only sell when the stock’s story changes in a material way, say for example an accounting scandal or corporate or legislative action that undermines their long term viability.

If I have bought a stock for a short term trade, I buy and sell with firm gain/loss percentages. Usually I sell at a 20% after tax gain, or a 10% loss.

Volatile stocks are a judgment call. If the stock is popular, that is frequently mentioned by traders and pundits in the business press, I may hold after a 10% loss if there is still a lot of positive discussion about it. It frequently rebounds. If I find myself with a 20% loss, that baby is gone.

The biggest dilemma for me is when to sell big winners that suddenly go sour. For example, Chipotle when the contamination issues dropped the stock like a rock. I sold, only to watch the stock to rebound, then soar, the following year. I have similar stories with other big name stocks, bad stories drop the stocks like a rock that are later forgotten as the stock moves on to even greater highs. These are what I think of as ‘pain trade’ stocks. Hang on at your own risk. In general though, be aware that a quick sale at a 10% loss may allow you to get back later at a better price if you still think the company’s prospects are good. Just be aware that the wash sale rule means you have to wait 30 business days to get back in if you want to deduct your losses on you taxes. You may miss the rebound by then. Have a plan.

Market Yesterday (missed the midnight cut off): Quiet, up after declines. Not much trading as I am boxed in on my puts due to the steady market decline. Hoping to get out tomorrow if rebound continues.

Is the bad news priced in?

Today the Fed released its Beige Book (which literally has a beige cover, thus the name.) This report, released eight times a year, gathers anecdotal information on current economic conditions by each of the twelve Federal Reserve Banks (there are also 24 branches). The data comes from Bank and Branch directors and interviews with key business leaders, economists, market experts, and others. It is subjective but insightful. The stock market pays attention to it as it may provide clues as to how the Federal Reserve may move when it comes to their economic interventions.

Today the Beige book highlighted business concerns with inflation, supply and labor shortages. It said that businesses experiencing increases in costs were likely to pass them on to consumers (fueling more inflation). It also documented a slowdown in economic activity, largely due to a pullback in entertainment related activities due to the Delta variant of Covid (which was seen in the August job report which came in well below what was expected). Overall, it was not good news. So did the market drop dramatically? No, but it continued its three day swoon. Begs the question of why the reaction was not more pronounced.

Most market participants are suggesting that the market was relatively steady as it had already priced in the bad news. That is the impact of inflation and shortages are already incorporated in the market and that the prices of stocks reflect that. The logic is, that while these concerns are problematic, they have been common knowledge for so long the market has already discounted these worries. But no one really knows if that is in fact the case. `If companies begin to make negative pre-announcements about their upcoming earnings, as Pulte Group (home builder) and two paint companies did today, will the market ignore this very tangible data? I doubt it. A steady onslaught of bad pre-announcements are very likely to spook the market. And a spooked market can trigger a nasty decline. Talking about trends in the abstract is not the same as seeing real time results. Reality trumps theory every time. The market does not “know all”.

Market today: Another down day. Closed more calls than puts but did not buy any stock. Need a much bigger decline to trigger stock purchases. I had one speculative stock of mine fall 10% today - closed a call on it but did not buy more. I did not like the decline but still think its a good stock. If it falls another 5%, however, I will sell it. I am also toying with NFLX, which is becoming a buzzy stock. That is a stock that is mentioned a lot by traders, has a lot of buy recommendations and analyst upgrades and many people simply seem to be buying. NFLX is in fashion and fashionable stocks often make great option plays.

“To everything there is a season..”

It’s September and market watchers are talking about seasonality. In the stock market this term is used to highlight the tendency of markets to perform better or worse during certain periods of the year. Historically (or at least since 1950) November to April have been the best six months of the year, with August, September and October traditionally coming in last. March, however, can be terrible. October, in fact, is so feared there is even a term, the October Effect, that describes the psychological anticipation of a pending financial decline. This is due to the fact that three of the greatest market declines in history took place then; the Bank Panic of 1907, the Stock Market Crash of 1929, and Black Monday 1987.

There are other seasonality patterns in the market too. There is the Santa Claus rally, which tends to come in the last weeks in December (often followed by a weak January and February). The summer lull which has prompted the market advice to “sell in May and go away.” There is also sector specific seasonality. Retail tends to do better in the last quarter of the year as people buy for Christmas. Some healthcare or tech stocks will rally around specific annual conferences. Residential REITs (Real Estate Investment Trusts) do better in the spring.

There is a logic to some of these observations and they are worth paying attention to, if only because they seem to feed into the overall vibe of the market. I too get cautious in September and October as those are the months I have most frequently seen large declines in. Given there has been no major market pullback in months, seasonality is being talked about a lot on the business channels. As in, given the season, the big pullback must coming. It sometimes feels as if enough people talk about it, it will become reality.

In my experience, it pays to know about seasonality and specific sector patterns but never to bank on them. Every year will have exceptions to the rule. In the last the ten years, I have been down in August seven times (the summer lull), but up in three. In almost all of those down years, September and October more than made up for the losses (so much for the October Effect). Based on this experience, I tend to use the August lull to buy if there is some stock I have had my eye on that drops a lot. I may end up buying more in September and October if the market drops more. I watch for the patterns but do much better following real time events and taking advantage of them. The only pattern that consistently works for me is reversion to the mean. If stocks fall in one period then tend to rise in the next, and visa versa, seasonality be damned. Just look to December 2018 - no Santa Claus rally then and yet January and February were terrific.

In general, I do like the fact that market participants may be wary because of seasonality. There is a saying that the market climbs a wall of worry. This phrase highlights the stock market's ability to show resilience in the face of weak or bad economic, political or corporate news that might otherwise spark a selloff. Instead, after maybe a brief blip to digest the news, the stocks keep pushing higher. To me, this phrase means that the market is more likely to continue to rise when not everyone is bullish. So worry away, my market friends. Fear seasonality, keep that wall of worry strong and we should continue to see the market rise. But just in case, I am selling calls and buying a bit of protection. Never said you should ignore reality.

Market Today: The market slipped today. S&P and Dow were down and Nasdaq eked out a gain. Volume was very light (usual after holiday weekends). I traded in and out of my call options. The underlying stocks were negative (which made the calls very positive) but they all became less negative at certain points in the day, so I could re-sell them and buy them back. Two (eg ZM, ROKU) I did three times. I also sold and then bought back puts. Again I sold puts as the underlying stocks were negative, but as they became less negative during the day, the option value became slightly positive. Normally I wait to buy back calls or puts until the following day as the stock values tend to revert, making my options nicely positive. Given, however, that the market might drop tomorrow, I am cautious and close things when I can. I would rather make less but not leave myself as exposed.

The three Vs

So the jobs numbers were a bust. A third of what they were supposed to be. As a result the market slid. This Friday being a long weekend, the market slid even further into the close marking a weak week. There were still trades to be made though. Even when the market is down, as long as there are the three V’s - volume, volatility and velocity - there will be trading opportunities.

It is important to understand the difference between trading and investing. Traders are people who watch the market closely, daily. We go in and out of positions quickly, often in minutes. So any day can give us opportunities to trade. We may be in and out of the same position multiple times in a week or even a day. It’s a job.

Investing involves a much longer time frame. Usually years. It only takes about an hour a week to figure out a good stock to buy and then begin building up a portfolio. Before I began trading, I learned to invest. This meant I had to learn how to value stocks, when and how to buy stocks. I also started out with very little money and trading was not really an option. I simply did not have enough money. Once I had built up large enough enough positions in the ten stocks I owned, I begin trading options. But it was years before I had built up enough of a portfolio and really begin to trade. It was the time I spent learning how to invest that made me the trader I am today. Time is on your side. Do not rush learning about he market.

Market Today: The market was volatile today. It gave me the chance to open and close a number of option contracts. The bets I made on Docusign (DOCU) and Broadcom (AVGO) paid off. I was able to close quite a few contracts when the market rose up unexpectedly, and I rushed to do so as I wanted to as I knew the long weekend would probably result in a sell-off into the close. There was a plenty of volume so contracts were snapped up quickly. And I sold to open just two into the end of day slide, not sure what Tuesday after the long weekend will bring. Despite the market being down, the day was profitable.

Jobs Report paradox

Once upon a time, the government reporting employment statistics used to be a ho hum affair. Economists found it hard to drum up interest, and it barely caught the attention of the business press. Those days are long gone. For the last couple of years employment levels have been top of mind for politicians and economists. This makes sense. The US is a consumer based economy. We buy a lot of stuff and we can’t do that very well without a job to pay for things. Recessions are basically about job losses which generally means everyone buys less. So making sure there are lots of jobs are key to a healthy, humming economy.

While that simple relationship is easy to understand, there is a complication. Ever since the financial crisis, we have been in an odd place. The Federal Reserve has been stepping in to try and support our economy. They do this by increasing the money supply and setting interest rates low (lower rates means companies and people are more likely to borrow to fund new businesses and new buying). The stock market loves an ample money supply (liquidity) and low interest rates (which are great for businesses and valuing companies). In the recent past, when the Fed has suggesting it would limit the money supply and/or raise interest rates the market has taken it badly. The resultant drop has been nicknamed a taper tantrum.

So that puts the jobs report in a funny place. If the news is good, lots of jobs created and higher wages for jobs in general, is should be good news for the stock market. it means the economy is strong and people have money in their pocket to spend. But if the jobs report is too good, the Fed may be forced to react. It could trigger the Fed into pulling back some of their accommodations earlier than anticipated. Limiting the money supply and eventually raising interest rates. The market will not like that, so too good a jobs number may trigger a market sell off. Sigh. Paradox.

Tomorrow we get the August jobs report. Could be good, could be bad, could be too good or too bad. No one knows, so the market is holding its breath and we’ll see. Best case for traders is an overreaction to anything we get, then a reversal back to the mean. Best way to approach a report, frankly, is to ignore it. Have a longer term outlook and don’t sweat any one month’s numbers. Look to the long term and simple ask yourself, is the economy strong? Is it getting stronger or weaker? Longer term trends are the ones you should be paying attention to if you are investing. Traders, however, will probably be busy tomorrow. I suspect I will be.

Market today: Another day of gains and records as the unemployment claims dropped, suggesting Friday’s job numbers should be good. Delta is still an unknown factor, it may stay the Fed’s accommodation plans if the virus appears to be slowing economic activity. The jobs numbers will be out at 8:30am. I opened a fair number of contacts over the course of the day, hoping for a strong reaction one way or another at the open that then reverts to the mean. I bet on Docusign (DOCU) and Broadcom (AVGO) into earnings this afternoon. Both had good reports but are slightly negative, good report on jobs could help them turn positive. The rest of what I opened ranges across sectors but a little tech heavy. Let’s see how things go.

Industry sectors

One of the key investing principals that almost every professional stock investor heeds is the need to diversify a portfolio. This can be hard to do if your financial resources are limited. This is why most professionals will suggest a beginning investor start out with an index fund that mimics the market. These funds represent a basket of stocks so diversification is built in. And you do not have to watch your portfolio closely, it runs on automatic. This is why most retirement plans rely on index funds.

If you want to learn to trade though, and have the time and inclination to keep track of your stocks, I recommend buying stocks directly. This way you really begin to get a feel for the market, the bonus being you keep your dividends and avoid management fees. One of the most important things in building a portfolio, though, is to keep the concept of diversification front and center. The easiest way to do this initially is to purchase stocks across a range of industries. The reason for this is clear on almost any day in the market. For example, today the energy sector was down while real estate and utilities sectors were up. On any given day you generally find a couple sectors doing well, others lagging. Sectors also trend, technology has been doing well for years as we have all increasing relied on machines. Financials on the other hand have lagged for a few years as interest rates are low and new financial regulations came into play after the financial crisis. For the long term, having stocks in all industry sectors helps you even out your returns.

There are eleven sectors commonly used by the market. They are shown below:

Prepared by Motley Fool

When I began trading I made a point of trying to buy at least one stock from each sector as I built my portfolio. I began in communication services, then bought some healthcare, then technology, etc. Now, while I have at least 5% of my portfolio in every sector. I have slightly more stock in sectors I think will be strong the next ten years (like healthcare and financials) but less in ones that are currently expensive and have weak growth prospects (utilities). The proportions I hold in each sector changes as the the world changes, I never put all my eggs in one basket.

Market Today: It was another weak day, a muted start to September, but up again slightly. I was surprised that my best option trades were in a stock I don’t own yet, calls on BioNTech (BNTX). I am going to be put shares next week. Since I now trade as a level 5 option trader (too years to get here) I can write uncovered calls. I would never, ever sell an uncovered call unless I am positive I’ll be put. And I am, unless BNTX jumps up another 20% in the next week which it has never done. For most of my option trades I rely on things not moving more than 20%. This is why my strike prices for selling calls are at a value at least 20% greater than what I paid and I sell puts for strike prices generally 20% below where the stocks currently trade. It is statistically safe but a 20% correction could catch me out and force me to borrow (i.e. use margin - most trading firms will advance you cash, for a fee, based on the cash value of your portfolio). This is why cash reserves are important. I hate to have to use margin for anything. (Note: Trading companies give people too much leeway here - please do not use margin to trade. It’s a sucker move.)

Stocks should fit the investor

While I write a lot about the market overall, many people ask me for specifics about particular stocks. Sorry, but promoting a particular stock is not likely to happen on this site, that’s Reddit’s niche. This blog is intended to help people manage their money and understand the stock market overall, its mechanics, its rhythms, what influences it, etc. That said, I think it is helpful to talk about types of stocks. I don’t mean A shares versus B shares of a particular stock or even ETFs versus mutual funds, I am referring to the characteristics of a stock.

Everyone should enter the stock market with a clear view of what they want to get out of the market, besides making money that is. Depending on the individual you may want your stocks to generate income immediately or you may want to buy stocks to fund a toddler’s college fund. You may be the type who panics about losing money, or you may be gambler looking for the big payout that will give you bragging rights. No matter what you want to get out of the market, there are stocks that will fit your requirements. At least they will on the days you buy them.

I am conservative in my investment style. This is largely because I am older and want to preserve and safely grow my capital. In the event of a major downturn in the market, say one brought on due to an extended recession, I may have to wait a year or two for the market to rebound. Given my age, I may not have that time. Because of this I tend to buy well established stocks that pay a good dividend and then supplement the income they generate by writing calls against my positions.

I have a friend, a little older, who focuses on tech stocks and growth stocks in general. She pays no attention to dividends. She wants appreciation. She has had a great ride these past few years. Her portfolio has grown in step with the NASDAQ, which is well ahead of the S&P index. She is disciplined and trims regularly but she is shaken every time the NASDAQ drops suddenly. She is willing to take more risk than I am.

I get jealous of her returns, but I know I would not be comfortable owning her portfolio. Different people/different requirements/different stocks.

You need to consider what your requirements are and then decide what stocks fit that need. Not every stock in your portfolio has to be a prefect fit. Despite my conservative nature, I do occasionally buy speculative or growthy stocks. For example, I have a charging station stock, a shares of a new AI company, and another company that makes the composite used to make wind turbines. These, however, are less than 2% of my portfolio. My friend, on the other hand, is learning to use options and is supplementing her income. It is always good when investing to stretch out of your comfort zone and try new strategies once in a while. Keeps things from getting stale. Just limit what you do to a small slice of your portfolio to test the waters. Just remember, be prepared to let a stock go.

Market Today: Market stalled a little today, but nothing major. Ended August up. The ZM call I wrote yesterday insulated me somewhat against the 16% drop in that occurred after earnings. It gave me a one of my more profitable option trading days. Mind you, I will be put ZM, at a loss, but I am confident I can write calls against it until I can get out profitably. I have already made a great deal on ZM puts and calls, so I am almost whole anyway. I also prepped for a possible September downturn by writing calls against the majority of my holdings and selling some losers that were up today. I may be wrong about a pull back, but being prepared is a good feeling.

Thinking about protection

The market is heading towards its seventh straight month of gains. Last year was an incredible year (mind you that was in part because we fell off a cliff at the end of 2019 and then snapped back in January and February) However, if you look over the last 5 years we have averaged a solid 10% return on the market. As of today, all three indices are up over 14%, with the Nasdaq up over 18%. The returns are great, and most of us traders are feeling pretty good about where we are. Which of course is why I am thinking about how to protect myself given that a 10%, or greater, slide is very likely. Maybe not tomorrow or the next day, but I feel like it has to come before the end of the year. This is despite the fact the economy is strong, corporate earnings have been great and the Fed is only just thinking about beginning to tap the breaks. After over 15 years of trading, I know something will happen to spook the market and it will drop. So what to do about it?

First, you should never sell into a downturn unless the entire financial system is about to collapse (see 2008). Given that situation is significantly less likely given the controls that been imposed on our banking system since then: Do Not Sell. The market has a tendency to come back, sometimes exceedingly fast, and if you sell you will not get back it at the price you sold at. Mind you, I am assuming that you do not have money you need to live on in the market - which is why I harp having a separate saving account. Without it, riding out a downturn may require you to sell things at a loss which is not good.

So how to protect yourself? First, you need to learn to take gains as you go, so you do not have huge gains in any single stock. Once I am done filling a stock position I want to have, I immediately think about when sell. Of course, each stock is unique. Some you may plan on holding forever because they pay a great dividend you depend on for income, others you may buy specifically because you want to trade them. As a rule, I always sell a third of any stock if it goes up more than 20% within the year I bought it. Yes, I have to pay the tax man, but I still make over 10% which is greater than the average annual market return (the don’t get greedy rule) A great return. The next third of the shares I sell when I reach a 30% return. The remainder I generally keep and just let ride, depending on the stock’s purpose in my portfolio and its momentum (a discussion for another day). Sometimes I end up using options to buy back the shares I have sold, but I generally set the option strike price at a level that gets me back in at what I originally paid. I frequently don’t get the chance to get back it, but I collect option premiums so I live with it.

So if you are worried about a correction, how do you protect the gains that have not reached the 20% threshold? This is where stop orders and options can come in handy. Let’s talk about stop orders first. Stop orders are orders that are triggered when a stock moves past a specific price point. Beyond that price point, stop orders are converted into market orders. You can put stop orders in for free on any stocks you own, but be careful. A stock can drop for any number of reasons, like a bit of bad press, and you may find your stop ordered was triggered, your stock was sold, and then it rebounded even higher. This can happen with volatile stocks like Moderna (MRNA). I only use stop orders on stocks where my remaining gains are in excess of 50% or more, and then I use trailing stop orders. These are stop orders where you set a percentage rather than a price where you will trigger a sale of your stock, usually at a 5% or 10% drop from the high point where it was trading that day. Obviously if your stock continues to rise, the price where your stop order is triggered rises with it. It lets you capture future gains in the stock.

I use stop orders very cautiously. I only have about two stop orders on the over 40 stocks I own. Volatility is the part of the market and I have had stop orders triggered only to regret selling when the stock rebounds and continues to shoot up. Mind you, as I only use stop orders on stocks where I have big gains, I usually console myself with that gain. But it is frustrating to see it continue to go up. There are other reasons I use for stop orders (stop losses they should be called) but I will save that discussion for another day.

My preferred way to protect stocks is using options. The simplest way is to buy a put option. Purchasing a put contract allows you to sell your stock to the seller at the strike price you have both agreed on. You will pay for the option, but you will have peace of mind that you will protect your profit on a particular stock in the event of a large downturn. Premiums for put options vary tremendously depending on the strike price and duration or the contract. You may want to save buying put options for those stocks where you have the biggest gains. You can frequently buy puts that cost less than 1% of the current stock price, particularly when market volatility is low, so it can be inexpensive to buy that peace of mind. If you do buy puts, go long duration (say three months at least) so you do not have to constantly check them. Plain old stop orders expire, so if you go that route you have keep them current.

Another way I use options to protect myself, is to sell calls. Selling calls helps in two ways. First, if I set the call strike price at a level that equates to a 20% gain, it forces me to sell, i.e, trim my gains, as I go along. Second, I write calls on almost all my positions, closing them when they are profitable to make a little extra money on my positions. If there is large sudden downturn, I can buy these call contracts back for far less than I sold them. This profit helps offset the sting of losses on my positions. Since I rarely if ever sell into a downturn, having these calls in place helps.

Market Today: Quiet day, slightly new highs for Nasdaq and S&P but the Dow faltered a little. Earnings season will finish up this week. Earnings create volatility so I usually make more on my options during earning season. My focus today was on Zoom (ZM), a stock I do not own yet but soon will due to a put I wrote over a month ago. I can write calls on it as it is very likely I will be put. (Some thing beginners should not do unless they own the stock). The company reported earnings today and it fell over 11% in after hours trading. It will make my call very profitable in the morning, and I am hopeful it will recover throughout the day as both earnings and revenue beat expectations. I will take a loss on ZM when I am put, but the money I have writing options on it will more than offset the loss and I will continue to write calls on it.

Fed Theater

As there were no further attacks in Afghanistan, the market’s attention on Friday turned to the Federal Reserve meeting in Jackson Hole. Many people are confused as to why the Fed matters so much to the market. There are two reasons. First the Fed controls, in large part, the degree of monetary liquidity in the market. i.e. how much money is available to lend, invest, trade, etc. Second, it’s dictates interest rates in the market as the ‘Feds Fund Rate” (the interest rate depository institutions like banks charge each other for overnight loans of funds) is the benchmark most financial institutions use in setting their own interest rates. A decrease in liquidity or an increase in interest rates will have a chilling effect on the market. Higher interest means it cost more to borrow (think mortgages and other big ticket items like farm equipment) and as a result people have less to spend and it slows a consumer economy like ours. Higher interest rates also tend to hit the stock prices of tech companies harder as analysts, who frequently use a valuation method called discounted cash flow to value tech companies, have to use the higher interest rate in their formulas. This interest rates sits in the denominator of the formula, so the bigger the number the lower the valuation the calculation spits out. Tech companies end up looking less valuable and their stock prices fall.

But lower liquidity and higher interest rates are not all bad. Less liquidity generally means less stupid money funding companies selling little more than promises. Higher interest rates help older people depending on interest for income in retirement. In my lifetime, I remember my first mortgage was at 8%, and I thought I had gotten a great rate. We expected returns on our investments would be an easy 8-10% (interest on savings accounts and bonds), which encouraged us to save. It was easy to imagine accumulating enough savings to live comfortably in retirement. Now, with savings accounts generally paying less than 2%, no one can expect to retire unless you have saved millions. Social security is not intended to cover all your expenses in retirement so investing in the stock market, which is riskier, has become essential for retirees. The choice for older people, is to delay retirement indefinitely while scrambling to find relatively safer market investments. A rise in interest rates could mean a major shift in the anxiety older Americans feel about retirement.

The Fed clearly understands it role in balancing these competing forces. Unfortunately, it has not always been great at telegraphing its position. In 2013 the Fed suddenly announced a major policy change. It was not well communicated. It announced it was going to reduce the quantitative easing that it had put in place to deal with the 2008 financial crisis. Pundits made it sound like the world might end and the stock market quickly dropped 5.6%. This drop is what people call the taper tantrum, but mind you a drop of 5.6% does not even qualify as a correction (10%). And you rarely hear that the stock market then rose 18% for the remainder of the year.

This current Fed is offering a master class in communication. The day before the Jerome Powell’s speech (he is the Fed chair), other members of the committee came out on camera to say they are ready to start easing, now. The market started sobering up and began to sag. Next day, Powell made his speech saying that they would not be starting easing immediately but were now looking at it. Market rallied as it appears tapering was not imminent. This constant Fed speak is prepping the market admirably. Given all the back and forth talk and all the opposing opinions taking up on-air discussion, by the time easing actually starts, it will probably be a sigh of relief that we have quit talking about it and are actually doing it. I don’t see how a taper tantrum is likely as the market seems to have been told it is coming in a thousand ways. Most people view tapering (decreasing the amount of money released into the market and eventually increasing interest rates) as a statement on the improving health of the American economy. An economy with higher interest rates is a strong economy. So for me, bring on the tapering, and give me a some safe investments with solid 6% returns!

Market Today: The market recovered from Thursday’s nervousness over Afghanistan and the Fed tapering talk (three Fed speakers all sounded like it was imminent). The rally meant I could close a lot of puts. Given MRNA was down, I wrote two sets of puts, closing one before the day ended, hoping the other will close on Monday. Normally Friday afternoons the market lags and I can use the last 30 minutes to write a puts for Monday. Today it was up into the close, so I only wrote a few small ones, and wrote calls for my retirement account holdings. (I only write calls in our IRAs, I save put writing for my investment account). There have been 10 inter-day highs in the stock market so far in August. This is almost unheard of. August, September and October are historically volatile months, and over the years there have been a lot of corrections (10% drop), and some crashes (20% drop) in these months. I am being cautious and have about 20% of my investment account in cash so I can buy if the bottom falls out. I have a shopping list ready.

Black swans

A black swan event in an unpredictable or unforeseen crisis that causes extreme consequences. The possibility of such an event is a major market risk. Today’s attack in Afghanistan was potentially such an event. I say potentially because in a bygone era, the death of so many people, our servicemen in particular, would have raised alarm bells and the market would have sold off significantly. Today, there was less than a 1% drop, and it was not clear how much of that may simply be due to worry over Jackson Hole and Powell’s speech tomorrow morning as regards tapering. It seems like the market, like so many of us, have almost become indifferent to tragedy and violence. It is almost sad to see the market reaction be so muted. On September 11th, 2008 the market (when it opened) was down over 20%. Given today was only the first day, it may drop more, depending on how Biden reacts to the crisis. Just an example of how political, as well as economic, events can have a significant impact on the stock market.

A true black swan event is generally a buying opportunity, hard as it can be to wade into the market when there is so much uncertainty. It is a matter of faith and trust that things will get eventually get better. The market has almost always generously rewarded people that can look beyond the event itself. Just letting you know so if this gets worse, you may want to think about buying.

Market Today: It was a slow day as the market opened down. I did have a Salesforce (CRM) put that I closed profitably. They reported earnings after the market closed last night so I wrote a put before they reported. When they stock popped on good earnings news, the premium for the put dropped and I made money. I write a lot of earnings specific puts during earning season. However, I only do this when I am pretty sure it will be a good report. I also thought Coty would have good report, but I generally only gamble on one or two stocks before earnings (Coty popped even more so I might have done even better). To see who is reporting earning on any give day, check out https://www.nasdaq.com/market-activity/earnings. Given the market sold off in the afternoon on the Afghan news, I only did about half the trades I did yesterday and in the afternoon closed mostly calls rather than puts. Waiting to see whether the down swing continues tomorrow.

How do I start?

I have taught a number of people how to invest and trade options. Today someone asked me how I approach teaching something so complicated. Easy - start simple. I began this blog reminding people that you should not start any type of investing until you have an emergency fund fully funded (six months of living expenses). That is simple step number one. Simple step number two is to set up a Roth IRA (in addition to your employer’s sponsored retirement program which I strongly recommend you contribute the maximum to). If you trade in an IRA you can invest and trade tax free. Taxes can eat up a lot of your returns so you need to be tax aware when it comes to investing. The more you can trade within tax free retirement accounts, the better.

Setting up a Roth IRA or any type of investment fund is easy. You can usually do it on-line. If you are new to investing, it is better to go with a large established firm with a full suite of financial products, e.g IRAs, investment accounts, HSA accounts, etc. Larger firms have a large range of educational tools to help you learn about the market and investing. Their tutorials can be very helpful. They also give you access to analyst reports which are essential learning tools. I do have favorite sites but this blog is not about pushing products, so do your own research and pick the platform that makes the most sense to you. Look for firms that have low or no fees for trades - but sites that offer ‘free trades’ are not necessarily the best. You end up paying for trades one way or another. And educational resources are important for beginners.

If you are looking to also trade options as a means to enhance your returns, you need to learn the basics and the best way is by doing. Make sure the platform you chose to trade on allows you to trade options. It should require you to do some critical paperwork and should limit what you can do initially (eg no ‘selling short’). If it does not have these guard rails, I would hesitate to use the site. Being able to trade options without experience and no guard rails can be dangerous, you can lose a lot of money quickly if you do not know what you are doing.

I began trading options after I had accumulated some stocks. The first type of option contracts I wrote were covered calls. I was frustrated to learn that each option contract represented 100 shares of a stock. It was very limiting. I only had a few holdings of 100 shares or more. I decided I would try options using my Pfizer and AT&T shares. These solid dividend paying stocks formed the bulk of my portfolio. I was very conservative when I started investing and wanted well known companies that paid a dividend, so I did not have any of the growth stocks that I now own.

My first option contracts were call contracts. These contracts stated I would sell my AT&T and Pfizer for a strike price that I set 20% above where they were currently trading. I chose an expiration date in the upcoming month. The premiums I was paid for these contacts were just pennies. The money appeared in my account the minute I sold the contract, but it showed in my account as a negative value. It looked like I had lost money. It took me a while to get used to the fact that the account appeared negative because, while I had the cash in my account, the contract was a liability until it was closed. Since options contracts trade just like stocks, the price of the contract fluctuated day to day, hour to hour. Sometime it was positive, sometimes negative.

Options contacts generally expire on the third Thursday of every month. Both of my initial contracts expired on that day with the stock trading well below the strike price. I made a little money. I was thrilled. It was like free money. I was hooked. Investing suddenly became a lot more interesting.

The Market Today: It was up again, closed at new highs. Last week’s 2% correction is forgotten. I, however, am uneasy about the Fed meeting this week and the taper talk that may come out of it, could swing the market a lot. My best trades today were calls for my BABA holdings, I was in and out 4 times and made a tidy sum (mind you, I have a huge loss on BABA I am trying to make up). Was also in and out of MRNA, NVDA puts today. Today was all about trading, not investing, but everything I bought last week to hold is up nicely. Wrote a lot of calls. A total of 28 trades today, a lot for me but making up for last week.

A little good news goes a long way

So last weeks gradual sell-off was arrested today by good news on the Pfizer vaccine getting FDA approval (which should allow organizations to mandate it). The hope is that by getting more people vaccinated we may be closer to getting the world back to normal. The market was up and everyone seemed relieved, but it is not all clear by any measure. We have the Jackson Hole symposium later this week (where central bankers could detail tapering plans) and that could swing the market strongly one way or the other.

Market rebounds like today, however, soothe me. On days the market is down, I sell put contracts. When we have a string of them in a row, with no up days, it means I accumulate a lot of them. Given the uncertainty of the last week, I was careful and only wrote a couple of contracts each day on the stocks I want to own. But if there are no days when the market is up, I generally can’t ‘buy to close’ any of these contracts as they generally become more negative as the market slides. Sometimes, it reaches a point where I have so many open contracts, most or all of which are negative, I have to stop writing them. While my trading platform limits how many contracts I can have open at any one time, I always like to have considerably less. By Friday of last week I was approaching my limits. When the market swings up though, I often find a good many of these contracts turn positive. I closed well over half of my outstanding contracts today and made more money today that I did all of last week.

The lesson here is patient and faith. It is hard to watch the value of your investments fall. But there is not reason to panic, the stock market generally comes back. You have to view market pullbacks as opportunities. You need to have a plan and stick to it. It is hard to trade or invest when the market is a falling, but it can be profitable. I made money on the options I wrote into last week’s falling market, the dividend stocks I bought and even on the speculative stock I am playing with. It may be erased tomorrow, but today I feel good about gritting my teeth and buying last week as the storm clouds gathered.

Picking up speed

The market downturn is taking hold. While the S&P and Nasdaq indexes eked out gains after a mostly down day, the DOW was negative. The mood is very much wait and see. August is generally a tough month for the market even in good years. People are on vacation, so there is less trading going on and lower volumes can accentuate changes. Add in the fact that there are concerns about the Fed easing earlier and pontiffs talking about being at a peak in terms of company earnings. Underlying these market forces, we also have rising Covid cases has everyone depressed as it appears to be dampening the economic expansion we were all counting on. The international picture is also cloudy; China regulators are gutting the China trade, Europe is still struggling to open up, and the debacle in Afghanistan is grim. Given the earnings season is pretty much behind us, there is simply no good news to lift the market, no clear positive catalyst anyone can see.

I did trade. I bought three dividend paying stocks with cash that had accumulated in my retirement accounts. Oil and gas and healthcare (down today) stocks which all have dividends of over 5%. Small purchases. Investments.

I did make money on my Nvidia put as I had hoped. Closed it too early though, could have made a lot more if I have been patient. Closed a couple others I had opened during the day but most of what I closed today were calls I had sold a while back. When you are closing calls you know the market is dropping.

Sold a range of puts. Pushed the expiration dates out a couple months to give them more time to work. All were on stocks I would like to own; Exxon (XOM), Tapestry (TPR), Moderna (MRNA), Dow (DOW) and a gold EFT (GLD). Hoping a couple come good tomorrow.

Hope the week ends better. As of today, heading for a down week which has been a rarity this year.

More of the same

So the market was down again today. It’s earning season, that is the couple weeks every quarter when companies report their earnings. Most of the earnings were good, but the companies forward projections were murky. As a result, it did not really help the market or participants’ moods. Compounding the negativity was the release of The Federal Reserve minutes. The Fed meets formally eight times a year and minutes from these meetings are released three weeks later. Everyone pays attention to these minutes. Today it appears they were suggesting that the ‘Fed’ may begin to ‘taper’ soon (ie reverse the quantitative easing that was stimulating the economy and leaving it awash in cheap money). The market waffled on this news, until it took a decided turn for the worse. I don’t like the negativity. Feels like the market is talking itself into a slump. As a result, I am being cautious, not trading much. I do, however, have a shopping list of stocks I would buy if the market falls a lot and they go on sale.

When I feel like I should not be trading, I look instead to fine tune my investments (the stocks that form the backbone of our portfolio, the stocks I will hold for years). I check that I still like my picks, and decide whether I should trim these holdings (because they have grown too large in my portfolio or I have a lot of profit I don’t want to lose) or plan to buy more if the market drops. I check on the stocks I have on my shopping list to make sure I still like them, and confirm what price I am willing to pay for them. Given my cautious mood, I currently have about 15% of my portfolio in cash. I want to be ready to buy if things get ugly.

On days like today when I don’t trade a lot, I also garden and do laundry. I may even play hooky, read a book or something fun. I don’t like to let market slides get to me.

As an update, the speculative stock I bought yesterday was up slightly. It was negative when the day began but turned positive too quickly for me to buy more. If I get a gain of over 20% in the next month or so on this stock, I will probably sell it. A lot of people hang onto winners but when I am buying speculative stocks for a trade (some thing I am only going to hold a couple months) I tend to take my profits and run.

The NVIDIA puts I wrote yesterday were mixed. I made some quick money on one set when the market initially was up at the open. It then turned down and my other contracts went negative. There were a couple times I was slightly positive on the contracts but I decided to wait. NVIDIA was going to report earnings after the market close and I was hopeful that it would be a good report and there would be a positive reaction. Results were good and it is up over 3% in after-hours trading, so now I am eager to see what the contract value will be when the market opens at 9:30 tomorrow. I will likely close it in the first 5 or 10 minutes of the day at a nice profit. But if the market opens down, so could NVIDIA despite the good earnings. There is a bit of luck at play here.

I did manage to sell a couple calls on holdings I have, closed most of them before the day was done. Not making a lot but every little bit helps.

I had sold a put on Home Depot (HD) yesterday when it tanked on earnings. I often write puts on good companies that sell off on their earnings as the market often over-reacts to news. My strike price is well below where if traded to. The stock frequently pops the following day when people realize the market over-reacted. Even on down days, this strategy can work. And it did. Which gave me a little more profit.

Small profits can add up. I prefer to take what I can and then play again another day.

Down Days

The market was down today, again. It has trended down for the last couple of days and there is a lot of hand wringing going on when you listen to the pundits and economists. After weeks of record closes, today the sky was falling. All day I heard was; it’s only downhill from here, it was to be expected, batten down the hatches, lookout below. Sigh. Markets do go down, sometimes a lot and sometimes it drags on long enough to make people doubt it will ever recover. But so far it always has. Recently it has recovered quicker than normal, in part because there is a lot of money on the sidelines that is waiting for a chance to get in. The market has been so high lately that it has been foolish to jump into most stocks. But in the last couple years, if people have ‘bought the dip’ in the market, they have done very well.

The S&P 500 index is still up 20% for the year to day, even with the recent pullbacks. So far, 2021 is a good year. It could drop 10% and it would still be a good year. Do not freak out. Personally I lost about .5% of my portfolio’s value today. Always frustrating to see it fall in value, but as long as it drops less than the market, I figure I’m doing something right.

I did not trade much today. I bought one speculative stock I had my eye on, but only 1/3 of the position I would eventually like to have. I will buy more if it drops more.

I did sell a number of NVIDIA puts (NVDA) with the hope of closing them tomorrow at a profit (markets often stage a bit of a comeback after a couple day drop) but I wrote them at a strike price well below where it traded today so I have time to see if it comes good. I don’t currently own NVIDIA but I would like to. I just find it expensive now and would like better at a price 20% below where it is trading today. When I sell puts, it is generally because I am trying to build a position.

I could not sell any calls, none of my holdings were up enough on this down day. If I write them when the stocks are down, I risk losing them if the market turns positive quickly. I will wait. I did manage to close call contracts on DR Horton (DHI) and Chargepoint (CHPT). Look them up on Yahoo Finance to see what each does. I bought both this year and the dividends are small or non-existent. While I have a bias toward dividend paying stocks, I try and make sure I have sold calls on those that don’t just to have money to make if the market, or the stock, goes down. Again, I set the call strike price at least 20% above what I paid, so if I do get called out, I have a tidy profit. So far this year I have made about 2.2% return on my calls on my DHI holdings (I also have a 12% return on the stock itself) and a 5% return on CHPT (which I currently have a 8% loss on). I expect both stocks will be profitable but the sale of calls makes me money while I wait. I make more on CHPT calls because it is more volatile, so its option premiums are little larger and I can trade in and out of the calls more frequently.

I will let you know how the NVIDIA puts do tomorrow…

Day to Day

Someone liked my recommendation to watch Cramer and asked what else they could do to get familiar with the market. There are lots of ways, but let’s start the basics. Every morning I start my day by looking at CNBC to check the pre-market (I have their app on my phone). Many people may not realize this but the stock market trades outside of its opening hours. The professional traders who make up most of the participants in these out-of-hours trading set the market’s opening levels. Mind you, the pre-market does not reflect what the market will actually do that day. It just gives you and indication of whether the market will open up or down.

If the market is slated to open way up or way down (over a 1% point swing either way on the indexes), I make sure to be at my desk at 9:30 and have my trading page open and ready to go. Often I can take advantage of a big swing in the open to open or close option contracts. Or, better still, buy a stock that has had a hit due to a weak earnings report or bad news. If the hit looks an over-reaction to news (and over-reactions are common) it can be a buying opportunity.

Before I sit down though, I have my first cup of coffee and scan the Wall Street Journal before the market opens. I get the actual newspaper (old fashioned but very satisfying) and check to see if there is any news on companies I own or would like to own. It this instant news world, most of what is in the paper version of the WSJ is old news by the time I get to it but the in-depth articles help if I am trying to really understand something (like Bitcoin).

Once the market opens, I am at my desk and very busy for the first half hour. I frequently make 80% of my daily trading profits before 10am. Then I get more coffee and start taking care of other things; laundry, gardening or general housekeeping stuff. If the market is volatile, I may sit and actually watch my account and CNBC. I try to be nimble, I may open and close the same trade a couple times a day. If the market is flat, I may go out and run errands. Today the market is moving up and down so I am watching. Surprisingly, Robinhood stock is up 35% (it went public last week - which means it offered some of its stock on the Nasdaq exchange for the first time). Because it is a ‘buzzy’ stock, people are scrambling to talk about it on CNBC. There was also some jobs data that disappointed but business inventory info that was positive. There was a big real estate deal. So market is all over the place and I am looking for opportunities. I will watch today.

Learning about the stock market

I was finishing up some numbers on the trades I had done today when Jim Cramer’s show, Mad Money, came on my CNBC feed. I don’t really watch his show much anymore but I did when I was just starting out. I would recommend it to anyone who is new to the stock market. Jim Cramer is a legend on Wall Street. He is a former hedge fund manager and co-founder of TheStreet.com. He is affable, smart and committed to making the market accessible to people. You will learn a lot of the basics, especially vocabulary and market mechanics, if you watch him regularly. The show airs every night at 6pm on CNBC.

Mr Cramer knows more about the market than most people will learn in a lifetime, and he loves to share his insights. His show is colorful and fun. Jim has had a long career on Wall Street. He has worked a well known investment bank (Goldman Sachs) and besides his current show he has side gig as a CNBC correspondent. He also still manages a charitable investment trust and works with TheStreet.com. He has also written a number of great books about investing (Get Rich Carefully is a favorite of mine) and just generally lives and breathes the market.

True, he has come under some criticism for his outlandish behavior on his show (he has buzzers and sound effects and will dress up to make a point) but he does so with a purpose. He understands the stock market can be intimidating to newbies and he wants to demystify it. Yes, he does tend to fawn on his CEO guests, but he would not coax as many onto his show if he wasn't so positive. He does get behind some stocks that don’t work out, but to his credit he admits his mistakes. In doing so, he reminds us that mistakes are part of investing - no one gets every trade right (don’t remind me about Ali Baba). But learning when to admit a mistake, when and how to take a loss (“Your first loss is your best loss”) and then moving on is part of the process of learning to invest. You just have to get more right than wrong. It’s like life.