Q and A with Ben – Stocks

Q: I’m reading through the stock thread again… interesting point about swing trading being about reading into the soul of a company.

Check out the stock (CAT)… its solid and went from $25 I believe 2 years ago to $110… oil and gas industry. All the disasters I’m sure aided with the buyup of construction equipment and I’m sure we’ll be seeing more of that for quite a while.

I know some people who work at Caterpillar and they have mentioned they have been very busy recently and will be so for a while. It seems like they are a business that is growing fast.

but I wanna learn how to do that, read into a company and the market in general… get a feel from the news and whats going on in the world.

Smart old timers at my work are saying oil is still going to go up alot in price… Before this job a few months ago I was an unpaid intern for a startup solar/energy efficiency company… it was interesting looking into that industry and seeing what its about. As a mechanical engineer I’m a firm believer in renewable energies and hope to work with them more, but I’ve heard from people on the inside of the solar industry that its going really slow. You’d think it would be a miracle market full of growth, but it has the aura of being overhyped / stagnant.

Everyone keeps saying we’ll run out of oil, so maybe in the future it will actually take off like crazy. But with the rate of advance of technology, who knows what they might come up with in 1, 2, 5 years?

A: There’s a difference between what’s told and what really happens. All of that is speculation until it’s in written contract. People have been speculating about green energy for the last 10 years. It’s not going to become a reality for a long long time, I give it at least 20 more years before any of what’s being promised – regarding green/renewable energy – goes into practice.

The prospect of renewable/green energy outshining oil/coal is a pipe dream. As long as there is oil, it will not be replaced by renewable energy. The technology for renewable/green/solar energy has already been invented. It just won’t be released until the oil runs out. People say “we’re addicted to oil so much that we won’t know what to do when it runs out”…that’s bullshit, Al Gore knows what’s bullshit, 99% of environmentalists at the elitist level know that’s BS. The government already has this figured out. When the oil runs out there’s going to be some “break through” source/invention coming out related to this to save the day. It’s how it’s been all throughout history. Even though option 1 is more effective/efficient than option 2…option 1 won’t replace option 2 until option 2 has been tapped out b/c option 2 is in the meantime more profitable than option 1. I wouldn’t hold my breath on renewable energy. 3-4 years ago when everyone was raving about it in the stock market, I called BS and I know people who regret going into that industry with their money…pretty much anyone who put money into it never saw any returns. If you’re after money, I’d say steer clear of it.

“Everyone keeps saying we’ll run out of oil, so maybe in the future it will actually take off like crazy. But with the rate of advance of technology, who knows what they might come up with in 1, 2, 5 years?”

-It’s been came up with, it just won’t be released until the oil runs out. Oil isn’t running out for a long time.

As far as reading the markets goes, it’s a matter of work ethic and repetition. If you read the reports every day and follow certain stocks every day, you’ll start to pick up the trends…you’ll start to develop this unexplainable skill where you can filter substance from hype effortlessly. It takes a few hours a day for a few years but it’s worth it.

I would say, if I was born 5 years earlier and had an extra $50,000 in 2006, I would today be a millionaire. I’m getting there as it is now but the worst part of this job is that you have to learn to put missed opportunities aside and forget about the “what if”. Some guys will say “what if I talked to that girl, maybe I’d be getting laid this moment”. For me it’s more difficult because to me it’s “if I had only held onto those shares an extra 4 months, I’d have an extra $15,000” or “if I had been born earlier, which means I’d be studying this material earlier, I would have had a job and saved up more for 2006 – 2009…I’d be a millionaire with the decisions I’d have made”. And it’s not something you can be content with always. Once you start pulling in dollars, you’re hooked

“Ps – another thing I heard was that banks were hiring alot of new people or training their employees on forclosures – that the number of forclosures is down but will spike again soon”

Again, that’s just hype and speculation. We don’t really know why they’re doing that, do we? That’s not to say that foreclosures won’t spike again, they probably will. But the face value of that information isn’t very high. You’d have to look at the reports, hear all the sides out before making a decision related to that. The biggest mistake that people make with the stock market and probably the biggest reason they lose money is because they go based on theoretical rumors and not clear cut facts. Even if there’s a report stating that the banks hired X number of employees in the last few months, we’d have to know the reason why or have reasonable cause to believe it’s related to foreclosures.

Q: I hear you on the speculation thing… The bank thing was speculation as to why the bank employees were being hired, but I’ve seen the charts in meetings of contracts that have been signed for… Takes a few months before the work comes in to us, which will be near the end of the year.

Cat is such an expensive stock it doesn’t really matter I suppose, but I wanna see how this works from the inside and see if I can get a feel for it.

I started paper trading… Been looking at the stocks mentioned in the stock thread. I’m gonna try to stick to one or two industries and look for losers and winners within them, probably one of them being the oil industry.

I’m assuming when you say look at the reports you mean the quarterly reports they put out… I’m just gonna google those for now and start reading up on em.

Do you listen to the news btw for market info? If so, what network? I’m assuming you just get all your info from google and maybe newspapers, that’s what I’m doing atm for research.

A: Cat is one of those companies (heavy industry) that’s very vulnerable. I tend to stay away from these companies because there’s many variables that decide the outcome: price of oil, real estate, political issues, environmental issues, list goes on…more variables than I care to keep track of. What happens when the mines become shallow or when the number of houses built exceeds the market capacity? Cat gets kicked in the crotch. The auto industry is different – there will always be a need for new cars, especially as the population grows.

Paper trading is good, the more the better. Choose 2 – 3 industries to specialize in. The less industries you follow, the more effective b/c you’ll be able to focus more of your effort into per industry.

I would advise that you not listen to any mainstream media on info related to the stock market. They tend to be way off with their predictions and usually have an underlying agenda. I know some people follow that Cramer guy or whatever…If 20 – 30 million people have access to his advice daily, it can’t be worth much. It’s proven to not be worth much; you only get lukewarm results when everyone acts in unison. The biggest gains I’ve made is when everyone was saying “no don’t buy that company”.

75% of my moves come from independent research; reading the charts and researching news reports that came out around specific times. For example, if I’m looking at company XYZ and I see a significant boom at XYZ time, I’m gonna use google news and find out what it is that caused that outcome. I’ll memorize that outcome and use it in the future so when that event reoccurs, I’ll be a step ahead of everyone else. The more you research and study this material, the more effective you become at it. This is the “art” side of trading.

You can also take a mathematical approach to it (what I’m about to talk about is the science side), which accounts for about 25% of my moves. For example, if some pharma company is worth $15/share and it gets one of it’s new drugs rejected by the FDA, you can expect its stock value to drop 50 – 80 percent the next day, literally. 99% of the time this is a result of overselling. It’s expected that they lose money but most of the time frightened investors oversell. So when this happens, the next day I pick up as many shares as I can afford and gain 20 – 30 percent off the dead cat bounce (the result of overselling is growth the following day). I’ll immediately sell my shares back after I’ve met my anticipated quota the following day.

This is also good to implement whenever bad PR occurs at some company. When BP had their oil spill, I knew the next day that I would buy their stock sometime down the future when it levels out. They bottomed out in the 20s, now they’re in the 40s. That’s an example of how you can double your investment in less than a year. And it’s common sense that they won’t fail b/c of some oil spill. It’s a multi nation corporation.

There are many strategies and techniques that can be used. The key is to use your gut and study as much as possible. Others have done it, if it interests you, you can live off of this. It still amazes me, I’ve made 1000s of dollars in a single day in the past working on a $10,000 investment. Of course this isn’t a regular occurrence but it gives you a taste of the potential of this field of work. I made close to $200,000 in less than 18 months off of Ford and that started with $15,000…in the time I made that money, I was literally sitting on my ass while someone else got up in the morning at 6AM and slaved away for 8 – 10 hours to some supervisor in order to accomplish the same or less. Someone out there is going to school for 10 years to be a doctor to make this kind of money whereas you can accomplish it at a fraction of the time. It does take hard work and nothing is guaranteed in this industry. But if you do it right, if you go where few people go, you can effectively turn the stock market into a perpetual money machine.

Q:

Wow man, yea that is impressive… 200k in 18 months. Must be a crazy feeling, especially if your in your early 20s.

Your right about cat… Way too many variables. I started looking into daewoo and doosan which owns daewoo, since I was trying to research the Asian market a bit… It just looks like the Asian version of cat… Way too many variables

What I meant though was… You get some of your info from the news right? I mean to know about the auto industry crashing and the failing economy, you probably watch the news every once in a while to see what’s going on in general right? I was wondering if you watched a network in specific. Maybe you consider the wall street journal and al jazeera good information sources, but not CNN
A: “Wow man, yea that is impressive… 200k in 18 months. Must be a crazy feeling, especially if your in your early 20s.”

I want to say that it’s an extreme example and I doubt that any time in my lifetime will I witness those market conditions. Like I said in my earlier messages, if I had been born a little earlier so I could have had a little more capital in 2007, I would be a millionaire today. Those market conditions in 2007 – 2009 allowed smart investors to make 500% – 1000% yield on their investments effortlessly in a years time. I know guys who had more investment capital within my network that averaged $40,000 per quarter for the year 2009 off investments that started with $20K-$30K. They were making a neurosurgeons salary sitting on their asses and they weren’t paying as many taxes either.

But like I said that was an extreme period in history. If it repeated itself tomorrow, I would probably get a heart attack from euphoria.

Money is fun to play with. It can give you a false sense of security that you have to watch out for, but it’s fun to play with. My experience with people who become consumed by it is…they get hooked on that feeling of security. When everyone leaves them, all they have is money and they try to get more and more thinking it’s gonna bring back that feeling of security and affection that they’re missing in their lives. People have a wrong impression of people who are after money. They think these people are just after it b/c their materialistic. From my experience, these people aren’t as materialistic as they are insecure, deep down. That and they need the feeling of immortality which money brings to some people.

The Asian version of Cat, if they have a separate IPO/ticker in the Asian market that’s independent of the one in the US, that would actually be a safer investment because there’s less variables in Asia than in the US + the Asian markets still expand at 10% annually so it’s a safe buck.

I don’t watch “the news”, hoping to hear something new. When I need information I look it up on Google or I hear it from word of mouth.

For example:

Google —> News —> “Economy” into search —> results
http://news.google.c…hl=en&q=economy

Or if I need news update on Micron Tech. between September and December 2010

Google —> News —> “Micron Technologies” —> sort by date —> archives —> custom range —-> Sept 1 to Dec 30 —> search
There you have it

I have literally 100s of articles/essays from dozens of sources that I can look over, judge, separate fact from fiction and act accordingly.

I’ll also use google to look up industries that way or breaking news. I prefer Google as opposed to sitting in front of the TV and listening to “selective news”. Mainstream networks don’t give you all of the news and when they give you some news they don’t give you the whole story. When you use online sources, you can find independent thought on the news from sources that aren’t influenced by their sponsors, which I can’t get from CNN or MSNBC or any TV program.

Q: Regarding investing, I’m slowly saving up money and hope in a few months to have 10k to be able to put into the stock market.

In the meanwhile I setup a IRA account with t rowe price, and have it set to auto deposit $50 per investment on the 1st of each month, and I have 4 investments set up… (New Asia, New Era (oil/gas/natural resources), New Latin America, and Large Cap Stocks). So my first $200 went in this month split up into those 4 investments.

Do you think that’s a good idea? I’m wondering whats the best way to deal with my money.

A: IRAs are always a safe route. As I said previously, the amount of risk you’re willing to take is what will decide how high your returns are. The amount of risk you wanna take, that’s personal preference. The question “is it a good idea”, that depends if you’re comfortable with the risk – benefit trade off you’re being offered, or not. That said, I wouldn’t advise anyone to enter a high risk investment unless they’re fully informed about what’s in the works and what’s at stake. IRAs are a low risk route but considering inflation, they’re also low return.

Q: I’ve read about the “bucket system” where you have a few ‘buckets’ of money, split into a high-risk investment bucket, mid risk investment bucket, low risk, and dream bucket (to save up for a boat, house, or something to buy in the way future).

I’m gonna start doing that… do you have any suggestions for that?

A: Yes, I’m familiar with this. This is how the banks handled their mortgages right before the housing crisis. It’s a pretty simple way to organize your investments. I tend to believe that money is more powerful when it’s in one bucket as opposed to being spread out. Most people will say that you have to diversify your portfolio. I tend to think that it depends on how much you’re comfortable risking. It’s always good to have a stash put aside for emergency reasons/retirement but on the flip side…If you were in my position a few years ago, this is how I viewed it:

“I want to make high profits. I don’t have 100s of thousands of dollars to put into several buckets, so I have to take what I have and invest it in something that’s gonna have high turnover, even at high risk. I have just $10K – $20K to work with and that’s not gonna be very profitable in a low risk, low returns investment. I’m more comfortable risking losing all of my money with the possibility of that doubling or tripling over the next year, than getting 2-3 percent annually for the next several years.”

The way I view investments, the stock market, life in general…If I have the capacity and means (as small as it may be) to make high profits at a high risk, I’m okay with that. I would not enter the stock market and put all of that time into it unless I felt that it could result in a change in lifestyle after a set amount of years (you create a goal). I can have $10,000 & it’s just $10,000, I can’t retire off of it. If I put it in a low risk investment it may become $15,000 in 3-4+ years. That’s still JUST $15,000, I can’t retire off of it, I can’t buy a house with it. It’s a good amount of money but it’s not a life changer. So I may as well put it in a high risk investment and open myself up to the possibility of turning $10,000 into $50,000 in 3-4 years. And when I get to my $50,000 I can start putting money towards safer investments. The closer I crawl towards 100K, the safer my investments get. And again, it depends on your goals.

Your risk has to correlate with your goals. My goal is to have $1,000,000 (cash/assets, w/o debt) by the time I’m 30. I anticipate that I’ll be halfway there sometime 18 – 20 months from now. The closer I get to that goal, the less risk I’ll be taking. Think of it as a risk pyramid. So if I started with $25,000 I thought “this is not a lot of money, I’ll take more risk”…So with 25K I put 100 units of risk and in 1 years that doubled to 50K. I got to 50K so I’m closer to my goal, I’ll put 80 units of risk. I put that much risk and in 1 years I got up to 75K. At 75K I’m even closer to my goal, I have a decent base to work off of, so I’ll put 60 units of risk and 1 year later I got to $100K…and the closer I get to my goal, the less risk I put into my investments. That’s how I like to think of risk. I’m pretty sure I didn’t come up with this…but pretty much the way I saw it is: the little money I have now isn’t going to be a life changer. My life won’t change if I lose all of it BUT (with enough practice and study) I can invest it properly and it MIGHT be a life changer 10 years down the road.

Q: I was also wondering about whether its worth it to start using benefits cards and take advantage of that… ie. use 1 credit card for everything and rack up miles, then get a free plane ticket every two or 3 years to somewhere.
I never spend more than I have in my account though btw… I hate having debt.

A: If you get a credit card, make sure to pay it off at the end of the month so you don’t lose money on interest. Customer patronage programs are definitely something to take advantage of.

Q: Thanks Ben. Yea Im not planning to start saving for retirement anytime soon… I’m young so I’ll take the risk.

Do you use benefits cards? Got any you could recommend?

A: I only use benefit cards for retail.

For example, for buying clothes I stick only to Macy’s and Bloomingdales. The more money you spend on your clothes at these two places, the more they reward you down the road. My entire family shops at Macy’s so we all buy on 1 card. Of course, everyone pays their own part but the rewards are really good because of the money volume we put into those 2 places. I get $100 gift cards every few months now from that place and I save a load b/c of their 1 day/2 day sales as well (card holders get extra perks when they have sales as opposed to regular shoppers). Prior to the winter holiday season we received 250 bucks from Macy’s as well + various 20% off coupons. I don’t spend a whole lot on clothes now, that’s mostly my sisters racking up those points now but you get the idea. For each category of product, stick to one company if you can.

If you ever need suits, apply for Jos A Bank (if they have this place near you) Corporate Program. Every now and then they have a 3 for 1 deal. So if you buy a suit for 500 or $800, you can get 2 more suits of equal or lesser value for free. Same goes for their blazers, shirts and ties.

I get most of my food from Sam’s Club. That’s a good card to have, you’ll save at least 50% off food from Sam’s than if you bought it at the supermarket. The only drawback is that it’s sold in large quantities, which I’m personally okay with b/c my food choices are restricted.

I haven’t done the credit card w/ miles yet so I can’t recommend one specifically.

A lot of money can be saved using these routes. What’s important is to have an efficiency and future centered way of thinking. What keeps me from splurging right now is thoughts of a future spent in a house that I own, with zero debt and financial comfort. If you live like everyone else and live for that quick high from going on a shopping spree/showing off (and buy into the consumer centered way of thinking that’s put into people from day one), that will prevent you from achieving greatness in the future.

A small increment can make a difference. If you take the average 24 year old with a $30,000 income (after taxes), chances are there’s at least $5,000 a year that they waste (window shopping, credit card fees, etc) that can be saved with a healthy adjustment in living habits. That $5,000 a year turns to $25K after 5 years of poor spending habits. $25K in just a safe investment can turn out to be a life changer when you’re in your 40s and 50s. So while it may seem small when you look at it by itself, over time it can turn out to be a big deal.

So keep saving and don’t force yourself into the stock market. If you don’t see good opportunities don’t invest. Like with women…don’t force yourself to look for women, let them come to you. That applies to every avenue in life.

My rants may seem excessive but I try to put out things that I’ve learned from others or experience that I’ve found to be useful. At the end of the day, the most important thing is to have a positive outlook on your future and to understand, in this nation, with even a mediocre income, you can still get by, save some money, and improve your condition over time.

Q: Just curious, did you sell your ford stock before the correction?

Are there any markets you recommend researching (and ones to keep away from)?

I’ve been thinking I should focus on gas and oil since I work in that industry, but it does seem very complex.

A: Yeah I cashed in on most my shares in January, February and some in March.

Gas and oil are a bit monolithic for my taste. It takes good connections and sources to do anything in that industry. A lot of variables. Since the variables span the entire globe and they’re intertwined, it’s something I prefer to steer clear from. Unless an opportunity comes around…like when PG&E had that series of fires in CA last year…good money can be made on corrections whenever there’s a natural disaster of any sort.

Now I’m dabbling more with pharmaceuticals…high risk, very high reward. And it’s relatively fair because, for the most part, it’s hard to inside trade with anything where the government is heavily involved. Not that I trust the government…I’m just saying it’s unlikely that there is someone in the government who’s on the inside with some low end pharma company. Lately there has been a surge in the growth of small, privately owned chemistry and pharmaceutical labs. This will be the future of chemistry and pharmacy. It’s become too expensive for one main lab to produce everything, so what they’re starting to do is outsource it. For example, one company produces polymer X, another polymer Y, another ingredient Z, etc. And then the main company buys the products from each small, individual company, (instead of making everything themselves) and puts the products together at the main lab. These small companies frequently come and go…that’s why it’s high risk, high reward. If they stay, then they’ll be making windfall profits in the future. For the larger pharmaceuticals (J&J, Merck, etc) it’s mostly about how their sales and marketing teams work. These companies rarely make big movements. If you wanna get into pharmaceuticals, look for the little guys. Early in that stocks thread I made mention of Bionovo and their menerba drug…the lesser known pharma companies make the biggest movements b/c they have the most to lose the most to gain. The big companies never make huge movements.

You can also look into foreign markets…East Asia. Those countries see 10% annual growth even in this economy. They’re at the stage that the US was in in the 80s…you can throw rust into the stock market and watch it turn into gold.

Q: Do you invest in East Asia?

I know you do alot of research and make informed decisions, but the pharma thing does sound pretty risky. So you pretty much roll the dice on that one? Not like with Ford when you were almost positive it was gonna go up?

I was trying to research into east asian stocks but I didn’t even know where to start. I agree its growing like crazy.

Foreign operations always work differently than American ones though… I feel like I’d have to live their to get a feeling for how things work and how to read whats really going on.

A: I haven’t invested in East Asia yet, but I’ll be making that move sometime before the end of the year. The best approach is to do it through a reputable east Asian full service stock brokerage firm or money manager. You put X amount of dollars into a mutual fund and let them work with your money. Now I know it may seem risky to do that, but it’s much easier and much more profitable than if you penetrated that market on your own. If these countries are having 10% growth overall…pretty much your money manager would have to intentionally pick the worst stocks in order for you to lose money. I wouldn’t join a mutual fund in the US as it is b/c I think I can do better on my own. But in the current Asian economy, it’s a waste of an opportunity.

Or you can do it through an American investment co. like T Rowe Price. They have their T Rowe Price New Asia Fund: http://www.google.co…ob&q=MUTF:PRASX
As you can see it’s had amazing growth over the last 10 years. It’s fully recovered from the 2008 economy crisis.

On the pharma, you roll the dice sometimes. Over time you pick up trends…it’s like anything else. You put your money into a company as it creates a new product, as the product goes through testing, the stock will grow…if the FDA approves of the product, the stock will easily go up 5X – 10X the previous value. And if it rejects the product, you lose everything or close to everything. From my POV, since these are usually penny stocks to begin with, you’re not losing a lot. If out of 5 tries you land 1 successful company, you’re still making a gain. These companies usually start off low and then: 1) either finish in the dumpster or 2) finish high…but typically they don’t last very long. It’s a volatile industry.

Q: Which do you think would be better, t Rowe price or a reputable east Asian firm?

A: The American firms take less risk and give you consistent gains.

The Asian firms know their market better and take more risks, giving you greater gains. I’d go Asian for radical growth.

Q: I have heard pretty bad inflation is going to hit soon… do you believe that?

A: Yes. Not to get into the whole conspiracy theories but there exists the possibility of hyperinflation in this country within our lifetime – Possibly intentional in order for the US to have a more realistic chance of repaying it’s trillions of dollars in debt. Stranger things have happened.

Q: At my job they match up to 6% of my paycheck for my 401k… so that’s how much I’ve been depositing every month.

I can pick what type of investments are in the 401k… they are pretty limited though. I couldn’t find a East Asia one… best one I could find was “International Equity Broad Index Fund”… which is like 40% Euro stocks, 30% Asia stocks (including Japan). Here’s the breakdown:

Morningstar World Regions % Fund
Americas 13.11
North America 7.60
Latin America 5.51
Greater Europe 48.58
United Kingdom 14.31
Europe Developed 29.10
Europe Emerging 2.37
Africa/Middle East 2.80
Greater Asia 38.30
Japan 14.76
Australasia 6.10
Asia Developed 9.09
Asia Emerging 8.95

All the other 10 or so choices were Large Cap, Small Cap, Low Risk, High Risk, etc… not much choice. There is also a “International Equity Fund” and a “Company Stock Fund”.

I’m thinking instead of putting $320 towards 401k each month I should maybe throwing as much as I can into East Asia Brokerage Firms or maybe buying gold… since if inflation hits that bad then my hard earned $$$ will be not so valuable anymore.

A: The International Equity Broad Index Fund (ticker: PIEQX) which you mentioned…Even if we don’t have something as extreme as hyperinflation, even if we stayed at the inflation levels of the last 3 years, any money that you make through PIEQX will be eaten up through inflation. They’ve only made a $1.00 movement since the middle of 2009 (less than 10% of its value). So literally, if you had put $5,000 into PIEQX in mid-2009, you would have barely made $500. This is child’s play, you may as well just keep your money in your savings account at the bank. Looking at its history, it hasn’t been very impressive. Even at it’s peak in 2007, it had only about 25% more value than it does right now.

To elaborate on the inflation issue:

It takes a while for currency injections to be felt. The Federal Reserve’s injected well over $2 trillion dollars over the course of 24 months (2007-2009). Only now in 2011 is it that the currency is finally being cycled into the system. This is what will result in the inflation. What makes it worse is that the government isn’t changing it’s spending habits or its view on monetary policy. So growing inflation is a definite, hyperinflation is possible.


Look into Micron Technology, Inc. (ticker: MU). I’m jumping on the MU bandwagon sometime in the next week. It looks like they will repeat the 3rd and 4th quarter cycle of 2010. In short, I will make 50% gains between July 5th and early December. Just watch the trend.

Q: which stock trading Company do you use? Ameritrade?

A: Any of the mainstream discount brokerages are good. I’ve used Ameritrade but I currently use Scottrade.

Q: Do you think I should be putting money into my 401k since my company matches up to 6%, or keep the ~300$ to myself and try to play it in the stock market?

A: If your company matches it, go for it…So long as you can opt out of it.

Q: If I can opt out? You mean if I can pull the money from my 401k? I can’t do that without massive penalties… I can pull it out when I’m 65. That does sound retarded when I think about it… But I’ve never heard anyone say otherwise.

I can stop putting money in whenever though.

A: I wasn’t sure what penalties were involved. If there are major penalties, then I would suggest staying away from it. Save for your retirement independently, on your own terms.

That said, follow MU closely. It’s up 4.7% just today. By Wednesday it will correct itself and probably go down to $7.40/share, which is when I’ll buy.

Q: I printed out a 2 yr graph of MU and was matching news reports with their positions on the graphs.

Its weird because for example in June 23 ’10 it was announced that the iPhone 4 would use Micron chips, and on June 29th ’10 a $500 mil gain was reported from their Numonyx aquisition, and sales were a bit better than the same time last year.. but the stock kept going down. From $10 on June 18th ’10 to $7.28 on July 30th. I don’t understand why it would go down.

It does look like the trend is repeating…

This year they’re talking about how their scared because it seems there is a softening demand for computers, but they were saying the exact same thing this time last year (June 29th).

Everything looks good except they reported a 2nd quarter earning of $75 million, down from $939 million the same quarter last year… but otherwise your right, looks like a repeating trend… I’m hoping it’ll go down a bit more tomorrow.

A: Sometimes what happens is…there can be a naturally developing pattern which traders realize and even though the trend doesn’t represent the company’s true value, it happens because it’s reoccurring. In other words, there could be 10,000 other traders looking at it right now and saying “it’s doing this for the 3rd, 4th year in a row, so I’ll act on the trend” not “well sales are down so I’ll avoid it”…I forget the exact term, but it’s when people act on the past, not logic.

Imagine you live in a row of homes, you’re living in the 8th home in the row. For an entire week, houses burn down 1 by 1 and on the 8th day you move out because you think your house is next. Whereas it’s possible that the previous 7 houses had irresponsible owners who left hot appliances on overnight. Well that’s what this could be. I can’t say it is, but it’s an important concept to memorize because it can help you in the future, especially if you decide to ever do speed trading.

It didn’t go down to 7.40 as I anticipated, but I did buy 4000 shares @ $7.50/share earlier. It should break 7.80 by the end of the week, maybe by the end of tomorrow. If it does that, I’ve demonstrated how to make $1,000 in 1-2 days.

The price I bought it for is way below it’s true value so profit is guaranteed – eventually. The worst case scenario is that it plummets and doesn’t recover for weeks or months. Regardless, you don’t lose money until you sell the stock. I’m comfortable with holding onto it until it recovers from a potential fall.

Q: I picked up MU @ $7.54 early on yesterday…

It was pretty nerve wrecking the first time… I realized you gotta take the emotions from it. I’m guessing a correction lasts a day because I saw it going down and bottoming out at 7.50 a few times during the day. How were you able to grab it at 7.50? How did you know it wouldn’t go down more?

I saw it go down to 7.48 at first then going up, I thought it was on a upward trend so I grabbed it quick like an hour or 2 after the market opened.

A: Yup just shut your emotions off and do. It’s up 3.5% so far @ 7.83, I’m gonna hold until it hits 7.90, otherwise, I will sell if it goes down to 7.80 again. If I sold right now, that means I made $1,000 in less than 24 hours. If you sold right now, you would have made over $200 in less than 24 hours. I’ll hold until it hopefully reaches 7.90, when that happens, it’s a $1,500 dollar day. Otherwise, I’ve made $1,000 regardless. Win – win. It’s that easy. Practice, bring your capital up. You’ll get it up to $100,000 and when that happens, it’s smooth sailing. Trade by trade, you get there. And then you have $200,000 in sight…before you know it…if it’s your goal, you’ll be handling 7 figures by the time you’re 30. Work for the money now and then you can make the money work for you.

Q: Your gonna sell at 7.90? I thought you were holding it till December?

A: When (if) it goes closer to it’s 52 week low of 6.50 is when I would buy for the long term. Right now, more can be earned on its 30-50 cent fluctuations than if you were to buy now and then just wait for December. It will peak in the 4th quarter as it did last December, but it hasn’t finished see sawing just yet. You can make gains working the see saw. I said I will make 50% gains between July and December, but not necessarily from one transaction. There’s no need to accept the buy and hold mentality with any transaction. If it see saws, why not flip it several times AND make long term gains?

Q: Damn I missed the 4pm close time. Looks like I gotta hold it to the next peak, after hours shows it’s going waay down.

How were you able to predict where it peaks and bottoms out? I was about to buy it at 7.89 but it only went up to 7.88, an I told myself either buy at 7.89 or sell at 7.80.

A: It’s a matter of looking at the range. Look at what it does in the last 1-2 weeks.

Here’s how to predict peaks and bottoms using the range:

– Look at the 1-2 week range. So for the last two weeks, what was the stock’s range? For MU it was 7.90 and 7.21; in the last 2 weeks it’s been trading between these two numbers. Unless there’s some extreme variable (merger, bankruptcy etc.), the stock will stay within that range for the current trading week.

– You don’t have to wait until it goes down to 7.21 to buy, you can wait until it gets cheap enough (“cheap enough” is determined by your goal/quota) that you will make a profit when it reaches its peak.

– So I decided to buy when MU nears 7.40, I settled for 7.50. My goal was to sell at 7.90 because that’s the 2 week peak. But I also set up a stop loss: once it passes 7.80 (once it hits 7.81 or 7.82), I will not let it go below 7.80, I will sell and take my 30 cents instead. How do I know that the stock won’t dip down to 7.21 after I buy it at 7.50? It’s a matter of going by feel…that hasn’t been the probable behavior in the past so it most likely won’t do that now. Short term, it’s not a very volatile stock. This trade is a balance of probability. You look at its behavior in the past and mentally feel out “what’s the probability that it will do XYZ” How did I know that it would go past 7.80?? That has been the trend for the last several months. It will dip a couple percent on one day and the vast majority of the time, the next day it recovers from that. Sometimes it doesn’t, but sometimes you’ll lose money too.

A: (July 11, 2011)