Buy and Hope - free download at Amazon.com today only

Hi All.  I just found out, Amazon is running a promotion, giving away FREE copies of my book Buy and Hope TODAY ONLY. 

Please download your own copy at Amazon.com and share this with your friends.

PLEASE PASS THIS ON TO YOUR FRIENDS

Regards,

Randall Mauro

Greater Than Data

www.randallMauro.com

Market Wrap - week ending 7/11/2014

We had an interesting week in the market.  Although we stayed fully invested, the smaller caps and leaders had a fairly tough week, yet the larger caps once again felt little pain.  I have to say that this week’s decline shouldn’t be surprising to anyone that follows the market religiously as we simply moved up a bit too fast over the past month and some steam needed to be let off.  Similar to a steam train, when pressure builds … it needs to be let out OR you’re going to have a nasty explosion … the pressure can’t continue to build forever (just as we can’t continue going straight up forever).  Of course, time will tell whether the current decline is a simple “pressure release” or something more dangerous. 

Personally I don’t like how aggressively the smaller caps and leading stocks broke down, yet with the rest of the market holding up and in particular watching technology stocks hold up stronger than the smaller shares … my fears are calmed a bit.   Yet, with this strong decline in the smaller issues, and such a divergence in the market I have a feeling we have more downside ahead of us, but for now our signals stay pointed to the north … fully invested with expectations of higher prices ahead. 

As I mentioned above, some decline is fine and quite honestly welcomed, so for now we stay invested and just watch and wait to see if the declines broaden (affecting more companies) or if it stays narrow (only affecting the riskier positions).

Hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Resnn Investments, LLC

On a personal note, if you haven’t had a chance to check out my book, please check out the “look inside” feature at Amazon here … http://www.amazon.com/gp/product/1499245823/ref=as_li_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=1499245823&linkCode=as2&tag=randmaur-20&linkId=NFV5VUZYKSLNVXMS

In this business, if you’re good, you’re right six times out of ten.

You don’t have to be right too often to outperform the markets.  In fact, the strategy introduced in our upcoming book, the one that doubled (almost tripled) a Buy and Hold approach has a win rate of only 47%!  That means it is wrong more than right.  How can that be??  How can you be wrong more than 50% of the time and double the return of the Nasdaq? 

“In this business, if you’re good, you’re right six times out of ten.  You’re never going to be right nine times out of ten.” – Peter Lynch

==
Below is an excerpt from my book, Buy and Hope '... how I beat the Pro's and doubled the Nasdaq spending only 1 minute a week and you can too'.  Check it out at Amazon, here
==

I list every trade in the appendix over the past 41 years, and what you will see is that when we are right (when the trade is acting well and making us money) … on average we stay in the trade for a long time.  We are in the market for over half the year on our most successful trades, and if you look at all our profitable trades, the average time in the market is 83 trading days (roughly 4 1/2 months).

But, what is most interesting is with our losing trades, while we have more of them, our average losing trade keeps us in the market only 17 trading days (less than 1 month).   Remember … In the stock market you need to leave your ego at the door,  because it doesn’t matter that you are right, just that you make money.  If you have trouble being wrong, then the stock market is not a place for you.  You need to leave your ego at the door.

It is okay to be wrong, it is not ok to stay wrong

Most full time and institutional traders consider a 50% win rate to be quite exceptional, and 60% is just unheard of.  In fact, I have some trading buddies that have less than a 30% success rate (they are wrong on their trades 70% of the time!!) yet they are wildly successful, because their rules get them in when the odds are in their favor and more importantly, protect them when they were wrong. 

How can you be right less than half the time and still make money?  If each winning trade earns more than each losing trade, you end up ahead of the game. 

Imagine if you went to Las Vegas and placed 10 bets.  Of those 10 bets, you had 9 losing bets where you bet $10.00 each time (a loss of $90.00), but on the final bet, you decided to risk everything and you put down a crisp $100.00 bill … and low and behold you won, doubling your bet of $100.00 (a profit of $100.00).  Although you only had a 10% win rate, you made $10.00 profit.

In our case, our average winning trade returned 12%, while our average losing trade only lost 2.8%.  So this means we technically can lose 4 times in a row to every one win and still make a little bit of money (2.8% x 4 = 11.4%, which is still less than 12%).  This means that technically we can have as low as a 25% win rate and still make money. 

 

This is imperative to understand and embrace … how often you are right is less important than how much damage is done when you are wrong.  Creating clear cut rules to protect your portfolio from downside risk is essential for long term success in the market.

Market Wrap - week ending 6/27/2014

Another productive week in the market.  In fact, I want to keep this report short since really not much has changed since last week.

We had two really strong “tests” this week with a negative reversal on Tuesday, where the market spent the morning in positive territory, then the rest of the day giving up all the gains and then some.  At the close it looked ominous, but the next day we completely reversed the downward move and closed at a new high.  The second test came yesterday with a strong decline in the morning and a complete intraday reversal to close near break-even.  Clearly there is support, as every time the market starts to break down, buyers come in and stabilize things.

For now, the market continues to act quite well.  In fact, it scares me a little that I have nothing to complain about J.  The market is shrugging off any bad news that comes out, and just steadily chugs higher … which obviously is wonderful for our pocket books.

More so, the rise we have seen over the past few weeks is the type I like to see, a very slow and steady move up with multiple days in between of consolidation.  When the market moves up too fast too quickly, things get out of whack, buyers dry up, and eventually the market needs to ‘reset’ or correct, but over the past few weeks the upward move has been very gradual, not euphoric, which is ideal.  Slow and steady wins the race, and for the stock market this type of slow movement usually means more upside to come.

For now, we stay fully invested with little cause for concern.

Hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Resnn Investments, LLC

On a personal note, if you haven’t had a chance to check out my book, please check out the “look inside” feature at Amazon here … 

Sometimes your best investments are the ones you don't make.

When the market is not healthy, you should not be invested, period.  For me, this was one of the hardest concepts to grasp in my early years.  In fact, as you will see with our trades in the appendix, using the strategy in this book, you will be out of the market almost 40% of the time.  Since 1973, this strategy has been in the market 62% of the time.

==
Below is an excerpt from my book, Buy and Hope '... how I beat the Pro's and doubled the Nasdaq spending only 1 minute a week and you can too'.  Check it out at Amazon, here
==

Huh???  How can you more than double the return of the market while not being invested in it 40% of the time?  As I'm sure you know, the market moves in waves.  It doesn’t just go up, but goes up and down over cycles of time.  In fact, Wall Street has coined the 2000’s decade as “the Lost Decade”, because it started and ended at the exact same price point … resulting in a total gain over 10 years of 0%, but if you had been invested in a Buy and Hold strategy for just 1999 (one year only), you would have returned over 80%.  Obviously there seems to be no rhyme or reason to the cycles that occur, but clearly there are opportune times to be in the market vs. not.

As you will see in the next section, our strategy will get you in the market when it is ripe for rising, and get you out of the market when it appears to be ready to decline.  I realize entering and exiting the market and more importantly staying out for extended periods of time seems like a strange concept … isn't the point of investing to profit?  And how can I profit if I'm not invested?  Very good questions, that deserve equally good answers.

When I was in college, I had a roommate that had a knack for gambling.  He played 21, and spent most of his weeknights playing cards, practicing so that on the weekend he could drive out to Las Vegas and hopefully turn the odds in his favor.  He was a card counter and although the odds are clearly against you in Las Vegas, I decided to go along for the ride a few times to watch and partake as well.

The Las Vegas experience is very surreal for a young person.  I was only 19 when I made my first trip with my roommate, and learned so much from him.  As you know with card counting, the goal is to count the high cards and low cards so that you know when there is a greater probability that a specific card will be turned over next.  The goal is to ultimately bet at opportune times, when you have an increased chance of winning.  Las Vegas games are skewed so that the odds are against you.  Obviously if they were skewed in your favor, the casinos would quickly go out of business.  Most people that go to Las Vegas don’t want to look at these games as mathematical equations and probability based, but they clearly are, and you can increase your odds by betting at the right moments.  Obviously the goal in card counting is to watch the cards and if you need a high numbered card and you know that a lot of low numbers have recently been played, you can increase your bet … knowing that the odds are more in your favor.

When we got to Las Vegas, we immediately went to the floor of one of the casinos and my roommate picked a table and just sat and watched the table for about 15 minutes.  I finally asked if we were going to play, and he pretty much ignored my question, but eventually he hopped in and played a number of winning hands.  Then suddenly, he said he was done for awhile.  Over that weekend, the pattern continued, we actually spent more time watching than playing.  Eventually I asked him what he was doing, and he explained the obvious … there are times when the opportunity is there to make money and that’s when I play, and there are times when the odds are not in my favor, and the only safe place to be is not playing. 

“You’ve got to know when to hold them, know when to fold them, know when to walk away, know when to run”  Kenny Rogers, The Gambler

This concept was obvious to me when I sat and thought about it, but it was still really hard to sit there and not play the game. 

Investing in the market is a business, and should be treated as such.  You are up against some of the greatest financial minds (and computers) in the world, and If you are not going to play the game right, you might as well cash your entire retirement account and take it to Vegas … because the odds are clearly against you.

There are times when the market is healthy and you should be invested, and times when it is not and you shouldn't even try to play the game.  From mid 1999 until December 2001, the Resnn strategy stayed completely out of the market the entire time.  For almost 2 ½ years, we sat in cash … that’s A LONG time!  But, what was the alternative.  In 2000 the Nasdaq returned -39.3%, in 2001 the Nasdaq lost again … another 21.1%.  Buy and Hold Hope for those 2 years, resulted in a net loss of over half of your portfolio (52%). 

"Sometimes your best investments are the ones you don't make." - Donald Trump.

Much as my friend taught me about Las Vegas, the same rules apply to Wall Street.  When the market is not healthy, it is ok to NOT take part in it.  In fact, you MUST not take part, it is critical to your long term success. 

When the odds are not in your favor, don’t even try to play the game … you will lose.

Market Wrap - week ending 6/20/2014

The market continues to act well.  Although we technically closed up for the week, I don’t really look at the week as positive from a performance perspective, but rather positive from a consolidation point of view.  We have sort of a resting period occurring which will lead the way to better opportunities shortly.

Many times when the markets get out of whack (one group of stocks performing significantly better (or worse) than the others, there comes a point in time where the indexes eventually have to get back in sync with each other.  As you know from previous posts, the S&P500 and Dow Jones has been basically flat to slightly down since the beginning of this year, while the riskier Russell 2000 and Nasdaq fell pretty substantially (down 10%) over the same time period.  This divergence between the indexes eventually needs to be dealt with, and this is what I see occurring now. 

Over the past 2-3 weeks, we have seen the stocks in the S&P and Dow make very small gains, while the Russell 2000 and Nasdaq stocks have been on a tear trying to catch up.  So, we have the larger caps basically waiting, while the smaller caps are quickly trying to come back.  This is very productive behavior.

What I expect to happen from here, is that we will first need a very shallow correction, but not anything to be afraid of.  Just a buying opportunity.  Basically all the data points look very strong, but we have quite simply moved up too much too quickly in the smaller cap stocks and we just need a short time to pause and build confidence again.  There are many buyers that still want to get into the riskier assets, but are waiting for a pullback since the prices have gotten a bit elevated at the moment.  We have what is called an “overbought” situation, and we simply need to pullback to ease this tension.

Once this occurs, (which I expect to start next week and last 1-2 weeks), things look quite positive from here (barring any unknowns).  I expect over the next month or two that we will be into new high ground on all indexes.

Bottom line, it appears we are seeing very positive consolidation occurring in preparation for a longer term move up.  Our short term indicators are looking a bit stretched and indicate a mild pullback is imminent, but medium and longer term … everything still looks honky dory.

For now, we stay fully invested with little cause for concern.

Hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Resnn Investments, LLC

On a personal note, if you haven’t had a chance to check out my book, please check out the “look inside” feature at Amazon here … http://www.amazon.com/gp/product/1499245823/ref=as_li_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=1499245823&linkCode=as2&tag=randmaur-20&linkId=NFV5VUZYKSLNVXMS

Bulls make money and bears make money, but pigs get slaughtered

The following story is a great example that can applied to trading and a willingness to sell when you only have a small decline.  It is quoted from the book, The Psychology of Speculation by Fred C. Kelly.  I also use this example in my book, Buy and Hope which you can 'Look Inside' at Amazon here

A little boy was walking down the road when he came upon an old man trying to catch wild turkeys. The man had a turkey trap, a crude device consisting of a big box with the door hinged at the top. This door was kept open by a prop, to which was tied a piece of twine leading back a hundred feet or more to the operator. A thin trail of corn scattered along a path lured turkeys to the box.

Once they were inside, the turkeys found an even more plentiful supply of corn. When enough turkeys had wandered into the box, the old man would jerk away the prop and let the door fall shut. Having once shut the door, he couldn't open it again without going up to the box, and this would scare away any turkeys that were lurking outside. The time to pull away the prop was when as many turkeys as one could reasonably expect were inside. 

One day he had a dozen turkeys in his box. Then one sauntered out, leaving 11. “Gosh, I wish I had pulled the string when all 12 were there,” said the old man. “I’ll wait a minute and maybe the other one will go back.” While he waited for the twelfth turkey to return, two more walked out on him. “I should have been satisfied with 11,” the trapper said. “Just as soon as I get one more back, I’ll pull the string.” Three more walked out, and still the man waited. Having once had 12 turkeys, he disliked going home with less than 8.

He couldn’t give up the idea that some of the original turkeys would return. When finally there was only one turkey left in the trap, he said, “I’ll wait until he walks out or another goes in, and then I’ll quit.” The solitary

turkey went to join the others, and the man returned empty-handed.

The psychology of normal investors is not much different. They hope more turkeys will return to the box when they should fear that all the turkeys could walk out and they’ll be left with nothing.

The point is, you need to have a definitive answer as to when it is the right time to enter the market, and the right time to exit, but the duration will be different every time.  Bottom line is that if the trade is working out, and you are making money … then you stay invested.  As we saw in 1998-1999 and somewhat so in today’s market in 2013, regardless of the worry in the news … a market can continue higher much longer than anyone can predict. 

So you let the market tell you when its’ time to exit.  You don’t decide, the market decides for you.  As long as it is acting healthy you stay invested enjoying more and more profit, but as the market starts to change its’ character and roll over … starting to decline, you exit quickly and lock in your profits.  It doesn’t matter that the market only dropped 2% from the high and people on TV are saying its’ a bargain now … you exit.  The first sign of weakness is your sign to say goodbye.

And the same is true for when it is time to get back in.  The rules we have setup will tell you when to enter the market, to maximize your potential.  You need to follow the rule and not second guess it.  Usually when things look most grim we are at the moment in time when the greatest profit is possible, this is why Warren Buffett has don’t so well in his investing career … he buys beat down companies when every one else is running for the hills, and holds them until everyone else is euphoric about them.  Using rules keeps you from second guessing your entry (or exit) … regardless of what you are seeing on the news or hearing from your friends.

“Bulls make money and bears make money, but pigs get slaughtered” - Unknown

Don’t be a Pig, don’t hesitate an entry or an exit.  Remember you will be wrong sometimes, but all that matters is that in the end you make money.  An exit at a wrong time means you miss out on some profit, but an exit at the right time means you will miss out on a large decline … which would you rather?

Market Wrap - week ending 6/13/2014

The market continues to act well.  Although we technically closed down for the week, we aren’t seeing any medium or longer term warning signs.  A small pullback is certainly expected (and welcomed) after such a strong runup over the past month.

Yesterday we had a strong decline on increased volume which does create a small amount of concern.  With that said, all our indicators still signal more upside from here.  I think yesterday was just a byproduct of the Iraq situation, which certainly could continue to create fear in the market but today’s action really showed that the fear was short lived and not indicating a longer term trend. 

We also certainly could point to the low volume of this entire upside move over the past month, and get nervous over this lack of buying volume. Although this does create some concern, our shorter term indicators are very bullish regardless.

Bullishness sentiment is again at an all time high, which can indicate we are nearing a top again, but as I have mentioned in the past … sentiment indicators are secondary in nature and as a result not incredibly reliable.

Leading stocks are once again … leading, with the Nasdaq and Russell 2000 outperforming since the bottom of the last correction was formed in mid April.

For now, we stay fully invested with little cause for concern.

On a personal note, if you haven’t had a chance to check out my book, please check out the “look inside” feature at Amazon here … http://www.amazon.com/gp/product/1499245823/ref=as_li_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=1499245823&linkCode=as2&tag=randmaur-20&linkId=NFV5VUZYKSLNVXMS

Hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Resnn Investments, LLC

Death by Shark Bite - An excerpt from my upcoming book ...

Not much can stop the imagination of a little boy, particularly when his older brother is as adept at scaring the lights out of his bro as my brother was. I remember one particularly ‘effective’ moment when my brother contributed to my now balding scalp by scaring the day lights out of me.

==
Below is an excerpt from the upcoming book, Trust, buy Verify 'how I beat the Pro's and doubled the Nasdaq spending only 1 minute a week and you can too'.  Check out the free excerpt of my current book at Amazon here
==

JAWS; Can you hear the music?  Dun, dun, … dun, dun … dun, dun … It’s funny to watch the movie Jaws today as the shark is pretty fake looking, but many years ago it was a terrifying movie that left the world afraid to enter the water.  And the music composed by John Williams is just brilliant!  In my previous business I spent a lot of time on the Universal Studios backlot, and remember driving by the Jaws ‘pond’ late at night and having a chuckle over the story I am about to tell you. 

The story is absolutely real, and no, the names have NOT been changed … there were no innocent people in this story.  I was 9 years old and my family was visiting relatives at Martha’s Vineyard off the coast of Massachusetts.  Martha’s Vineyard is a sleepy touristy / fishing / beach island.  Ironically (for me) … the movie Jaws was filmed there a few years before our visit.

It was a sleepy afternoon and my brother had the brilliant idea that we watch the movie Jaws on TV.  I remember asking him what Jaws was about and he said it was about “An overprotective clownfish that must leave the safety of his reef and brave the open ocean to rescue his missing son, who is captive in a dentist’s aquarium” … ok, ok … I realize in 1979 the movie, Finding Nemo had not existed but trust me, my brother did his best work at painting a fun loving friendly fish ‘romp’ in the ocean.  I envisioned a fantastic story, not unlike Flipper and was gung ho on spending the afternoon watching it with him.

It didn’t take long before I realized that my brother had upped the ante and quite honestly, he should be proud of his accomplishment with this one.  If there was an Academy Award presented to the “best scare by a big brother”, he definitely would have won that year. 

I remember as the credits were rolling, he dropped the bomb … “Hey Randy, did you know that Jaws was filmed right here in Martha’s Vineyard?”  He always had a way of carefully waiting for just the right moment to ‘educate’ me with his incredible knowledge, and it was ALWAYS appreciated (I hope you are detecting my use of sarcasm here!!).

It was decided by unanimous decision that Randall would not be going in the ocean again on this trip or ever for that matter.  In fact, I had no intention to get in a bathtub ever again after today.  I'm not sure how a shark could ‘get me’ in a bathtub, but again, I remind you … the imagination of a 9 year old is a very powerful thing ~ besides .. Jaws was no ordinary shark!!

You can imagine how I felt later that same day over dinner when my dad announced the ‘fantastic’ news that we (my dad, my brother and myself) were going “on a little adventure tomorrow.  We are going to rent a catamaran and go out in the ocean on it.“

To this day I still wonder if my brother had advance knowledge of our plans the next day, he claims it was all coincidence and if it was … man, he must’ve had the time of his life that evening, but I wonder …

I sat up late that night trying to come up with any excuse to avoid the impending death by shark bite that I was to experience tomorrow.  I mean honestly, death by shark bite … could there be a worse way to go??? 

I'm fairly certain that day I went through all five stages of grief: denial, anger, bargaining, depression and finally acceptance.  I remember getting in trouble ‘dragging my feet’ while getting ready.  I was grasping at straws thinking maybe if I got in trouble they would leave me back at the house “grounded”, while they went to their most certain death.

As we walked up to the rental place, I remember trying desperately one last time to talk my dad out of it … “it looks crowded, maybe we should come back tomorrow”, “I think its’ too windy”, “boy this is expensive, Dad … we don’t have to do this”, “I don’t know if there’s room enough for all three of us, I’ll wait on the dock”, but ultimately my fate was sealed and we departed on our 3-hour tour …

I learned after we had departed from the dock as my dad was struggling with the sails that he had never actually piloted a sailboat, let alone a catamaran.  As we drifted out to sea, this certainly was setting up for a Perfect Storm.  Eventually he got the hang of it and we started moving with great speed through the water.  I will say that if I hadn’t had the pleasure of watching Steven Spielberg’s epic shark movie the day before, I probably would have been digging the moment but given the circumstance, I was terrified.

I remember constantly looking back, expecting to see a shark fin raise out of the water behind us, and every bump of the water on the canvas of the Catamaran … I thought for sure was a shark reaching with his jaws to devour me. 

Ironically I finally started to calm down, convincing myself that as long as I didn’t hear the music, the shark would never come J … I know it sounds crazy, but again … as I said earlier, the imagination of a little boy can be very compelling. 

As I sat and waited for the music to start, the catamaran started tipping up, up, up … and unfortunately I didn’t know that this was supposed to happen and started to feel very panicky.  Unfortunately, the boat continued to tip and ultimately completely tipped over.  I remember the moment so vividly as I slipped across the canvas bottom into the depths of the ocean.  Coming up for air, I looked for the boat as saw it about 50 yards away moving very quickly in the opposite direction.  Even tipped on its’ side, the wind and current was still pushing it along the water at a fast clip.  My brother had fallen into the water as well and my dad was hurriedly trying to flip the capsized boat right side up.

I was terrified!  If the shark hadn’t gotten me while above water, I was now easy prey for his awaiting jaws.  I knew that my minutes were numbered …

I remember seeing my dad look at me, seeing the panic in his eyes, trying to control a situation that was out of control.  Now as a father, I can only imagine the horror he must have been feeling.  Being in the ocean, watching his youngest son drifting further and further away, his oldest son drifting in an opposite direction and a boat that was sinking.

Initially I was desperately trying to get back to the boat but I quickly realized that it was a futile effort.  The current was just too strong and I needed to take a different approach.  As I saw my father get further and further away, I learned a valuable lesson that day. 

My dad, my rock … was not able to get to me.  The man that I always relied on for safety couldn’t reach me, I had to step up and take care of myself in that moment.  In hindsight, I'm actually quite impressed at how that little 9 year old boy took charge of the situation and ‘manned up’ to keep himself safe.

Ultimately my father ditched the boat … dove in the water and started swimming toward me.  He got to my brother and called out to me to swim toward a deserted island that was reasonably close, which I did.  We swam and swam and swam for what seemed like hours and eventually made it to the island and were reunited.  The catamaran was gone but we were alive and amazingly Jaws, who was apparently asleep at the wheel missed his prime opportunity to have some tender morsels for lunch.

Having my father so close, but at the same time completely out of reach created an eerie moment, the irony of his close proximity yet he might as well had been over a thousand miles away showed me how ultimately it is you and only you that can protect yourself.  Relying on others, even if in this case it was my superhero dad, proved to be a futile effort, and I learned at that moment that ONLY YOU CAN PROTECT YOURSELF.

This lesson has carried forward through my years where I know ultimately at the end of the day that I am not only in charge of my destiny but that I am the only one that can keep myself out of a real mess in life.  In investing, no one will ever feel the pain of your financial loss as much as you will.  An advisor that doesn’t protect you properly and steers your investments incorrectly and ultimately causes a loss in your portfolio simply wont be affected by the loss as you will.  I’m sure they wont like the situation, but I'm also certain they will sleep fine that night even though they did not protect you from a 30 – 60% loss in portfolio. 

In fact, statements like “Past performance does not guarantee future performance” are boiler plate comments that your advisor will tell you or have in the agreement that you sign to try and help soften the blow when and if the above happens. 

Ultimately he may have the best intentions, but it is YOU that needs to make certain that all is kosher in his suggested investment mix.  If you are going to feel the pain when things go wrong, then you need to verify the decisions he is making on your behalf are prudent.  No longer can we assume that this person has your best interest at stake.  You need to “Trust, but Verify”, because ultimately when things go terribly wrong it is you that will be alone, all by yourself, treading water deep in the ocean with nothing but a life preserver to keep you alive.

Surrounding yourself with financial advisors and experts in all forms of your professional life makes sense but taking a few precautionary measures along the way, verifying, confirming for yourself that this person is putting you in the proper environments is necessary.

Would love you to share your own 'scary' stories below ... that taught you a similar lesson ...

Market Wrap - week ending 6/6/2014

The market seems to have finally officially moved out of correction mode this week.  If you’ve been following our weekly emails, you know that the S&P500 and Dow Jones have been acting well for over a month, but the smaller cap and technology stocks have been showing their unpopular states, yet this week that all changed.  We finally have the leading stocks acting like leaders … with high volume breakouts or at the very least base building occurring in higher volume positive days.

Certainly our analysis showed last week things were looking quite positive and as a result, we entered the market on Monday and have been invested fully since then.

Euphoria and complacency are at all time highs right now, which could play a factor in the coming month, but for now being invested is clearly the right place to be.

On a personal note, if you haven’t had a chance to see my book, please check out the “look inside” feature at Amazon here.

Hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Resnn Investments, LLC

Why a 'Balanced' Portfolio May Not Work

I wanted to share a post I enjoyed at smartmoney.com related to diversification and the lack of safety that it provides.  It was actually written about a year ago by Brett Arends, but still applies today.  You can find the full article by clicking here, although I have shared it below.

Diversification is dead

This is something that I have been talking with our customers over for years and most recently in my post "What pros do that you dont" ... that most financial planners and investment advisors imply safety by diversifying your investments, where there really isn't any (safety) in doing so.  

To the left is a chart showing the performance of all world's markets performance in 2008, and as you can see ... there was no safe place to invest. 


== Brett Arends post starts here ==

What if everything your investment adviser is telling you is wrong?

Look at the mutual fund choices your company is offering in your 401(k) plan. Look at the portfolio of those "target date" funds you're supposed to rely on, with their long-term-return forecasts and their so-called glide path to retirement. Look at the asset-allocation plan your financial adviser has drawn up.

Chances are, when you cut through the jargon and the spin, they're all based on one big assumption: that a balanced portfolio of stocks and bonds, rebalanced regularly, will see you through whatever comes next.

Could that analysis be off base? "It can't be," say the investment advisers. "Look at the data! Going all the way back to the 1920s, a standard portfolio of 60 percent stocks and 40 percent bonds, rebalanced regularly, would have made you about 8 percent a year. And if you had taken on more risk, by owning more stocks and fewer bonds, you could have earned even more.

"So don't worry about the market, and volatility. If stocks go down, your bonds will go up, and vice versa. Just create an appropriate portfolio of the two, based on your age and risk tolerance, and rebalance it once or twice a year. You'll do just fine."

Sounds good, right?

Here's the problem: This entire strategy is based on a dubious reading of history, a misrepresentation of the facts and a fair amount of sleight of hand. And it's terrifying to think that so many people are relying on it nonetheless.

I never cease to be amazed at what passes for logic and historical analysis in the finance industry. With a click of a mouse, analysts extrapolate the future from the recent past. They claim to derive universal rules from a few decades' data. They ignore the costs and problems of the real world. They gloss over averages, hide behind mumbo jumbo and pile circular arguments upon non sequiturs to build their case. And these are your life savings they are putting at risk!

And do not take false comfort from the fact that so many people in finance say the same thing. Their marketing departments are telling them to push conventional products, because those are the easiest to sell. And their lawyers are telling them to push the same thing as everyone else -- so if things go wrong, they're covered. Performance? That's not their problem.

Here's the ugly truth. Contrary to what you are being told, this 60/40 portfolio of stocks and bonds comes with no guarantees. There have been long periods during which it has done very badly.
And why should we be surprised? There is nothing magic about stocks or bonds. They are just investments. A balanced portfolio of the two makes you money only if one, or both, is reasonably valued. In the early 1980s, they were both cheap. Today, in an environment where by some measures both look expensive, all bets are off.

First, look at the present situation. U.S. stocks, after a three-year boom, are now at very high prices compared with dividends, the replacement cost of company assets and the past 10 years' earnings -- three measures with a decent track record of predicting long-term performance. As for bonds? Their yields are desperately low, especially when compared with inflation. It's hard to argue that either asset class is cheap.

What about the track record? I took a look at the data, as compiled by the Federal Reserve and analyzed by New York University's Stern School of Business. I created a hypothetical 60/40 portfolio and tracked it over the past 85 years, rebalancing it annually.

My analysis? That "average return of 8 percent" is full of holes. First, it ignores inflation. Adjust for that and you're left with just under 5 percent a year -- a big difference. Second, the "average" return is meaningless. Most of the gains came in two booms: during the 1950s, and in the past 30 years. For many other periods, the returns were meager, or nonexistent.

From January 1, 1937, through January 1, 1950, a period of 13 years, this surefire 60/40 portfolio, rebalanced annually, earned you absolutely nothing after inflation. Zip. The story was the same from 1965 to 1982 -- a slump that lasted nearly two decades.

In the real world, investors did even worse than zero. They paid trading costs, fund-management fees and taxes. Many just gave up along the way. Meanwhile, toddlers grew to college age, and middle-aged couples reached retirement. And the money they were counting on wasn't there.

The bottom line: In the decades leading up to the early 1980s, the record of the 60/40 portfolio was decidedly mixed. Yes, the returns of the past 30 years have been gigantic. But to include those blithely in your forecasts is to engage in a circular argument: "They have skyrocketed in price, so you should buy them!" Of such nonsense was "Dow 36,000" -- and the Las Vegas real estate boom -- made.

Where does this leave investors now? "There is no magic answer," says Charles de Vaulx, a money manager at International Value Advisers in New York. "But one has to look beyond stocks and bonds. One needs to consider TIPS [Treasury inflation-protected securities], gold, commodities and cash as well." John Hailer, CEO of fund company Natixis, says investors should look into "alternative strategies," ... Click here to be redirected to smartmoney.com to read the rest of the article

Market Wrap - week ending 5/30/2014

The market continued to act quite well this week, and certainly is looking much healthier than it did just two weeks ago.

Still significantly down from its’ high made in February, the Nasdaq has recovered more than half of its decline and it is finally showing a small gain for the year.  The riskier Russell 2000 is still in the toilet, but has made great progress this past week in stabilizing and become more ‘quiet’.  As I have mentioned in the past, time heals wounds in the market … and seeing the sideways action as the Russell 2000 has done this week is a great sign that fear is easing.

Obviously the larger caps are still acting beautifully with the S&P 500 and Dow Jones moving into new high ground for the week. 

Things are definitely looks much better, hence the reason our longer term strategy entered the market early in the week.

It is nice to see a lengthier correction play out as we have over the past few months.  A good correction allows the market to reset and continue upward … so I am happy to see this one stretching out for as long as it has.

On a personal note, I am excited to say my book, Buy and Hope was officially released this week. Check it out at Amazon here, I have included a nice chunk for free using the 'Look Inside' feature.

Hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Resnn Investments, LLC

How To Make Money In Stocks

How to Make Money in Stocks

the book "How to Make Money in Stocks Success Stories" by Investors' Business Daily was released last month.  I was fortunate to have been the focus of Chapter 7, read an excerpt below or check out the book here

 Follow the Market and Look for Set-ups and Breakouts

Randall Mauro is Portfolio Manager of Resnn Investments, LLC an investment advisory firm located in Denver Colorado.  He uses the CANSLIM method in his personal trading as well as client portfolios.

When looking for positions to invest in for our clients at Resnn Investments, I always start the process by gauging the strength of the overall market (the M in CANSLIM).  Why?  Because most stocks follow the direction of the general market and as a result, investing in an uptrending market is the safest, easiest way to make money.  

Back in late 2011 the market seemed to be stabilizing after a nasty decline over the summer.  Volatility (wild price movements) was still up but settling down with less ‘whip-saw’ action as the year came to a close.  Day traders love volatility, but for longer term traders it can be deadly, so I comfortably wait during the high volatility times watching for clues that the big institutional investors are ready to be back in the market again.  The easiest way to see these clues is to look at a chart and compare the daily price movements (how long the candles are) in the past few days to price movement in the recent past (2 weeks ago, 4 weeks ago, 6 weeks ago and so on). 

Looking at the Nasdaq, if you compare the prices movements in early December 2011 with the previous few months, you can very easily see that things were getting ‘quieter’ (less volatile).  This told us that we were getting close to an attempted uptrend and most likely the quarter long decline was nearing its’ end.

On December 20^th, we received a Follow Through Day we were waiting on, which told us it was time to put our money to work.  That same day one of the stocks on our watch list, Whole Foods Market Inc. (WFM) moved strongly in step with the market.  Whole Foods had been a strong mover over the past year, but I felt was ready to move again after a soft consolidation.  Whole Foods is a market chain that targets the educated consumer, selling entirely organic and natural foods which is, in my opinion a ‘new’ concept.  I am a big proponent of the N in CANSLIM … and the organic movement is something that I feel is still very ‘NEW’ to the mainstream consumer world.  We had been watching it since September when it made a new price high while the market was still near the bottom of its’ correction.  When a stock is making higher highs, counter to the general market, this strong Relative Strength shows that it could very well be a leader in the next market run.

Although it was too early to enter WFM on December 20^th since it was near the bottom of a cup formation, we noticed that the price/volume relationship was starting to become much more tight and controlled compared to the previous few months.  Volume was starting to dry up on the down days and subtly increasing on the up days while the price volatility (size of the candles) was getting smaller and smaller.  These are price/volume clues we like to see before a big break out.

On January 9^th, we saw WFM get to within 1% of its’ previous high on the left side of the cup.  The movement over the next few days gave us the final clue that we wanted to invest.  From January 6^th until January 12^th, the stock declined in a very controlled low volume pullback to the 10 day moving average.  There was not a panic decline but a small tight movement, and being so close to the breakout point was an added perk that showed us the stock was ready to move.  We entered a buy stop on January 12^th to enter at $74.50 (5 cents over the previous high).  The very next day, although the price still did not break out we saw the final clue that we were looking for; a strong up day with above average volume which added to our conviction that this stock was ready to rise.  On January 17^th our buy stop triggered and we closed the day with a unrealized profit of 3%.  Volume that day was 250% of average, exactly what you want to see in a strong mover at break out.

The next week, the stock moved up higher for a few days then eventually pulled back to the breakout price for what I like to call a “kiss goodbye”.  Although gut wrenching to watch your profits dissipate, the pullback was orderly and again, on low volume (like the previous pullback before the break out).  This orderly pullback told me this movement was nothing more than a high handle from the previous cup formation.    At the lowest point of the handle’s decline (on January 30^th) the price was only 1.3% below our entry point.  The stock gained 30% over the next five months and largely ignored the correction that the general market experienced in April, May and June of 2012.

Everyone has a home run story to tell but in the investing world it is the singles and doubles that add up to real results consistently over time.  To consistently make money, you must stay focused on preserving capital and minimizing risk.  Investing when the market (M) tells you it wants to go up, and in cash when the market starts to give signs of a top are the most important criteria to remain profitable over the long run.

Market Wrap - week ending 5/23/2014

This is going to be a quick one since … yet again not much has changed our cautious outlook since last week’s alert.

The market continued its rebuilding process and things actually are looking much healthier than the past few weeks.  The smaller cap and growth oriented stocks are still struggling, but less so this week.  The past few days were a bit harder to gauge since it is the week before a holiday which lowers trading activity significantly and makes it more difficult to use historical comparisons, but looking at individual stocks we are definitely seeing riskier stocks starting to get some attention again, which is a good sign.

The larger caps are still holding up well.  Although the S&P has yet to make any money since late February, it also hasn’t lost any.   The Dow tells a similar story, not making a dime for 2014, but also not losing any either.  This lack of selling on the larger caps is certainly a good sign so far, we see lots of larger issues consolidating the gains of 2013 and doing what is called ‘base building’ which is a healthy ‘time-out’ for the market. 

As I mentioned last week, any time the market goes sideways for long periods of time is generally a sign that rebuilding is occurring and usually that leads to more upside for the market, so although I'm not certain the market is quite done repairing itself, I certainly like how it is acting these days.

We still need the smaller caps and leading stocks to participate in this rally attempt if it is going to survive and they are looking better this week, although I'm not 100% convinced quite yet. 

As you saw above, our medium term strategy did enter the market this week, showing a bottom in the market was made, but our two other strategies are still in a holding pattern choosing protection over risk at this point.

Hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Resnn Investments, LLC

http://resnnInvestments.com

Using Trend Following to protect your investment in volatile times - published in Financial Advisor Magazine

The May 2013 issue of Financial Advisor magazine contains an article written by Randall Mauro.  The article discusses "Trend Following" and how to use TF techniques to protect your investments in volatile markets.  Read the article below, OR at www.fa-mag.com

Trend Following

May, 2013 • Randall Mauro 
 

I’m sure you’ll agree that more and more conversations with clients focus on their concern about a major correction coming soon. They have a very real fear of the market and its future direction. The deep wounds from 2008 and the “Lost Decade” for stocks in the 2000s have caused them to look for better investments.

Many investors are simply fed up with the status quo and are approaching their advisors about alternative strategies. One of particular interest is “trend following.”

What Is Trend Following?
According to Wikipedia, it’s an investment strategy based on the technical analysis of market prices rather than the fundamental strengths of companies. In one analogy, the market behaves just like the waves of an ocean; a surfer riding a wave has no more control over it than an investor riding a trend. Surfers simply take advantage of forces that already exist for their benefit.

Trend followers do not try to predict the future, any more than surfers try to create waves. The first job of a trend follower is to determine whether a trend actually exists or is substantial enough to take advantage of. Trend followers use different techniques to determine the trend. While there is no right or wrong way to do this, some techniques are more effective than others, just as some techniques are more effective in other investment methods.

This is kind of a “duh” statement, but important to understand: Trend following only works when there is a trend. Every investing technique has opportune moments in time to work, and this one is no different. When that surfer shows up at the beach and there are no waves—or worse, just little ripples—the surfer is going to have a tough day, wading in the water doing nothing. Poor waves are the worst, since the surfer will spend a lot of energy for little effect.

One argument against trend following is that you need to wait for a trend to actually exist before you identify it, so investors miss a lot of the move before they actually enter the trade. The worst are very short-term trends. Little “ripples” create havoc for a simple strategy. As the market starts rising, investors may identify the trend and then enter when the market reverses. They exit when the trend has broken, buying high and selling low, taking a loss when the general market might have been flat. Trendless time periods can dramatically affect performance in this investing strategy, though a more sophisticated system is robust enough to minimize the impact.

Because investors in this strategy are not predicting the future, they will never enter at the absolute bottom or exit at the absolute top. The goal is to catch the bulk of the trend (our personal goal is to catch 90% of the move up and miss 90% of the move down).

The Trend Is Your Friend
The beauty of trend following is that it doesn’t require you to suffer through large drawdowns, which is the primary reason it makes so much sense to the average investor. It’s not about capturing profit so much as the strategy’s uncanny ability to control risk and preserve capital.

To me, it’s to be used as a safety measure. It is about keeping our client funds safe in extreme times. Let’s face it, risk control is why our clients hire us. They expect that we will be there in volatile times to protect them. The market corrects on average two to three times a year, with sharp corrections of 20% or more every two to three years. Protecting our clients’ base is a very clear goal in these cases.
By not taking part in the declines, we have been able to outperform the market with a 153% return against the S&P 500, returning 8% over the past five years. So while a buy-and-hold strategy has been steadily chugging along to get a client back to breakeven, a trend following strategy missed the large drop and since then has been taking part in the gains.

By controlling risk, you outperform over time. It is an odd concept to wrestle with, that taking a defensive role actually creates more alpha.

So how does a trend follower determine when a trend is here? A surfer scans the horizon for an incoming wave and uses his or her knowledge of what a good wave looks like when deciding whether to ride the next one. In the same way, trend following uses historical precedent.

Now, before you get all up in arms, saying, “Just because it happened in the past doesn’t mean it will happen in the future,” remember that our entire thought process as a civilization is based on using historical precedent to predict a future outcome. In fact, our brains are even oriented to think this way. If a baby cries, he gets the attention of his mom, so he cries more often. He has learned by analyzing history that crying gets him what he wants.

Statistics is, “the practice of collecting and analyzing numerical data in large quantities.” It offers a way to study history and see the likelihood that one outcome will happen again in the future. The goal of statisticians is to find out what “the norm” looks like, and through that analysis they can predict the odds something will happen again.

Most of our society is designed around statistics. Traffic laws are based on them. Airplane manufacturers use historical studies to find the best materials to keep planes in the air. College admissions are based on the SATs. Even the IRS uses statistics to analyze income tax returns, looking for those with a high probability of fraudulent information. Historical analysis/statistics are used literally everywhere to gain a valuable insight into what might happen in the future based on the past.

Trend following is no different from fundamental analysis in this regard. All successful strategies use historical analysis. If you think about it, fundamental analysts have developed systems that use specific ratios that, “based on history,” have high success rates. I realize I am oversimplifying, but a low PE company implies that its stock is undervalued, and the odds are good that buying stock at that point will result in a profit.

The reality is that all systems perform ideally in certain environments and are less ideal in others. Trend following is good at avoiding the extremes. When markets are trendless, of course, this strategy does not perform as well as traditional techniques. One style is not necessarily better than the other, just better at specific moments. A combination of both approaches offers the best of both worlds: minimizing loss during declines and maximizing gains in trendless or trending markets.

The Perils Of Data Fitting
The problem with using historical analysis for anything is related to “data fitting.” This occurs when an assumption is made about the future outcome based on past precedent without a large enough sample. If you flip a quarter 10 times and it shows up heads nine times, you could suggest there is a 90% chance the next flip will come back heads. But we all see the problem there.

Because making assumptions using small data sets poses a significant problem, to get around this issue a good analyst will start with a theory and test it. If the theory holds up, he or she will test it further with larger and larger data sets. To me, a strategy, regardless of its technique, is successful only if it is consistent and performs as it is expected to across all time periods.

When marketing any investment strategy to prospective clients, it is imperative that the client get an accurate assessment of how it will perform over time. By showing only specific periods of time (data fitting), advisors might imply better performance than what will actually occur. Picking a handful of very selective charts that omit negative performance only hurts your firm over time.

That means keeping customers happy starts with setting their expectations correctly on Day One, making certain your analysis covers a large enough time spectrum to account for all market anomalies.

In our case, we have tested our systems through the past 40 years, seeing the performance through extreme periods like the hyperinflation of the 1970s, the dramatic declines in October 1987, the dot-com bubble, etc. The goal was to identify the times that the model did not perform as expected, and be able to give potential customers an expectation of their future performance. Testing through 40 years was not easy, but a good strategy uses enough data to identify those times the system performs well and when it doesn’t. That way you can provide full disclosure to your clients and guarantee their long-term satisfaction with the plan.

A Probabilities Game
Statistics do not guarantee success, but the more analysis performed, the more likely the future outcome will be as expected. Historical precedent puts the odds in your favor. And that’s what it is all about—using empirical data to increase your probabilities of success.

Randall Mauro is the president of Resnn Investments LLC, an IAR money management firm.

Financial Advisor Magazine is created exclusively for Financial Advisors, Investment Advisors, Financial Planners, RIAs, Broker-Dealers, CFPs, and Wealth Managers focusing on Financial Planning, Retirement Planning, ETFs, Alternative Investments and Investment News. 

Market Wrap - week ending 5/16/2014

This is going to be a quick one this time since … yet again not much has changed our cautious outlook since last week’s alert.

The Nasdaq and smaller caps are still in the doldrums, ALTHOUGH the Nasdaq is respecting its’ most recent low that was made about a month ago.  The smaller cap stocks are not looking as good though … making a new low yesterday.  Both indexes are clearly still struggling.

The larger caps are still holding up well.  Although the S&P has yet to make any money since late February, it also hasn’t lost any.   The Dow tells a similar story, not making a dime for 2014, but also not losing any either.  This lack of selling on the larger caps is certainly a good sign so far, we see lots of larger issues consolidating the gains of 2013 and doing what is called ‘base building’ which is a healthy ‘time-out’ for the market. 

Any time the market goes sideways for long periods of time is generally a sign that rebuilding is occurring and usually that leads to more upside for the market, so although I don’t think the market is quite done repairing itself, I do like how it is acting these days.

As I’ve mentioned in the past, we certainly need the smaller caps and leading stocks to participate in any upcoming rally attempt and so far they are not cooperating. 

For now, we continue to wait and watch for signs of strength in the coming week. We might have already put in the bottom of this correction OR are close to a bottom at this time, but acting cautiously still is the best course of action.

Hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Resnn Investments, LLC

http://resnnInvestments.com