Find a Trusted Advisor and Avoid Salespeople

“Honesty brings responsibility” – that’s what I heard on the radio today!  And as I thought about that saying on my way into the office, I realized that too many salespeople saturates the financial services industry.   Don’t get me wrong, I think salespeople are an essential part of any organization, but at the same time, the question in my mind is “what’s in it for them?”

If you’re going to disclose your entire financial picture, including your values, goals, assets and liabilities and delegate the creation and implementation of a tailored financial plan, you want to work with someone you can trust. 

Someone who is both competent and caring, professional and proficient.  Someone who wants more than to sell you a mutual fund, an insurance policy, or investment management services.  Someone you can count on to keep the big picture in mind, the needs of you and your loved ones foremost, and the details of your personal finances confidential.  What you want is a Trusted Advisor or an Investment Management Team that values honesty and moral integrity.

In your search for the right person, you may encounter three types of individuals:  the “scientific” salesperson, the so-called consultant (who is actually a salesperson pretending to be a financial planner), and the genuine kind: the trustworthy and competent advisor.  It’s unfortunate that they don’t hang a sign on their backs to let us know which group they fall into.  Their titles are no indication, either.  Stockbroker, insurance agent, financial planner, financial advisor, financial consultant, estate counselor, CFP, CFS, CIMC, CLU, ChFC: none of these labels is a clue.  Neither is the big-name company they might represent.  So you must assess each individual based on a set of characteristics and, ideally, recommendations from a friend, family member, or another advisor.  The Trusted Advisor rarely advertises, makes cold calls, or direct markets, so you are most likely to find one by referral. 

Oh, but they do write on blogs, to help you make an educated decision! 

Believing in Your Product or Service

All too often, Financial Advisors who are just starting out (and some veterans, too), get stuck promoting a product or service they know is a dog.  I know this sounds harsh, but lots of people have earned a living simply by taking the money and checking out at the end of the day.  But I promise you this:  If you don’t believe in what you’re doing, you won’t have the energy it takes to find out what you need to understand your customers and the value of your product to them. You won’t want to do whatever it takes to make your idea a success.  And if you’re a “Samurai Worrier,” you probably need a strong belief in your product just to drag yourself into work each day, let alone be successful at promoting it.

The Financial Services industry has the second highest employee turn over rate in the nation!  Second, only to Real Estate sales.  Why?  Because many people find that, while the money and income can be good, the product or service they are required to sell to get to that certain comfort level requires true passion and belief.  Many people get into Real Estate sales because they are on one of these three stages in life.  They were laid off or fired from their jobs, retired, or they have the entrepreneur spirit and wanted to be on their own.

I’ll admit it, I too, got foolish and got into Real Estate sales.  I was 28 at the time, and retired from my full time employment.  CAM Trading was self-sufficient enough and generated passive income for me, so I was able to take some of my time and money to pursue that.  Plus, I had seen an infomercial one late night and thought, “wow, I could be sitting in my own private island right now, wearing a buttoned-down floral shirt, but only if I call right now and order, operators are standing by!”

Two weeks after I made my first real estate sale (and a total time investment of 2 months), I decided that my passion wasn’t there.  I couldn’t get myself out of the house and into that drab Realty office to sit there for an hour answering phones.  I enjoyed the training and learning about real estate law, but it was a means to an end (getting to buy my private island to sip some fruity drink).   I ultimately wanted to relate to, talk to, and manage other people’s investments.  Being a Realtor didn’t allow for that.

Unlike my real estate sales experience, I’m in this business because I know we can do better for people regarding their investment choices, in fact, we have in the 5 short years of going pro.

So, when you do what your inner calling directs you to do, you’re more comfortable, happier, more energized, more focused.  And those qualities bring success, whatever success means for you.

Top 5 Economic Indicators that Affect Your Investment Portfolio

When it comes to noise, these five indicators create the loudest.  They could sway the markets to make drastically irrational price moves.  So, it’s probably worth noting their release time and date (which, can be found here: http://www.bloomberg.com/markets/economic-calendar/)

 

CPI:  Consumer Price Index
The CPI is the most widely cited inflation indicator and is used as a measure of the price levels of goods and services purchased by consumers.  The CPI is considered by industry experts as the best measure of the underlying inflation rate in the US Economy.

 

The Employment Report
Made up of two separate surveys, the Household Survey (60,000 households) and the Establishment Survey (373,000 businesses), the Employment report produces the unemployment rate figures.

 

Gross Domestic Product (GDP)
The components of GDP includes, consumption, investment, net exports, government acquisitions, and inventories.

 

Housing Starts and Building Permits
Housing Starts are a measure of the number of residential units on which construction has begun each month.  A start is defined as the beginning of excavation of the foundation for the building.  Housing starts are led by building permits, but permits are not required in all regions of the country, therefore, Starts figure is more telling.

Retail Sales
If your basket of stocks contain Dow Industrial bell weathers, then you might want to pay attention to this figure.  This is a measure of the total receipts of retail stores.  Often analyzed excluding figures for automobiles, food and gasoline, it’s the changes from month to month here that we’re looking for to identify shifts in consumer product demand.  The figure exclude sales of services.

These are important indicators to consider when you are trading on your own and more can be found on the site provided.

The Inability to Predict Future Events

I was listening to an Audio Book called “The Black Swan” by Nassim Taleb this weekend and found the topic of predicting future events through historical events fascinating. 

Summarizing his main point on the topic as it relates to trading and investing is we believe that we can somehow predict future price outcomes by simply studying the past price movements.  It’s as if you were to buy 10 previous copies of the New York Post and with what you’ve learned from those articles, you’ll somehow predict the next few days’ news stories. 

We often get trapped into that thinking when it comes to our investments.  We see a certain high performing mutual fund that is offered in our 401k plan for example and we believe it will continue forever, only to trap us several years later when we realize we got in at the absolute peak price. 

This doesn’t mean we should disregard price charts, and other historical evidence altogether.  But, instead we should consider the probable outcome and include those unpredictable events within our portfolio.  

Affirmations to Help Improve Our State of Mind

Personally, I’ve had little trouble with the subject of affirmation for many years.  When I first began looking for ways to improve my trading outside of market-related factors in my college years, I initially found affirmations somewhat silly.  However, affirmations are a form of meditation and visualization and can help us to see our true potential.  Affirmations are vitally important to become successful in all areas of our lives.  I now believe that almost every successful person has some sort of affirmation tool that they use on a daily basis, even if they don’t call it “affirmation.”

Affirmations are a pep talk of self-esteem to help keep stress in check, allow us greater emotional intelligence and awareness, and ultimately result in a healthy ego.

This morning, on my way to the office, the radio station I like to listen to had on a little contest where they took random callers and they would ask them to give a “pep” talk to a team.  This isn’t just one of those, “Let’s be positive, go get ‘em Tigers chant.”  No, it’s more like, “Ray Lewis of the Baltimore Ravens is injured and he has been put on the bench the entire season,” and the caller is the person replacing Ray Lewis!  So in 15 seconds or less, say what you need to say to the Ravens, just as Ray Lewis would!

I’ve only gotten a chance to hear one caller, an elderly woman from Baltimore, and the call when something like this:

Radio DJ:  “You have 15 seconds to get the Ravens ready for the Pittsburgh Steelers!, Ready, Set Go"!”

Caller:  “Okay…team.  Let’s get ready, we have to win…um…”

And, before she could calmly produce the next word, a loud buzz came on followed by laughter in the background!

Radio DJ: “If that’s what Ray Lewis says to the Ravens, I’d move to Pittsburgh and be a Steelers fan!”

The woman only wanted to win the Ravens tickets they were giving away, and I doubt she did with that monotone pep talk.  But, all of us often give ourselves uninspiring, energy-less self-talk.  Or worse, negative self-talk.  So, like Ray Lewis of the Baltimore Ravens, put some oomph behind those words and follow it up with a massive hit to the upper body area!

Avoid Forecasting - Learn to Recognize What's Happening Around You

Many people will try to see what they want to see and not necessarily what is actually going on.  Don't fall into that trap.  Be aware of indicators that suggest things may change, but do not get into forecasting.  The greatest investor of them all, Warren Buffett, has saying, "Forecasting tells you how much about the forecaster and nothing about the future!"

If the year 2008 told you anything, it should have told you that there is no such thing as an ever-growing economy.  If you believed that real estate properties will continue to rise because "they're not making more Real Estate," then please read the book, Extraordinary Popular Delusions and the Madness of Crowds (Mackay, 1980), and you'll see that hype existed long before our current "economic recovery," all the previous economies before that and will continue to exist well into future economies!

Ultimately, company values will depend on their financial performance in the long term.  Sure, there are wild short-term swings and great opportunities in the immediate term.  Sure, there were some amazing opportunities during the early part of 2009 (bargain basement prices abound!).  CAM Trading participated in those crazy days too.  But, eventually when the market wakes up, guess what happens to those synthetic prices?  History repeats itself time and again, especially where the stock market is concerned.

Client Services and Financial Advisor Teams

Advisors who work in a team generally do better than those who work on their own.  Many financial services firms have over 50 percent of of their advisors in teams.  At CAM Trading, we too, work in a team environment as we feel that the only way to succeed for our clients is to work together at it.  The team structure works well in large part because of the productivity and client-service improvements they afford. 

Advantages of Teams

Teams often specialize so that each team member can be an expert in something without needing to be an expert in everything.  This specialization can be in a particular practice area (trading, portfolio management, communications or some other element).

Clients can appreciate their advisor being part of a team because they feel that with a team, there is always someone there to take care of them who is familiar with their situation.  This gives clients a sense of community should something happen to their advisor. 

Financial services can be a competitive business, and advisors can be very protective of their best practices and reluctant to share them with potential competitors, even within the same firm.  Sharing ideas among and getting input from all members of the team is invaluable.  As such CAM Trading and its team members are very careful with its proprietary trading models.

Improving Your Trading and Investing Mechanics

Paper trading (when you place buy, hold or sell orders without the use of real money), note taking, and back-testing are the strategies that I have found to be most helpful to the improvement of trader mechanics.

Novice traders (and at times, we all feel this way, regardless of experience), tend to think of trading merely as the acts of buying and selling.  They don't recognize the considerable role that mechanics play in success.  Reducing trading to buying and selling is like describing NASCAR racing as stopping and going.  Take a look at just a few of the mechanics of trading and the difference they make toward profitability.  Obviously, not all of these apply to all traders as we each have our own niches in the market.

Specific Skills that Comprise Trading Mechanics

• Idea Development:  Translating observations about the market into specific trade ideas on the Macro level.
• Assessment of Market Conditions:  Recognizing the current state of the market's trends.  Whether it is range-bound, volatile, or low volume.
• Order Division:  Scaling into positions to reduce risk exposure and obtain superior average entry prices (Dollar Cost Averaging).  Scaling out of positions to secure profits and possibly benefit from favorable movement.
• Position Sizing:  Risking enough on a trade to make a meaningful contribution to profitability while avoiding risk of ruin under adverse circumstances.  
• Exit Flexibility:  Moving stop-loss points to protect profits while retaining profit potential.

Clearly, trading is not a skill, but rather a complex, coordinated set of skills not unlike athletics or medical practice.  An inexperienced trader will look at a stock chart and say, "I think we're going higher."  He will then buy at the market with his maximum position size and see if the trade works out.  The trades are neither planned nor systematic in their execution.  The performance is not far different from that of a quarterback who calls for a passing play on 4th and 10.

The Basics of Technical Analysis

The primary strategy CAM Trading uses is Technical Analysis.  

What is Technical Analysis?  Essentially, it is chart reading.  Specifically, it is the science (or art, depending on your personal view) of recognizing chart patterns and interpreting them to make buying and selling timing decisions and implementing a trading plan.  Technical Analysis can help you not only make your decisions but make them more precisely, make them more disciplined, and can help you in managing your money more effectively.

Many Technical Analysis protagonists believe that everything you need to know about a security can be seen by looking at the charts.

Technical Analysis comes in two forms:

1. Price Patterns - these are simply visible patterns of what is happening to the price of the security.
2. Indicators - these are mathematical algorithms that take all aspect of the price movement, including volume, and are put together to form all kinds of ratios and analysis by which future price movements may be guesstimated.

The Problem with Relying Solely on Technical Analysis 

Fakes


Be aware that Technical Analysis is not what you'd call an exact science.  In practice, this means don't get too hung up on precision.  As you gain more experience, you'll notice that no two historical price movement is ever exactly the same and believing so is an invitation for disaster.  


Behind the Scenes

What you see (real-time quotes) on your computer screen is only a half truth.  Fakes can occur where specialists and market makers identify extraordinary levels of interest around a support or resistance area and deliberately drive the price beyond that area to secure an advantageous position.  For example, a stock is falling down to a known support level where there are lots of sell stop orders.  Seeing this, the specialists work the price lower so that those stops are triggered.  In the mayhem of all this automated selling activity, the specialists are busy buying as much as they can, soon driving the stock price upward and securing a tidy profit for themselves. 

Eventually, the "specialists" and middle-men will go the way of the old phone and fax stock broker as financial systems and technology continue to evolve. 

Trading and Investing Psychology Continued...

There are a number of behaviors that will almost guarantee losses in the markets.  These behaviors, the antithesis of the way successful traders operate, include:

• Lack of discipline:  It takes and accumulation of knowledge and sharp focus to trade successfully, and more importantly; with consistent results!  Many would rather listen to the advice of others than take the time to learn for themselves.  People are lazy when it comes to the education needed for trading.
• Impatience:  People have an insatiable need for action.  It may be the adrenaline rush they're after, their "gambler's high".  Trading is about patience and objective decision-making, with a long-term perspective on a desired outcome (profit), not action addiction.
• No objectivity:  We tend not to cut our losses fast enough.  It goes "against the grain" to sell.  At the same time, we often get out of winners too soon.  In both cases, we are unable to disengage emotionally from the market.  We marry our positions, and like marriage, we cut our losses when we're too deeply invested.
• Greed:  Traders (and let's face it, EVERYONE) try to pick tops or bottoms in hopes they'll be able to "time" their trades to maximize their profits.  A desire for quick profits can blind traders to the real hard work needed to win.
• Refusal to accept truth:  Traders do not want to believe the only truth is price action.  As a result, they act contrary to their trading plan, and set the stage for the losses that almost always arrive.
• Impulsive Behavior:  Traders often jump into a market based on a story in the morning paper.  And if you're a new brokerage account holder, it's likely that you bought your first stock on the day your funds cleared the account!  Markets discount news by the time it is publicized.  Thinking that if you act quickly, somehow you will beat everybody else in the great day-trading race is a grand recipe for failure. 
• Inability to stay in the present:  To be a successful trader, you can't spend your time thinking about how you're going to spend your profits.  Trading because you have to have money is not a wise state of mind in which to make decisions.  This was a hard lesson for us to learn (and I personally believe, this particular subject is ongoing).  
• Avoid false parallels:  Just because the market behaved one way in 1930, does not mean a similar pattern today will give the same result.

 If you try to bridge the gap between the present and the future with predictions about the market direction, you're guaranteed to be in a continual state of uncertainty whether you admit to it or not.   

Create Your Trading Plan or Investment Plan and Write it Down in Specific Precise Language Before You Trade.

Don't confuse trading rules with a black-box system.  Your trading plan should be a set of Rules, which you follow implicitly time and again.  Sure, you can build in some flexibility, combinations and additions to these Rules, but write them down, understand them and implement them.  Also keep them handy, particularly when you're trading or making a trade decision.

A mind map is the best way to achieving this in a direct and visual way.  A mind map is simply an illustration, like if you imagine a series of branches off a central tree, where you're using different colors and symbols to depict the rules, as opposed to simply writing them down in a list.  Ideally, you should do both.

The Rules need to embrace when to enter, when to exit, when to use a specific options strategy (if options are in the plan) and when to activate your Stop Losses (which often change depending on the strategy you're trading).

Controlling Your Emotions When Trading

Once you've been trading for a while, you'll realize that turning a mediocre trading career into something brilliant has more to do with understanding what's happening inside ourselves than with what's happening on Wall Street.  We can know all the right things to do, but if our emotions run amok, we will never be able to really trade with a solid sense of purpose and passion.  Instead, we find ourselves trading from a point of irrational emotion.  Digging into the problematic emotions that can hinder our trading careers is the only way to move to the next level.

Here's an example of exactly what I mean: While in college, I had the opportunity to learn about the stock market and how things "moved" in Wall Street.  This was also the dawn of mainstream online brokerages with flat-rate commissions.  So, excitedly I opened up a Webstreet account and funded it with savings earned while working my summer jobs.  I had created a simple strategy that looked great on paper and couldn't wait to get to the 9:30 AM opening bell to place my buy orders.

I came out of the gates on FIRE with several trades that I was sure would be BIG winners!

Several hours later, those trades turned into devastating losses.  Who could have known that Internet Incubator stocks were not so hot anymore after only a moment's notice?  This was certainly one of the worst feelings anyone could go through.  Months of labor and mediocre pay, all washed away in the juggernaut of the Wall Street money machine!

I took an entire week off to think things through, I decided after those devastating losses that it would not stop me from what I'm really passionate about and that is, trading.  I realized too, that I had a LOT to learn internally (psychology) as well as externally (market and economic data, technical and fundamental style of trading, etc...).

In the end, I realized that by taking a week off, I was taking a moment to recognize how stressed out I had become.  As a result, I used everything I've learned in those days to continue my work with CAM Trading.