G’day Traders,

As most long term intelligent investors have fled stocks and are waiting it out in bonds, the market finally got some positive news on European debt with Portugal and Poland getting good results on bond offerings (note – I think any publicity is good publicity sometimes and this is more publicity about the case that Europe is really in trouble on debt). This pushed markets slightly higher. However the Fed’s Beige Book found overall US growth to be decelerating with more regions of the country reporting slower growth. Stocks then moved lower – slightly.

The markets reaction was what I expected. A rally with little strength. The bigger picture seems to be that we are seeing more and more reminders of how bad things really are outside of Wall St. Think about Portugal and Poland being in the news as a positive because a disaster didn’t occur. Just like I said yesterday at the Intelligent Trading course “it’s what you focus on that you usually get” – so if you focus on not getting negative trades you are going to get them (as opposed to focusing on getting positive trades).

If the market focuses on covering up bad news and on regions that we usually wouldn’t care about having debt problems, then a debt problem will come from somewhere and it will be blown out of proportion.

One good lesson I teach regularly is cutting your losers first. I taught a lot on this and on asset allocation yesterday. We had a brilliant time in the morning going through four different option exit strategies. Then we spent most of the day working on building trading and investment strategies where clients worked in groups to design a strategy for someone else – yes we all found out how impossible that is, but some valuable lessons were learned. Personality profiles then worked together on building a strategy for their profile. This was more relevant to what they should do, but they again found that they needed to make their own personal changes – often on things like how to decide what trades to take if they had used up most of their risk etc.

It was a real lesson in reviewing and improving where we discovered just how dangerous it can be to try and change things without doing it the right way. I really hope that the clients find it much easier going forward to review their trading. One of the biggest eye openers was how the account balance swings and how important it is to track that (Assist will do it for you by the way). We also spent time on asset allocation and how to use your account really effectively. Something like having separate accounts that can all be linked to the one platform was of big interest to many. Also, I felt clients really understood how to allocate their accounts to different types of ETFs and how to adjust that under bullish, neutral and bearish conditions for that ETF.

It was just awesome and I truly loved working with clients like this.

The US S&P500 +0.64, Brazil -0.51, European top 500 +1.04 and UK +0.41%, Nikkei -2.08 and ASX -0.79%… China -0.7%.

Forex – there are some trends, but do not be concerned about the new trades that you are in coming back slightly. It is no problem in my view – nothing has changed.

No signals yet on Commodities.

Stocks / ETFs – I am not doing anything longer term right now. Sticking to what I have – we are in a sideways market and I will just wait until it breaks.

Options – I think now is fine to look for options on either side. Just be conservative with your selections.

Information for Beginners – All good at the moment. Markets are a little quieter, but I like the little pullback on stocks and many Forex pairs overnight. It’s against us but still fine.

Information for Intermediate – Follow your rules and be ready for trends.

Information for Advanced - Bonds may move lower with equities, but on big moves they should still move in opposite directions. This being said I am happy being short both because I am bearish on both longer term. Watch Copper.

Scott Goold

Head of Lifestyle R&D

Opaque Nature of Firms Makes Losing Money Easy

When you are looking for a home for your investment capital, it is very easy to simply go with one of the biggest brand names in Australia. After all, since they’re the biggest, they must be pretty good. Otherwise they would never have survived.

Believing this is one way to ensure that you don’t end up keeping your investment capital. The truth of the matter is that investment firms are structured to make money off you no matter how well their funds perform. Through their service fees and assets under management fees, they insure that they earn a hefty percentage from your funds even if your investments with them are taking a bath.

I know this first hand. When I first started investing, I trusted carefully chosen professional help in the form of a money manager from a well-respected Australian firm. Having done my research and trusting that an expert would never steer me wrong, you can imagine my horror when my managed investment lost over 30% of its value. It underperformed relative to the overall market benchmarks, and when I went to pull out my money to save what was left, I had to pay extra fees just to get the remains of my nest egg back under my control.

It was particularly annoying because I personally knew some of the people associated with the firm and they weren’t evil idiots. Yet they weren’t ultimately in control of what happened to my money, because they didn’t make the day-to-day fund management decisions. This isn’t brilliantly clear to most people, and this opaque nature of fund management – fees and others managing your investments – makes it easy to lose money when you have funds under management.

Don’t be misled. Some of these firms have deep pockets for advertising and marketing efforts. Yet each flashy ad you see in a magazine or smooth television commercial was paid for with fees collected from average investors like you.

Instead of getting fat returns, they’re getting to see their chosen investment firm spend away their assets after taking the firm’s fees out of their nest eggs. It’s a sad, sad thing which can only be avoided by educating yourself to be the best manager of your own money possible.

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Trader Term of the Day – Impulse

A sharply defined change in a series of input data being studied, such as market prices or volume.