G’day Traders,

Firstly, I have to say that many stockbrokers seem to have their heads in the sand. I recall late 2007 when the markets were already moving down. They said it would come back. I said move into safe, liquid assets like cash. Every stockbroker I have ever worked with has this idea that stocks are a good investment. I still speak to them and they are still saying that. It’s ridiculous when there are so many risks out there.

They say they want to help you, but they still want you to own stocks even if you believe the risk is crazy. No wonder investors hesitate. They think “Oh, he is a stockbroker so he must know”. I have used some that were knowledgeable, but that was years ago and I was lucky to be strong-minded because most of their best recommendations turned out to be duds.

I saved one of our staff in April after they had been recommended (by someone who worked for us) to buy equities. I got her out – right when the markets started to fall. The vast majority in my opinion are just salespeople who know the lingo. They don’t know stocks. They can’t tell you with any accuracy what will happen to the economy.

Yesterday I really thought about things… the markets and you – our clients. I thought, wow, if this market does fall (and I expect it to halve from here if it did) what would happen to our clients. I recalled that in 2007 I got a few clients to protect their portfolios, but in 2008 I felt ignored. At least I didn’t get any feedback from clients who did act. So I thought if I am so worried about it (and let me tell you I am not the only one) what could I do to help clients?

When I have said in the past buy these puts for each 50k you have invested that didn’t work. I thought about clients being confused about assets they own that they are locked in to and how they didn’t understand that they could hedge these easily. I also thought about how some clients don’t think we can help with stocks they own (and that they want to keep).

I thought – I own stocks and I want to keep them. I know how to hedge assets. I thought – it’s really easy to do, but clients simply need a little bit of help doing it.

So check out this free service I have come up with. Please watch the video simply because there is a risk of a market crash right now. When I say free, I mean free – there are no additional charges. We don’t charge huge amounts of brokerage – in fact our brokerage is lower than Commsec.

http://www.lifestyletrader.com/media/scottvidupdate26aug/

One last thing – do not wait to act. Make a decision to at least call and talk to Robbie.

On the markets last night we got lucky as the market bounced – after it was down again early. The talk is that Interest Rates are so low it’s not worth buying Bonds – surprise!

Just to show you how smart the stock market is, they thought that meant that Stocks are going to give better returns than Bonds. This is really an asset allocation question, but I mean really… Stocks and Bonds are not the only assets out there you can invest in.

I don’t care what anybody says… if bonds have such low yields and high risks then don’t hold Bonds. Many funds are saying “oh, we have to hold Bonds… we are just switching to corporate Bonds”. Others are saying “Well then, in comparison to Bonds, Stocks are cheap”. I think it’s crazy.

By the way, investors are getting scared of Municipal Bonds in the US too. Experts say when you look at the finances of these governments some of them make Greece look secure. Would you think lending to one of these Governments fixed for 10 years at less than 3% was a good deal?

So if Bonds are so bad why not Stocks? Well they may be right and investors may jump back into Stocks even if earnings are down because compared to bonds the return may be better. This makes the assumption though that the extra risk involved in owning Stocks is covered by the extra returns (if you count earnings as returns). I am in the ‘Cash’ camp simply because if I have to choose between Cash, Bonds and Stocks. I see too much risk in Stocks and too little yield in Bonds. So I would be playing it safe. Of course in our modern world we don’t just have three options.

Looking at what we trade, specifically Forex and Commodities, these types of markets are volatile and if there is one time you need to stick to your strategy it is now. Keep your stops wide or you will get stopped out of the best moves. Focus only on your strategy in a falling market.

Why am I saying this? Because I have seen clients change strategies and miss out on huge profits in times like this. I have seen beautiful trends and clients miss out!

Then I have seen the ones that keep it simple and follow the rules. These people make SERIOUS money in these times. Yes, it is a bit of a roller coaster, but the pay off can definitely be worthwhile.

The US S&P500 +0.33%, European top 500 -0.84, UK -0.90% and early today both Nikkei and ASX are up slightly.

Stocks – Stats show a 25% chance of a crash in the next 40 days. Do you want to take that kind of a risk?

ETF – Please take advantage of this service.

Options – As I said yesterday, wait until closer to expiry. Now may be a good time to buy some October Puts on the SPY. You can use these to hedge your bullish Option trades. Spend about 50% of the premium you would expect to get. You can then use them again in October.

Today’s Top Tip

Please watch my video update – http://www.lifestyletrader.com/media/scottvidupdate26aug/

Information for Beginners – Do not start changing things – especially now – it could be just about to work for you in a big way. You should be planning to go live in the next couple of weeks if you have done enough paper trading.

Information for Intermediate – Read my Tweets… last night I had some interesting ones.

Information for Advanced – Keep it simple and focus on risk – if so and the market tanks you will make money – I think the risk of the market tanking is well over 50% – lets say 60%

Scott Goold

Head of Lifestyle R&D

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Trader Term of the Day – Spike

A price high (or low) that is sharply above (or below) the highs (lows) of the preceding and succeeding days. Spikes represent at least a temporary climax in buying (selling) pressure and may sometimes prove to be major tops or bottoms.