What did you learn in 2006?

[skiracer]

There are two sites that deal with options and have a wealth of info regarding them with online seminars and free live seminars. CBOE.com and Options Industry Council. I don't have the exact addresses right now but do at my home office and computer. If you can't get there yourself I'll get the addresses later today.

[Shadow]

There are two sites that deal with options and have a wealth of info regarding them with online seminars and free live seminars. CBOE.com and Options Industry Council. I don't have the exact addresses right now but do at my home office and computer. If you can't get there yourself I'll get the addresses later today.

Thanks Ski
I found both sites and appreciate the tip.
Shadow

[Lyehopper]

women!

I learned not to question my wife's taste in draperies.

..... or wallpaper.... or faux painting.... or furnature.... SHEESH! WHY can't they be satisfied? How many times must the dining room be changed over five years?.... Answer.... FIVE! Ssssssss!

[B.J]

How many times must the dining room be changed over five years?.... Answer.... FIVE! Ssssssss!

That comes out to only once a year. Consider yourself lucky

[Tatnic]

There are two sites that deal with options and have a wealth of info regarding them with online seminars and free live seminars. CBOE.com and Options Industry Council. I don't have the exact addresses right now but do at my home office and computer. If you can't get there yourself I'll get the addresses later today.

Use options sparingly and mostly for hedging. I've been trading options for many years and that's the painful conclusion I've reached. But feel free to pay your own tuition.

If you want to see how options can be used in a very clever way, go to Dr. Jack's thread. He's got a simple, conservative and ingenious way of using options. Its so simple that most people would just walk right past it and not see how great it is. But again, feel free to pay your own tuition....your efforts will be greatly appreciated by the CBOE and your broker.

[Tatnic]

After a wild ten years of investing since I was 14, I came to a realization. Not a lot of people can beat the market on an individual stock selection basis. So do you/I throw in the towel??? Hellls no.

The answer is create a portfolio of passive index funds and etfs. In 2006 I was up around 20%, with a minimized risk. My portfolio contained a mix of passive index funds and etfs, allocated different percentages in a selection of bond funds, hybrid, large-cap value/blend, mid-cap value/blend, small-cap value/blen, International, Reits, and specialty (gold).

This kind of style although not as exciting is far less risky, but will give you your market return, and in my case exceeded the return of all major indicies in 2006.

Anyone else into this suff?

Yes..I like it. Over the long run you won't make that 20% per year but its not hard to keep up with the s&p with minimal thought or effort. Over the past decade or so, its hard to beat vanguard REIT's.

The trap to avoid is chasing the hottest gainers of the last year. I've noticed some vanguard funds that go waaaaaay back and have pretty decent long-term gains. The wellington fund goes back to 1929 and has an 8.43% annual rate of return (that's probably where that magic number comes from...ie what average gains can you expect from stocks). That may sound boring but lately its doing as well as other domestic stock funds that don't go back that far in time.

I've blogged about Swenson and his book on individual investing and how he loves vanguard funds but hates the mutual fund industry because he likens them to vultures. His ideal model is to invest in the following manner:
15% US equities
15% foreign developed equities
20% reits
5% emerging market equities
15% us treasuries
15% us tips

He also recommends re-adjusting on a regular basis so you're selling the winners and buying the losers. I've done some modeling on his approach and it loses out to plain old buy and hold over the near term (past 10 years). But his method may be more lucrative over longer periods of time (keep in mind that we've been a pretty decent market since '82)...I haven't checked. Interesting stuff for those of you that like to crunch numbers.

[skiracer]

I think that if you are going to trade stocks then you should have a basic understanding of options. How they work and the volitaility of them. Those two sites can provide the novice with that base without spending or risking any money. Jack makes money only because of the amounts of money he is spreading around and that he most likely doesn't pay any commissions. We only see a smattering of what he is doing. We don't see all the positions that get closed at a loss or some small gain. Not paying commissions, especially on his numbers, saves enough to live on a year for some folks.

[Tatnic]

I think that if you are going to trade stocks then you should have a basic understanding of options. How they work and the volitaility of them. Those two sites can provide the novice with that base without spending or risking any money. Jack makes money only because of the amounts of money he is spreading around and that he most likely doesn't pay any commissions. We only see a smattering of what he is doing. We don't see all the positions that get closed at a loss or some small gain. Not paying commissions, especially on his numbers, saves enough to live on a year for some folks.

I was pointing out his method of shorting time value in the options and how he makes his money is by losing money on this option trades. I find that very clever. If you recall, an option has 2 separate values...time and intrinsic. When he sells/writes a call he sells mostly (often times only) the time value.

When he buys back the call, its higher but the time value has decreased because the underlying stock value has increased. The overall net-trade is positive. If he sold calls with more intrinsic value and the stock goes up, he's a net loser on that entire transaction.

So, to simplify, its best to use options as hedges, and its BEST to sell mostly time value since options decay in value on an exponential curve.

If you think you can trade options because you've done some decent trades on stocks, that's like thinking you can play major league baseball because you were a good softball player in high school. You can't go into trading options with that kind of attitude. You can't be wrong trading options...you have to have a very high batting average.

But, if you want to use options as trading vehicles, try to limit their use to stocks trading in excess of $100, and lots of volume (over 1.5 million shares per day), and a high beta. But you better be right on your direction. Also, whenever your option doubles in value, ALWAYS roll up and pocket some cash. Never get caught holding the bag because of greed. And lastly, don't buy out-of-the money options unless you have a long time horizon, say 4 to 6months. Always assume the worse case scenario, ie that the stock will more than likely go against you. Options are the crack cocaine of the investing world.....cheap but highly addictive.

[jellynet]

I would say the thing I learned is to not follow gainers of the past. They may or may not go up in value. Actually I learned to not even look at price movement of the past few weeks in my valuation. That is only what I look at for timing of purchase. I try to value the company first, and price in growth to the best of my ability.

Then I compare it to the market cap. The hard part is trying to reason out why there is a discrepancy. What makes a keeper is when I can identify the discrepancy as an over reaction, or something that my timeline does not consider a major risk, but maybe a fund manager's timeline would.