China is devaluing its currency. Oil is crashing. Greece is facing years of slow growth and might be dragging down the rest of Europe, where GDP growth is already slowing. The Federal Reserve is also concerned about global growth, which may delay an interest rate hike.  The news hasn’t been this bad at the end of the summer since… 2014. Last year, investors were worried about conflicts in Ukraine and Gaza. The death toll from the Ebola outbreak in Africa topped 1,000. Greece was still in crisis, and Congress was up in arms about corporate tax inversions. We… Read More

China is devaluing its currency. Oil is crashing. Greece is facing years of slow growth and might be dragging down the rest of Europe, where GDP growth is already slowing. The Federal Reserve is also concerned about global growth, which may delay an interest rate hike.  The news hasn’t been this bad at the end of the summer since… 2014. Last year, investors were worried about conflicts in Ukraine and Gaza. The death toll from the Ebola outbreak in Africa topped 1,000. Greece was still in crisis, and Congress was up in arms about corporate tax inversions. We see the same doom-and-gloom trend if we looked back at the summer of 2013 with the Detroit bankruptcy, Edward Snowden leaks, civil war in Syria and violent revolution in Egypt.  #-ad_banner-# My point is there are always going to be problems somewhere in the world. At times like these, I like to ask myself, “What would Warren Buffett do?” While I don’t have a direct line to his office, Buffett is famous for revealing his personal market insights and broad clues about his process in his writings.  For example, how did Buffett respond to a deluge of… Read More

One of the proven ways to become a great investor is to study great investors. Every time an investing legend makes a successful trade, a clue is left behind. For instance, every buy and sell decision Warren Buffett makes tells us more about his process, and those insights can help us create our own success. #-ad_banner-#Today, I’m going to focus on an important lesson from a lesser-known, but wildly successful investor. While I’m sure you’re familiar with Buffett, Peter Lynch and other well-known investors, you might not be familiar with Lynn… Read More

One of the proven ways to become a great investor is to study great investors. Every time an investing legend makes a successful trade, a clue is left behind. For instance, every buy and sell decision Warren Buffett makes tells us more about his process, and those insights can help us create our own success. #-ad_banner-#Today, I’m going to focus on an important lesson from a lesser-known, but wildly successful investor. While I’m sure you’re familiar with Buffett, Peter Lynch and other well-known investors, you might not be familiar with Lynn Tilton. Tilton is the CEO of the $8 billion private equity firm Patriarch Partners and one of the more obscure money managers I follow. She has a number of critics and has seen her fair share of controversy. But many of her investments have been successful and uncontroversial, and we can learn a great deal from them. Tilton is known for her ability to turn around struggling companies in basic industries, and she’s credited with saving 700,000 jobs at the roughly 75 companies Patriarch invests in, including MD Helicopters, Stila Cosmetics and Gorham Paper… Read More

One of the proven ways to become a great investor is to study great investors. Every time an investing legend makes a successful trade, a clue is left behind. For instance, every buy and sell decision Warren Buffett makes tells us more about his process, and those insights can help us create our own success. Today, I’m going to focus on an important lesson from a lesser-known, but wildly successful investor. While I’m sure you’re familiar with Buffett, Peter Lynch and other well-known investors, you might not be familiar with Lynn Tilton. Tilton is the CEO of the $8 billion… Read More

One of the proven ways to become a great investor is to study great investors. Every time an investing legend makes a successful trade, a clue is left behind. For instance, every buy and sell decision Warren Buffett makes tells us more about his process, and those insights can help us create our own success. Today, I’m going to focus on an important lesson from a lesser-known, but wildly successful investor. While I’m sure you’re familiar with Buffett, Peter Lynch and other well-known investors, you might not be familiar with Lynn Tilton. Tilton is the CEO of the $8 billion private equity firm Patriarch Partners and one of the more obscure money managers I follow. She has a number of critics and has seen her fair share of controversy. But many of her investments have been successful and uncontroversial, and we can learn a great deal from them. Tilton is known for her ability to turn around struggling companies in basic industries, and she’s credited with saving 700,000 jobs at the roughly 75 companies Patriarch invests in, including MD Helicopters, Stila Cosmetics and Gorham Paper and Tissue. Tilton has often pointed out that one of the “universal lies” companies tell… Read More

There’s a financial formula used by some of the largest banks on Wall Street, including Goldman Sachs, Morgan Stanley, JP Morgan and Bank of America. It’s the secret behind many of their top money-making strategies — they’ve been using it for decades to rake in billions for themselves and their wealthy clients. I use the formula myself… and I’ve been able to generate an average annualized return of 18.4% with one of the easiest and most conservative strategies in the market.  The formula I’m talking about is called the Black-Scholes model. Read More

There’s a financial formula used by some of the largest banks on Wall Street, including Goldman Sachs, Morgan Stanley, JP Morgan and Bank of America. It’s the secret behind many of their top money-making strategies — they’ve been using it for decades to rake in billions for themselves and their wealthy clients. I use the formula myself… and I’ve been able to generate an average annualized return of 18.4% with one of the easiest and most conservative strategies in the market.  The formula I’m talking about is called the Black-Scholes model. If you’re at all familiar with options, then you may have heard of it before. It’s the most important development in financial engineering. It allows ordinary investors to profit from options just like Wall Street traders. It was developed by Fischer Black, Myron Scholes and Robert Merton in the early 1970s. Their formula provided a rational way to determine how much an option is worth. Thanks to their discovery, the three received the Nobel Prize in economics. To understand why it’s important, you have to consider how things were before their… Read More

For the inexperienced, the world of options trading can be daunting… even confusing, but once you understand the basics of how options work, they are as simple as buying or selling stocks. That’s why we recently featured a quick primer on call options (here) and put options (here). Today I’m going to explain how options are priced and how that knowledge has helped my readers and I close 85 straight winning trades. It all starts with the idea of arbitrage, which means looking for assets that are equivalent to each other,… Read More

For the inexperienced, the world of options trading can be daunting… even confusing, but once you understand the basics of how options work, they are as simple as buying or selling stocks. That’s why we recently featured a quick primer on call options (here) and put options (here). Today I’m going to explain how options are priced and how that knowledge has helped my readers and I close 85 straight winning trades. It all starts with the idea of arbitrage, which means looking for assets that are equivalent to each other, but are traded in different markets. If one market is mispricing the asset, an arbitrage trader can make a nearly risk-free profit by buying in the cheaper market and selling in the more expensive market. Let me explain. If bananas cost the same to produce in Brazil and the United States, but are sold for twice as much in the states, then Brazilian producers will ship their product to the more expensive market until prices have corrected. Years ago, the classic example of arbitrage focused on stocks traded… Read More

After the pain and suffering caused by the global financial crisis, not to mention the losses many investors experienced, a lot of people still feel disillusioned with Wall Street. Maybe you’re one of them. I don’t blame you if that’s the case. After all, the crisis we experienced wasn’t a market anomaly. It was a house of cards built by large banks, risky traders and short-sighted government policies that came crashing down on our heads. But if you’re one of the many investors who has used this painful experience as an excuse to sit out of the market, my advice… Read More

After the pain and suffering caused by the global financial crisis, not to mention the losses many investors experienced, a lot of people still feel disillusioned with Wall Street. Maybe you’re one of them. I don’t blame you if that’s the case. After all, the crisis we experienced wasn’t a market anomaly. It was a house of cards built by large banks, risky traders and short-sighted government policies that came crashing down on our heads. But if you’re one of the many investors who has used this painful experience as an excuse to sit out of the market, my advice to you is stop. It’s one of the worst mistakes you could make with your portfolio. #-ad_banner-# In fact, I would argue that if the events of the financial crisis taught us anything, it’s how incredibly important it is for individual investors to take charge of their own portfolios. One of those ways is to exercise the certain rights and freedoms that go along with stock ownership. Unfortunately, most shareholders rarely exercise their full rights. As one of the fathers of value investing, Benjamin Graham (also Warren Buffett’s mentor), wrote in his classic book “Security Analysis”: “It is a notorious… Read More

In the battle between the bulls and bears, the bears are making some excellent arguments. The market’s price-to-earnings ratio is above its historical average. The cyclically adjusted price-to-earnings ratio (also known as CAPE) is reaching highs not seen since the 2008 financial crisis. #-ad_banner-#The bears argue that the bull market has gone on far too long and that we’re reaching the peak of the business cycle. But one of the most compelling cases from a technical standpoint is the ”Dow Theory” divergence. According to ”Dow Theory,” developed by Charles Dow in… Read More

In the battle between the bulls and bears, the bears are making some excellent arguments. The market’s price-to-earnings ratio is above its historical average. The cyclically adjusted price-to-earnings ratio (also known as CAPE) is reaching highs not seen since the 2008 financial crisis. #-ad_banner-#The bears argue that the bull market has gone on far too long and that we’re reaching the peak of the business cycle. But one of the most compelling cases from a technical standpoint is the ”Dow Theory” divergence. According to ”Dow Theory,” developed by Charles Dow in the late 1800s, we should see both the Dow Jones Industrial Average and the Dow Jones Transportation Average in uptrends during a bull market. That makes sense, because transportation companies ship what the industrials produce, and strength in both sectors is consistent with a growing economy. But the transports have been weak since the beginning of the year, failing to confirm new highs in the industrials. In the chart below, you can see that these two indices typically trade in tandem, but recently transportation stocks have begun to stray.   This… Read More

Income investments are an important portion of any retirement portfolio. Historically, they’ve provided retirees monthly or quarterly income distributions to help cover expenses, healthcare and any other living expenses. #-ad_banner-#The other morning I was perusing a Morgan Stanley Smith Barney report that outlined four different 401(k) allocations. While there are many factors that go into an individual investor’s asset allocation, the portfolios range from 25%-to-60% in income-producing bonds. Along with bonds, the portfolios invest anywhere from 10%-to-54% in large-cap stocks. Assuming that part of the… Read More

Income investments are an important portion of any retirement portfolio. Historically, they’ve provided retirees monthly or quarterly income distributions to help cover expenses, healthcare and any other living expenses. #-ad_banner-#The other morning I was perusing a Morgan Stanley Smith Barney report that outlined four different 401(k) allocations. While there are many factors that go into an individual investor’s asset allocation, the portfolios range from 25%-to-60% in income-producing bonds. Along with bonds, the portfolios invest anywhere from 10%-to-54% in large-cap stocks. Assuming that part of the reason for investing in these types of assets is to add income-producing securities to your portfolio, a logical question to ask is: Do these models account for the lower yields that we’re seeing in the current environment? I doubt it. If you’re trying to earn income by investing in large-cap stocks and bonds, you face serious obstacles. Mainly that yields are down across the board…   The average yield in the S&P 500 is only 1.9%. At that rate, you’re not even keeping up with inflation. It would… Read More

Financial statements offer a great deal of insight into the complex process that is investment analysis. Successful analysis requires understanding what these statements say… but also what they don’t say. For example, the income statement offers insight into how much a company is earning, but it doesn’t tell us whether earnings are likely to grow. To answer questions about the quality of earnings and whether earnings growth is sustainable, we need to look at the cash flow statement.  Personally, I believe cash flow is one of the most important fundamental indicators. To understand the importance of cash flow, think of… Read More

Financial statements offer a great deal of insight into the complex process that is investment analysis. Successful analysis requires understanding what these statements say… but also what they don’t say. For example, the income statement offers insight into how much a company is earning, but it doesn’t tell us whether earnings are likely to grow. To answer questions about the quality of earnings and whether earnings growth is sustainable, we need to look at the cash flow statement.  Personally, I believe cash flow is one of the most important fundamental indicators. To understand the importance of cash flow, think of your own financial situation. How much you earn is important, but it’s not the only factor in play. The key to success is managing your cash flow. If you spend less cash than you take home, you’re probably not going to be dealing with money problems. But consistently having bills that exceed the amount of cash coming in is simply an unsustainable model and a recipe for bankruptcy. #-ad_banner-# The same is true of businesses. Whether you’re looking at the components of a personal or professional budget, it’s crucial to understand where the money is coming from,… Read More

It’s one of the easiest and safest ways to generate 20%-plus returns on a regular basis. Once you’ve mastered the technique, I wouldn’t be surprised if you stopped trading stocks or buying and holding investments for years at a time. That’s how powerful this strategy is — it can drastically improve the way you make money in the markets, forever. That goes for conservative income investors and aggressive traders alike. #-ad_banner-#The technique is actually pretty simple, but it requires some investors to leave their comfort zone. You see, it involves options, one of the… Read More

It’s one of the easiest and safest ways to generate 20%-plus returns on a regular basis. Once you’ve mastered the technique, I wouldn’t be surprised if you stopped trading stocks or buying and holding investments for years at a time. That’s how powerful this strategy is — it can drastically improve the way you make money in the markets, forever. That goes for conservative income investors and aggressive traders alike. #-ad_banner-#The technique is actually pretty simple, but it requires some investors to leave their comfort zone. You see, it involves options, one of the most misunderstood corners of the financial world. Many investors steer clear of options because they have a reputation for being risky, but that’s not always the case. Covered calls, one my favorite ways to generate large income streams and capital gains, can be more conservative than buy-and-hold investing. In fact, The Wall Street Journal calls it “one of the most conservative… strategies available to professional and individual investors alike.” Simply put, covered calls allow you to get paid upfront to potentially sell a stock you own at a higher price sometime… Read More