After a big year, many investors are wondering whether they should lock in their gains. The SPDR S&P 500 (NYSE: SPY) exchange-traded fund (ETF) provided a total return of 32.3% in 2013.#-ad_banner-# Unfortunately, there is no way to know for sure whether there is additional upside or if a decline will begin, but using covered calls could help investors lock in gains or cushion the downside. A covered call strategy involves selling call options on stocks or ETFs that you own. If you own SPY, for example, you can sell call… Read More

After a big year, many investors are wondering whether they should lock in their gains. The SPDR S&P 500 (NYSE: SPY) exchange-traded fund (ETF) provided a total return of 32.3% in 2013.#-ad_banner-# Unfortunately, there is no way to know for sure whether there is additional upside or if a decline will begin, but using covered calls could help investors lock in gains or cushion the downside. A covered call strategy involves selling call options on stocks or ETFs that you own. If you own SPY, for example, you can sell call options to generate income while still benefiting from the potential upside. Additionally, the income generated from selling options offsets potential losses in the stock or ETF by decreasing your dollar amount at risk. A call option gives the buyer the right to buy 100 shares of stock for a predetermined price (the strike price) at any time prior to the expiration date. Call sellers have an obligation to sell the shares if the buyer exercises their right to buy the stock, which they will do if the stock price is above the strike price when the option expires. SPY is… Read More

Many investors follow the Dogs of the Dow, a well-known trading strategy that is intended to buy value stocks. Originally, the Dogs of the Dow strategy consisted of buying the 10 highest-yielding stocks in the Dow Jones Industrial Average and rebalancing the portfolio once a year.#-ad_banner-#​ Every January, a new list of Dogs would be compiled and changes made to the portfolio to reflect them. Most years, at least some of the stocks remain on the list, and turnover is relatively low. Since the Dogs of the Dow strategy was first published, a number of variations have been… Read More

Many investors follow the Dogs of the Dow, a well-known trading strategy that is intended to buy value stocks. Originally, the Dogs of the Dow strategy consisted of buying the 10 highest-yielding stocks in the Dow Jones Industrial Average and rebalancing the portfolio once a year.#-ad_banner-#​ Every January, a new list of Dogs would be compiled and changes made to the portfolio to reflect them. Most years, at least some of the stocks remain on the list, and turnover is relatively low. Since the Dogs of the Dow strategy was first published, a number of variations have been developed. (Our colleague David Sterman offered his own take last month.) One of the variations of the strategy is to buy only the five lowest-priced stocks from the list of the 10 highest-yielding stocks. This is the approach Amber detailed last month. She suggests using call options to lower the purchase cost and increase the potential gains from the strategy. The stocks she identified as Dogs of the Dow using this strategy are Cisco (Nasdaq: CSCO), Intel (Nasdaq: INTC), Pfizer (NYSE: PFE), AT&T (NYSE: T) and Microsoft (Nasdaq: MSFT). The Dogs of the Dow strategy limits… Read More

Easy access to data and charting software has contributed to information overload for many investors. Some investors will spend time looking for the perfect chart while other investors will review charts that really contain nothing of value.#-ad_banner-# Many of the charts we see are useless. And although we don’t believe there is a perfect chart that will identify every market turning point in advance, we find there are some charts that can better help investors understand what to do in the market. It is important to remember that successful investing is not easy. It requires an edge, which… Read More

Easy access to data and charting software has contributed to information overload for many investors. Some investors will spend time looking for the perfect chart while other investors will review charts that really contain nothing of value.#-ad_banner-# Many of the charts we see are useless. And although we don’t believe there is a perfect chart that will identify every market turning point in advance, we find there are some charts that can better help investors understand what to do in the market. It is important to remember that successful investing is not easy. It requires an edge, which can be defined as a unique and repeatable insight into the behavior of markets. To succeed, you will need to understand what your edge is, and a true edge in the markets will not include information that is widely available. You will not find an edge simply by looking at the price-to-earnings (P/E) ratio for a stock or spotting a buy signal with a widely followed technical indicator like stochastics. Old traders summarize this problem with a memorable saying: “To know what everyone knows is to know nothing.” Rather than spending time reviewing what everyone knows,… Read More

In the 1930s, a financial editor at Forbes magazine pieced together chart patterns. Richard Schabacker, who is considered the father of technical analysis, went beyond identifying how patterns looked on charts. He also looked broadly at investor psychology and noticed that it could explain why some chart patterns form. Psychology can be a valuable tool for traders to understand. We have made some notes on the chart below that describe the feelings of some investors at various times during the past few years. #-ad_banner-#Investor psychology does help explain resistance on a chart, for example. After a bear market,… Read More

In the 1930s, a financial editor at Forbes magazine pieced together chart patterns. Richard Schabacker, who is considered the father of technical analysis, went beyond identifying how patterns looked on charts. He also looked broadly at investor psychology and noticed that it could explain why some chart patterns form. Psychology can be a valuable tool for traders to understand. We have made some notes on the chart below that describe the feelings of some investors at various times during the past few years. #-ad_banner-#Investor psychology does help explain resistance on a chart, for example. After a bear market, there will be some investors who will be thankful to recover their losses. They might sell when the market gets back to its old highs. This appears as resistance on the charts. After resistance is broken and prices start moving higher, we often see a market “melt-up” as investors rush in since they are worried about missing out on the upside. This is an oversimplification, but investor psychology does help us to understand a great deal about the market action. This idea was also recognized more than 100 years ago by Charles Dow, the creator of the Dow Jones Industrial… Read More

ETFs are designed to decrease risks by offering investors access to a group of stocks. However, the use of highly specialized indexes by ETFs can increase exposure to the riskiest sectors and lead to large losses when trends reverse. To find the right balance, we look for ETFs that have diversified holdings and can benefit from several investment trends.#-ad_banner-# Heading into 2014, we see several important economic themes developing that should have a large impact on stocks. In the U.S., robust retail spending in November and an upward revision to October’s data has led to hopes that consumer spending will… Read More

ETFs are designed to decrease risks by offering investors access to a group of stocks. However, the use of highly specialized indexes by ETFs can increase exposure to the riskiest sectors and lead to large losses when trends reverse. To find the right balance, we look for ETFs that have diversified holdings and can benefit from several investment trends.#-ad_banner-# Heading into 2014, we see several important economic themes developing that should have a large impact on stocks. In the U.S., robust retail spending in November and an upward revision to October’s data has led to hopes that consumer spending will pick up in 2014. Since consumer spending accounts for about two-thirds of GDP, it is unlikely we’ll experience a recession if this trend continues. Recent data also indicates that Europe will finally be joining the U.S. economy in an expansion. And with Asian economies expected to expand too, this could be the first synchronized global expansion since at least 2008, when the credit market crisis sparked deep economic declines around the world. Automakers could be among the biggest winners from a strong global economy. In the U.S., some analysts expect car sales to reach 16.4 million in 2014, the highest… Read More

The S&P 500 has been on fire in 2013 — up an impressive 30%. But the question I’m getting the most from readers right now is, “Is the market about to correct?”  It’s not hard to see why. The S&P 500 is up more than 160% since the bull market started in March 2009. But I’m not worried about a correction… and neither should followers of my “Instant Income” strategy. Rather than engaging in panic selling or trying to buy on a dip (potentially catching a “falling knife”), they’re taking the emotion out… Read More

The S&P 500 has been on fire in 2013 — up an impressive 30%. But the question I’m getting the most from readers right now is, “Is the market about to correct?”  It’s not hard to see why. The S&P 500 is up more than 160% since the bull market started in March 2009. But I’m not worried about a correction… and neither should followers of my “Instant Income” strategy. Rather than engaging in panic selling or trying to buy on a dip (potentially catching a “falling knife”), they’re taking the emotion out of investing by telling the market exactly what they want to pay for quality stocks they want to own.​ Even better, they get paid to wait until they buy. By utilizing a conservative strategy that involves selling put options contracts, you can in effect get paid to buy stocks at a discount. To recap, “put” options give investors the right — but not the obligation — to sell a stock at a specified price before a specified date, known as the expiration date. Selling a put obligates us to purchase that stock from the put… Read More

I want to show you something that will likely raise a lot of eyebrows. Some of these claims might seem “outrageous” or “improbable.” But keep in mind, they come straight from readers of my premium newsletter, Income Trader — voluntarily, just six months after we launched the service earlier this year. Some of you won’t believe they’re true. But by the time you’ve finished reading this essay, my goal is to change your mind and show you how it’s possible for you to see similar results. ​“When I first started using [Amber’s] picks, my goal was… Read More

I want to show you something that will likely raise a lot of eyebrows. Some of these claims might seem “outrageous” or “improbable.” But keep in mind, they come straight from readers of my premium newsletter, Income Trader — voluntarily, just six months after we launched the service earlier this year. Some of you won’t believe they’re true. But by the time you’ve finished reading this essay, my goal is to change your mind and show you how it’s possible for you to see similar results. ​“When I first started using [Amber’s] picks, my goal was to earn $500. Then I quickly realized I can earn at least $1,000 per month. I use the profits to buy more… “ –Nathan S., West Long Branch, N.J. “About $30,000/ yr. Bought a Porsche” — Carter B., Clemmons, N.C. “I will never own a stock again if I can help it… since March, I have increased my account by $150,000. Keep the recommendations coming!” — Richard K., Dallas $1,000 per month… $30,000 per year… $150,000 since March… It’s enough to make anyone skeptical. You may be thinking that to make this kind of income from investing,… Read More

Wall Street is famous for creating new products. Sometimes, these products prove to be disastrous, like derivatives on subprime mortgages were in 2008.#-ad_banner-#​ At other times, new products turn out to be beneficial to individual investors. Exchange-traded funds (ETFs) are an example of a Wall Street innovation that helped individual investors. Assets in ETFs topped $1.6 trillion in October, and individual investors have more than 1,250 funds to invest in. The vast number of ETFs serves two purposes. First, a large number of investment options provides individual investors with an opportunity to diversify their portfolio. Second, it provides… Read More

Wall Street is famous for creating new products. Sometimes, these products prove to be disastrous, like derivatives on subprime mortgages were in 2008.#-ad_banner-#​ At other times, new products turn out to be beneficial to individual investors. Exchange-traded funds (ETFs) are an example of a Wall Street innovation that helped individual investors. Assets in ETFs topped $1.6 trillion in October, and individual investors have more than 1,250 funds to invest in. The vast number of ETFs serves two purposes. First, a large number of investment options provides individual investors with an opportunity to diversify their portfolio. Second, it provides a way for fund sponsors to maximize their potential revenue by having products that appeal to almost all investors. This second purpose, generating fees, has led to some funds with objectives that are not suitable for most investors. Many leveraged funds fit into this category. On the other hand, the drive to generate fees has led firms to offer ETFs that provide individual investors with access to markets that are not available to them otherwise. Senior loans are an example of one investment that market individual investors cannot access without an ETF. Senior loans are generally made to companies with… Read More

Buying value is an investment philosophy that works. To benefit from a value strategy, investors have to decide on a definition for value. There are numerous ways to decide when a stock offers value, and many of these methods work well as long as they are applied with discipline. For deciding when a stock market in general offers value, we prefer to use the CAPE ratio defined by Robert Shiller. The CAPE ratio — which stands for cyclically adjusted price-to-earnings (P/E) — is calculated with inflation-adjusted earnings over the past 10 years. This smoothes out the sudden spikes… Read More

Buying value is an investment philosophy that works. To benefit from a value strategy, investors have to decide on a definition for value. There are numerous ways to decide when a stock offers value, and many of these methods work well as long as they are applied with discipline. For deciding when a stock market in general offers value, we prefer to use the CAPE ratio defined by Robert Shiller. The CAPE ratio — which stands for cyclically adjusted price-to-earnings (P/E) — is calculated with inflation-adjusted earnings over the past 10 years. This smoothes out the sudden spikes in earnings seen in recessions and at the beginning of an economic expansion, and provides a way to judge a market’s value based on a full economic cycle. In the past, when the CAPE ratio has been high, stock prices have delivered below-average returns over the next few years. Low CAPE ratios highlight long-term buying opportunities. Shiller’s CAPE can be applied to any stock market in the world. Investors looking at CAPE to make investment decisions a year ago may have bought stocks in Greece where the CAPE ratio was 2.6, the lowest of any global stock market. Investors willing… Read More

Being prepared for a bear market takes many forms. In some cases, it can become an obsession. Some investors always seem to be looking for a market top and forecasting a major decline only days away. While there have been two significant bear markets since 2000, these investors have been mostly wrong for many years. Investors worried about the next bear market should remember that SPDR S&P 500 (NYSE: SPY) has only suffered three drops of 20% or more since it began trading 20 years ago. There have only been five declines of 20% or more since 1982… Read More

Being prepared for a bear market takes many forms. In some cases, it can become an obsession. Some investors always seem to be looking for a market top and forecasting a major decline only days away. While there have been two significant bear markets since 2000, these investors have been mostly wrong for many years. Investors worried about the next bear market should remember that SPDR S&P 500 (NYSE: SPY) has only suffered three drops of 20% or more since it began trading 20 years ago. There have only been five declines of 20% or more since 1982 in the S&P 500. Bear markets are rare, and always preparing for a rare event can be very costly.#-ad_banner-# Rather than making investments right now to prepare for the next decline, you could simply make plans for what you will do to protect wealth when the market starts to fall. There are a number of indicators to define a bear market, but I think the simple 10-month moving average (MA) is an effective tool. (See This Chart Shows Where the Bull Market Will End.) That indicator gave a sell signal less than 7% below the high… Read More