Stock Guru?

Good morning,

I was reading my newspaper this morning and I came across advertisements for Options and Stock Free Seminars and find it amusing that most gurus claimed to be able to make more than 100% returns within a first few intraday trades. What is so amusing is the most volatile stock would probably be trading within trading range of 6%. Either their students were closely glued to their trading screens getting in and out of the market and paying huge commissions to their brokers, or they took very high risk trading with leverage.

We all know that in finance, risk drives returns and by taking on both market and business risk, we should be expecting higher returns than if we were to buy unit trust since unit trust should diversify away the business risk. If we are expecting higher returns, we should also be ready to accept higher losses. So if these gurus claimed that they can achieve 1000% returns, I am sure there are days where they had 1000% losses. Somehow due to the advertisement costs and limited space in the media, these losses were not made known.

As mentioned for the last few days, I believe the market will be trading broadly within range and over the near future it should trend up. So I was quite correct. The Dow reached another one-year high last night, as rising oil prices and a late-session rally in commodity stocks overshadowed weakness in the bank sector. The bank that I am holding on to, Citibank, reported a quarterly loss, but the loss was narrower than analysts had been expecting. Citigroup had the biggest decline in the Standard & Poor's Index, falling 6.6%. What did I do with this stock? I bought when it dipped down to $4.70. It closed at $4.75, not much gain, but I know that once a company stopped bleeding, it will be on the road to healing and recovering and the bank’s current price is only a small fraction of it’s price when the economy is running well. Isn’t that what the economists are predicting?

BHI was spectacular last night. It went down to $45.08 but recovered to close at $47.67 at 3.16% higher. You bet what I did. Remember that I said I will buy on dip and sell when the stock achieved my expected returns?

CAH was up 2.2% to close at $27.91. I closed off my position at $27.85, achieving my expected returns.

This is where I must clarify. My expected return is for the capital exposed for the stocks I buy and not for the total value of the stocks. I trade with CFDs so my capital exposed will be smaller. My risk management strategy was mentioned in my previous blog so I will not repeat myself again.

Did the rest of my recommended stock do well? PMTC was up 0.07% to close at $14.77, BKS down -0.38% to close at $20.83, OSG up 1.6% to close at $44.41, PTEN up 4.29% at $17.50, XTO up 1.02% at $44.77, EIX up 1.18% at $33.45 and Forest Lab up 1.82% at $30.18.

Now I can really enjoy my day.

Have a great day!

Francies Cheng
BBus MAppliedFinance