Staying Out Of Harm’s Way – Patience Equals Profits

Investors sometimes tend to be impatient when a market direction is trying to sort itself out. Since the start of the year I have done about a dozen trades but all smaller than usual and all with safety of capital as the primary focus. Many other trades have been done in the Market Direction Portfolio and the Spy Put Hedge trade as well as the Trading For Pennies Strategy trades. Put Selling trades are now as numerous as I wait for a clearer signals. I saw on the forum this posting from an investor starting to get a bit anxious to get his capital working. Let’s look at his post.

Investor Post On Yahoo Forum

Hi Teddi,

Based on the market, lately, lot of action is on market direction portfolio.  Wish, we could see some trades on stocks as well, beside put selling.  Market Direction portfolio is not for me, especially, it requires large capital, and risk associated.  May be all other members trade this portfolio.  Kind of felt left out most of the last week.  Did do some puts on BBT, PG and AT&T

Possibly, beside put selling, there may have been some good opportunities of buying stocks, BB strategy, or otherwise, at certain price, and could write covered calls on those as well. If some opportunities come up, please post a quick alert on Twitter, with a link to your site.


My Reply: Think Safety and Have Patience

This past weekend I attended a small conference and was asked how I have managed to do so well over the past decades. The answer of course is simple. I have a lot of patience and I know that the answer to successful investing is about protecting your capital.  Right now the market is down only just a bit over 4% from its most recent highs, but it is facing a difficult decision on which direction to take next. In my article on 9 Tips To Stay Profitable in 2015 I explained the outlook for 2015 may be quite different from 2014. There are many warnings signs to start this year which we have not seen since 2007.

Making money in stocks since the spring of 2009 has been easier simply because stocks had room to run higher after losing more than half of their value in the bear market. But with the Fed pulling liquidity out of the markets, the hint of interest rates rising on the near horizon, an economy that is expanding at home but not abroad, problems in Europe, Russia, Asia, the rise of the US Dollar, collapse of oil and commodity prices, investors, I think, need to step back a bit and keep cash at the ready.

Investing is not always having your capital tied to the market and hoping it works out. There will be opportunities ahead but I prefer a cautious stance right now. Over the past 2 week I have posted a little over a dozen trades but all are conservative and smaller than usual in size for my portfolio. These included HPQ, ATT, 2 trades in INTC, 2 trades in BBT, DE, PG, DIS, MSFT, YHOO, and WFC. I have another list for this week which I will be posting tonight.

For Canadian members since the start of January trades have been done only in SU, 2 trades in BMO and RY. I have a list to be posted later today as well for this week but with the TSX trading below all 3 major averages and stocks testing the waters at 14000, this is a time for conservation of capital until the direction is a bit clearer.

Think Beyond A Few Weeks

When it comes to investing, think longer term than a day, week or month. Think years. 2015 right now looks volatile.

VIX Index For January

So far this month we have had just 11 trading days and on none of those days has the VIX Index fallen below $16.00, let along below $14 or even $12 where I prefer to set up trades. This has been one of the more volatile January’s in many years. Above $20 in the VIX Index is a definite warning to be cautious, build cash and keep it at the ready but safely out of harm’s way.

VIX Index 11 trading days in January 2015

VIX Index 11 trading days in January 2015

Review and Plan

While the market is busy trying to figure out if it wants to go up or down, this is an ideal time to review last year’s trades. It’s a perfect chance to figure out what trades worked and why and which ones failed and how they could have been corrected. It is also a chance to remove stocks from your watch list and add new ones. It’s an opportunity to decide which stocks you want to be trading this year. It is also a great opportunity to adjust longer-term trades and figure out where you will be placing your capital next, depending on what direction the markets may be heading.

Investing is about becoming a better investor not just always being invested. The past couple of weeks have been perfect for review including studying new strategies as well as back-testing of these strategies to determine their suitability for this year.

For example I have been working with a group of investors who think this will be the year for the AGQ ETF (Silver) to really shine. They have been reviewing the 4 strategies in the article I wrote 4 Investment Strategies For Ultra ETFs. They have spent the past two weeks emailing questions and seeking comments and guidance.

These same investors used the strategies last year and kept track of winning and losing trades. They spent the last two weeks reviewing and now are ready to improve on last year’s profits. Another group of investors has been working on the Trading For Pennies Trades which last week saw ideal conditions.

In short, the past two weeks have provided the perfect environment for review and planning for 2015.

Patience Equals Profits

When it comes to investing, patience is what can create profits. For the first 11 trading days the market has been seeking out a direction. Once that direction becomes clearer there will be more opportunities for profits. Until then I think the better course of action is to do some review, plan for some upcoming trade possibilities, take on smaller positions and keep much of my capital tucked safely out of harm’s way.

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