Five Ways to Consistently Bank Gains and Manage Winning Trades
Most investors become so focused on their losers that they have no idea how their winners are performing…until they become losers and start paying attention to them.
As far as I am concerned, that's bass-ackward.
What they should be doing is figuring out how to harvest their winners, especially now that the six-week rally we've enjoyed appears to be losing steam.
If you've been raised under the old axiom of "cut your losses and let your winners run," this may seem counterintuitive.
But, if you really want to succeed in today's markets, you have to consistently sell your winners. That way, you continually cycle your capital into brand new opportunities.
It's not much different than what regularly happens in the produce department at the grocery store. Places like Safeway Inc. (NYSE: SWY) always replenish the tomatoes and the like to keep them fresh.
You should do the same with the "inventory" in your portfolio because if you let your stocks sit on the shelf too long, they'll eventually go bad – just like fruit that's past its expiration date.
Here are some of my favorite tactics to help you lock in profits instead of letting irrational behavior and emotion take over when the markets suddenly have a mind of their own.
1.) Recognize every day is a new day
This one is very simple. If the original reasons why you bought something are no longer true, ditch it – win, lose or draw.
You can't risk falling in love with your assets any more than you can let them rust – yet that's exactly what most investors do. They buy something then assume that it will somehow plod along on autopilot.
This is a variation of what I call the "greater fool theory" as in some greater fool is going to come along at a yet-to-be-determined point in the future and pay you more for a given investment than you paid to buy it.
I can't imagine what these folks are thinking.
Today, more than ever, you've got to continually re-evaluate your investments to ensure that they stand on their own merits and are worth the risk of continued ownership.
It's Game Over, Goldman Sachs (NYSE:GS) Has Won
I'll make this short.
It's game over.
The match that ended last Thursday wasn't the final match in the series being played here on U.S. fields.
But it might as well have been.
The score was so lopsided, it reminded me of those long ago and far away matches where everybody cheered the action, not the players, because the deck was always heavily stacked and the outcomes almost always a foregone conclusion.
Those days, long ago, such lopsided matches were all the rage in Rome.
And typically, when scores were posted, it would be something like Christians nothing, Lions twenty.
Last week, though the score didn't reflect the intensity of the match, the outcome was just as lopsided.
It ended up Justice nothing, Goldman Sachs (NYSE:GS) won (I mean one).
You see, there is no fire raging. It's all just smoke on the water. That's because the regulators – and oh yeah, that includes the Justice Department – have been thoroughly captured by the real lions of Wall Street. (Now, there's an idea for a reality T.V. show.)
In case you were too busy watching those other matches over in London, here's what just happened.
The Real Villain is the One Behind the Curtain in the Libor Scandal
There's nothing like pulling back the curtain on the fraud that's center stage in the Libor manipulation scandal and finding the levers are really being pulled by central banks.
It's not about the banks doing what they did. The revelation is this: Central banks are the biggest impediment to free markets and the reason capital markets have become casinos.
And until the tyranny of their grip is broken, the majority of public investors are going to rightfully sit on the sidelines and long-term economic growth will be impossible.
The Libor scandal is just a sideshow. There's nothing new there.
Banks manipulated Libor (the London Interbank Offered Rate), the benchmark for over 800 trillion dollars in interest rate-sensitive loans and financial instruments, to jack up profits on trading positions they held.
Bankers scheming, lying and cheating for bigger bonuses at the expense of anyone in their way…that's news?
No, but here's the real inside scoop…
Why Wells Fargo Stock is a Buffett Favorite
Investing in bank stocks has not been for the fainthearted over the past several years.
Many financial institutions are still dealing with the lingering effects of the 2008 financial crisis that left their reputations soiled and have kept scores of market participants at arm's length.
Now, day after day, these banks are still saddled with troubles as they struggle with Eurozone exposure, uncertain global markets, mounting regulatory measures , and the newest scandal — the Libor manipulation probe.
But there is one big bank that appears to be a bright spot in this otherwise dreary sector: Wells Fargo (NYSE: WFC).
"I like Wells Fargo better than anything by far. We have been buying Wells Fargo month after month for a lot of years. Among the big banks, I think it is the best," financial wizard and Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) CEO Warren Buffett told Bloomberg TV in a recent interview.
Wells Fargo Stock Gets Lift From Earnings
Wells Fargo stock (NYSE: WFC) rose in early trading behind a strong earnings report.
The company reported earnings of $4.6 billion or $0.82 per share. This slightly beat analysts' expectations for earnings of $0.81 per share.
Wells Fargo posted a 17% rise in its profits from $0.70 a year ago, marking the fourth consecutive quarter in which the company has posted rising profits.
Unfortunately for Wells, the earnings report comes at a bad time.
A discriminatory lending scandal was reported yesterday and that is keeping Wells Fargo stock from experiencing better gains than rival JPMorgan Chase (NYSE: JPM) today. The scandal involved Wells discriminating against African-American and Hispanic families who were forced into costlier subprime loans than comparable white families.
"If you were African-American or Latino, you were more likely to be placed in a subprime loan or pay more for your mortgage loan, even though you were qualified and deserved better treatment," Assistant Attorney General Thomas Perez said in prepared remarks Thursday.
Wells Fargo denied the matter and will settle the issue to avoid contested litigation. The San Francisco-based company will pay a total of $175 million: $125 million in compensation to victims of discrimination and $50 million in down-payment assistance to borrowers in affected communities.
Eurozone Debt Crisis: Why Cyprus Needed the Fifth Bailout
U.S. stocks were rattled Monday as two more countries asked for bailout packages in the ongoing Eurozone debt crisis.
Shortly after word came that Spain had formally requested a bailout package for its ailing banks, Cyprus chimed in and also asked for aid.
The Mediterranean country has become the fifth Eurozone nation to hold out its hand for an international rescue. While the smallest of the bunch to seek relief, Cyprus highlights the European Union's increasingly stressed resources as it wrestles with weakening economic conditions.
The aid request followed Fitch's downgrade Monday of the island's stressed banks to "junk" status. The credit cut means the country has lost it investment status with the trio of the largest and most influential rating agencies.
Fitch said in a statement, "Cypriot banks will require substantial injections of capital in order to secure confidence in their financial viability."
Cyprus, saddled with Greek private sector debt, could need as much as 10 billion euros ($12 billion) in bailout funds.
"Classic contagion, "BBC's chief economics correspondent Hugh Pym said of Cyprus' troubles.
Is The Rally For Real…Or Just Part Of the Games Bankers Play?
The markets are rallying, again. Will this time be different? Or is this just another head fake?
The truth is the current rally is not surprising given what's coming out of the G20 meeting, what's likely to come out of the Fed's Open Market Committee meeting today and Jamie Dimon's Congressional testimony yesterday.
But things aren't what they appear to be. What's happening behind the scenes is far more important than what's being said publicly.
So, investors better understand what the real game is here and how to play it.
To do it, we need to work backwards.
Jamie Dimon, CEO of JPMorgan Chase, has repeatedly said under oath that his bank isn't too big to fail.
That fact that he's implying it's okay to let a bank the size of JPMorgan collapse and enter bankruptcy in the event of "a moon hitting the earth" (admittedly unlikely) or potentially huge losses from something like bad bets on derivatives, is a flat out lie.
Of course, that lie can't be proven unless the bank was to actually fail, so it's unlikely that Mr. Dimon could be brought up on perjury charges. But it's still a flat out lie.
JPMorgan Chase and all the big U.S. banks are too big to fail.
And in that lot we can also cast all of Europe's big "universal" banks. They're all too big to fail in a very real sense because they are all interconnected.
Between the crossover of portfolio holdings, interbank lending mechanisms, derivatives bets and counterparty exposure, all of the big banks suffer from real contagion calamity concerns.
As a result, the breakdown of trust anywhere impacts trustworthiness of banks everywhere.
Eurozone Debt Crisis: The Greek Elections are a Make or Break Moment
What happens this Sunday, June 17 , may be the trigger for a final resolution of the Eurozone debt crisis.
Now I understand that you probably don't follow Greek elections. But this is one you'll want to keep an eye on. At the moment, it dwarfs the contest between Mitt Romney and President Barack Obama.
In fact, come Monday it will be what every banker, politician and trader is talking about.
In the balance is the very fate of the Eurozone.
ripple effects could be enough to actually bring the EU down.
That's the first part of the story. Admittedly, it's not a very pleasant one.
The second part concerns your portfolio, since the solutions will involve more money-printing and, in the long run, more inflation.
But you needn't worry. We've already read the central banker's playbook for you.
These safe-havens are one of the best ways to hedge yourself against these characters and their money printing schemes.
Now that you know why Sunday is so important, here is how it will likely play out-in both the short term and in the long run.
Why an Italy Bailout Package is on the Way
An Italy bailout package is likely to be the next costly move in the spiraling contagion.
Italy on Thursday held its first bond auction since European finance ministers came to Spain's rescue, willing to give the ailing country up to 100 billion euro ($126 billion) to shore up its beleaguered banks.
The auction raised a heap of concerns.
Italy's borrowing costs soared following a Treasury sale of 4.5 billion euros of debt, including 3 billion euros of its 3-year benchmark bond that yields a lofty 5.3%. That was the highest yield since December and an increase of nearly 1.4 percentage points from the last sale just a month ago.
In addition, Fitch Ratings reported May 23 that foreign ownership of Italian debt slipped from 50% in 2008 to a current 32%.
"I think Italy could well be a problem, because its current government isn't very good and has no legitimacy, having been imposed by the EU – and it hasn't cut spending as it needs to," said Money Morning Global Investing Strategist Martin Hutchinson. "I'd put it a few weeks away though – market's focused on Greece and Spain at present."
JPMorgan (NYSE: JPM) Stock Price Falling as Losses Could Hit $7 Billion
Since the company announced May 10 that it lost billions on a bad trade, the JPMorgan (NYSE: JPM) stock price has dropped about 20%.
And it may have more to go.
CNN Money reported on Monday afternoon that the trading losses are closer to a range of $6 billion to $7 billion, citing several sources who work on trading desks that specialize in the derivatives JPMorgan Chase used to make its trades.
Investors at the Deutsche Bank Global Financial Services Investor Conference in New York drilled CEO Jamie Dimon with questions Monday about how the chief investment office (CIO) racked up the sizable losses.
The biggest U.S. bank by assets, JPMorgan is under pressure from investors and regulators alike to enlighten them on how the CIO, which is in charge of managing excess cash while minimizing risk, made dicey and costly bets on illiquid credit derivatives, some so big they misrepresented market prices.
The $350 billion portfolio managed by the CIO, Dimon reiterated, has a very short duration and an average credit rating of AA designed to "very conservatively handle" interest-rate risks. The heart of the losses, Dimon explained, was the synthetic credit derivative, and just "a part" of the broader portfolio.