Announcing The Timid Trader tip sheet

The Fed has been printing money --‘counterfeiting’ is the better word-- for 3 decades. (Actually, they’ve been doing it since '71 when Nixon took us off the gold standard. But things have really accelerated since '09.) Initially, that printed money created inflation in the the prices of financial assets. These days, the counterfeiting is spilling over into commodity prices, to wit, food and gasoline. One can try to shrug it off and say, “I’ve seen this movie before, like in the late '70s”. But one could also defend against the economic insanity by trying to surf a bit of it.

Our dear forum hosts, the Motley Fools, charge a minimum of $199 for their “newsletters”, and they lie unashamedly about their performance, which is easy to prove is less than investing in a broad market index fund. (A post for another time.) Worse, when their endlessly recycled, bad advice goes south, they never jump into say how to fix the mistake in a timely manner.

If a tip sheet is to be useful to beginning investors with small money to risk, it has to do four things. It has to say (1) what to buy, (2) at what price, (3) in what amount, and (4) when to take profits or cut losses. (Yes, Virginia. Stock markets also go down, and TMF’s mantra of “hold for 3-5 years” is sure to wipe out your account, as many are now documenting in the forum on Dumbest Investments, the common theme of which is any newsletter sold by TMF and any stock recommended by them has caused severe losses.)

So, let’s begin. I’m going to call the tip sheet, The Timid Trader, (or Triple Tee), and I’m going to “publish” it here in this forum.

The first tip I’m going to offer is a sure and guaranteed way to make double your money on your first investment. How so? Just follow the link, open an account, deposit the required $100 bucks, and Schwab will give you stocks worth $101 dollars. ShaZamm. You’ve doubled your money provided the price of those stocks doesn’t go down.

What should you do if the prices of those stocks do start to roll over? You sell, of course, in a disciplined manner, which means learning enough technical analysis that charts become risk-management tools, not just pretty pictures. (More on how to build and use charts in latter editions of TTT.)

The second tip I’m going to offer in this first edition of The Timid Trader is to consider buying shares of any or all of these three ETFs that write covered calls: SLVO, GLDI, USOI. Don’t bet the farm. Buy just three shares of GLDI or five of SLVO or USOI. That means, you’re making $25 bets whose purpose is to get you into “the market” and to get you used to using Schwab’s order entry system. If you funded your account with $100, that leaves you with roughly $25 in cash that you could let ride or try to put to work in any of the nearly 730 preferred stocks stocks offered by Schwab (that typically have a par value of $25 and whose investing in is a post for another time) or a slice of any of the 500 stocks in the SP500 (whose vetting and investing is also a post for another time), or any of high div ETFs that I’ll list and discuss in a future edition of TTT.

Now, a word about the “editor” of this tip sheet. As noted in my bio, I bought my first stock when I was ten, doubled my money, and thought investing was easy, a big mistake I spent the next many years trying to recover from, not that markets haven’t been kind to me, especially the bond market, which is my first love. I “invest” using a combo of Fundamental Analysis, Technical Analysis, and Gambling Theory. In short, I worry about What? When? How much? and leave guesses about ‘Why?’ to the pundits. For doing technical analysis, no site is easier to use than BarChart. For fundamental analysis, SimplyWallStreet is the best, but too expensive for small investors who might try WallStreetZen instead, though the resources offered by Schwab (or any of the usual brokers) are more than adequate if just a few stocks are being vetted. It’s when you’re trying to vet dozens or hundreds then subscribing to SimplyWallStreet (or similar) becomes necessary. As for ‘gambling theory’ aka, position-sizing and 'risk-management", those are topics to be covered in latter editions of TTT.

Lastly. Here are my “preferences” and “prejudices”. Following Ben Graham’s lead, I divide my investments into three tranches: Defensive, Enterprising, and Speculative, weighted 3x, 2x, 1x for bonds, and 2x, 3x, 1x for stocks/ETFs. (More on the mechanics of that another time.) Within each tranche, I keep position sizes the same, because --as Linda Raschke, the world’s best trader and trading educator, says-- “You can never know what’s going to work and what isn’t.” When I’m in the mood, I’ll trade intraday, because it’s fun. But that’s entertainment, not “investing”. So my preference with bonds is holding-periods as much as 100 years, and with stocks/ETFs, I’ll hold for whatever makes sense on charts with daily bars and a 1-month lookback. (Pfds I treat as if they were bonds and hold until called.) In words, whether a holding-period is 2 minutes or 2 decades makes no difference to me. What matters is a proper entry and a proper exit given the opportunity for gains that one thinks one sees on the basis of fundamentals, or technicals, or both.


Standard Disclaimers: I own shares in USOI, SLVO, and GDLI. In fact, I wouldn’t recommend them if I didn’t. But my positions are small, because I, too, am just exploring the world of stocks and ETFs, because the bulk of my money is in bonds.

Post script. After I get my daily ride done. I’ll dig into USOI, GLDI, and SVLO in terms of entries, exits, etc. as promised above. But now, I gotta roll before the rains return.

I take it that if by selling a covered call, you want stock price
price goes down, so you then keep the premium and still keep the stock.
(I'm not into options- obviously)

So, by these going down, that would be good?

Ticker	Week	Month	Quart	Half	 Year	Volume	Price	
SLVO	-2.73%	-1.99%	-1.43%	-2.55%	-18.15%	483.59K	5.16	
GLDI	-1.97%	-0.47%	-1.17%	 0.72%	 -4.95%	146.74K	8.45	
USOI	-1.44%	-3.36%	 1.48%	-1.80%	 15.40%	  1.32M	5.47	
SLVO	Credit Suisse X-Links Silver Shares Covered Call ETN							
GLDI	Credit Suisse X-Links Gold Shares Covered Call ETN							
USOI	Credit Suisse X-Links Crude Oil Shares Covered Call ETNs

data from []( on 4/20
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Yeah, as with all covered calls, them running those three derivatives make easier money when the price of the underlying falls (or at least fluctuates). But what attracted me to them was that the div typically runs higher than the capital losses one would suffer from taking a position.

This is where Quill and I go 'round and 'round. He runs a very complicated, very extensive divvie program and thinks it’s one of the best ways to build wealth. I think trying to use stocks as bonds is stupid, especially in the current market. Whatever the div might be, loses on the price of the stock will be multiples of that. In short, the divvie game is a classic instance of trading elephants for rabbits.

That wasn’t always the case. Back in the day --i.e., pre-Greenspan days-- before the Fed/Treasury cartel declared propping up the prices of financial assets to be their Prime Directive, the money a stock investor might earn from the div was a significant part of total returns. Graham made that argument. People like Buffet and Geraldine Weiss --'member her?-- echoed it. These days, the “investing game” is all about cap-gains. But what happens when that game blows up? That’s why I’m running experiments involving off-beat derivatives and taking a look at things like currencies and commodities.