As Pastors do - this one was standing outside his church after Sunday service greeting his parishioners. He tried very hard to remember something special about each member of his flock to make his greeting personal.
An older man comes out of the church and pauses to shake the pastor’s hand.
Pastor: Well hello Barney. Nice to see you at today’s service. I understand you and the wife are about to celebrate your 35th Wedding Anniversary. Congratulations! Tell me - what is the secret to such a long lasting and happy marriage?
Barney: Well pastor…it always helps to be kind to her, listen to her opinions and help out around the house when you can. And then… on our 10th Wedding Anniversary I took her to Italy.
Pastor: That all sounds quite wonderful Barney - what have you got planned for your 35th Anniversary.
Barney: Well…I been thinking I might go back to Italy and pick her up.
…
Now…the reason I tell that old marriage joke is because the use of Trading Blocks is exactly like that joke only a little different. Think of a TB as a derivative of a commitment to a high confidence company along with a Trading Block being brief periods of over indulgence or the part where you drop them off in Italy. Now on the face of it that might sound a little murky and I get that. Kinda confusing huh? Ok so let me see in a little bit if I can narrow the focus with a semi-exhaustive listing of potential definitive TB cardinal rules to live by that should never be broken. How nice would that be?
In a prior post I mentioned that I might begin to list nice TB opportunities on a weekly basis. I have hesitated to do so in the past because it’s sort of tricky ground. The entire reason it might be tricky ground is that if I list something that might be a great TB candidate for a nice fat short term gain - and then one of you goes crazy or gets drunk, or takes it all way, way to seriously and actually trys it without putting in some personal research - well then all sorts of things might happen. And by nature some of those things could be bad. Of course - it could work out and then everything is just swell - or, it is just as likely to not work out and then you might come to my home asking for your money back. See the dilemma?
So first a few Trading Block Rules of Engagement (TBRE):
- It’s absolutely best to only apply TBs to High Confidence Companies. Why? Well - holding a few excess shares in one of your best companies isn’t that much of a burden on your nervous system.
1b). The High Confidence companies you should most consider for TB activity are the ones in your portfolio; albeit, that there are rock solid companies that are always on the periphery of your trading vision that can work just as well. These by definition are Big Dogs - successful companies that ain’t going away anytime soon.
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I find the sweet spot for TBs lies in limiting them to 5-10% of a reasonable core allocation - which, in turn, depends on the magnitude of a decline. This remains a universal truth even after you have made gazillions of dollars with TBs.
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Don’t be greedy. A quick gain of 3-5%, repeated repeatedly (this means over and over again for you Ole Miss fans) - is more than enough to juice your portfolio results.
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Stick to one TB per customer unless it’s prudent to double dip. (I realize this is weak sauce and I have began to violate this rule which is a product of how easy and successful this strategy has become; however, you double your TBs on any one company at your own peril and Doom, DOOM - DOOM - DOOM.
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When to fish for TBs: when a high confidence company declines by 3-5% or more on no news. In other words - it falls on the regular old market tides that come in and go out in perpetuity.
5b) Sometimes you can add TBs on news dependent upon what that news is. For example, a bogus short attack by an outfit known to be a bogus short attacking low life organization. Additionally, depending on the size of sensitive parts of your anatomy, you can initiate a TB on news that causes an over-reaction on the part of the market. (This is aptly called a Crescendo TB by those in the know) However, it should be noted that those sorts of TBs are on the esoteric side and one might first aspire to Master the regular ole TBs before moving on to the more sophisticated side of things. Just sayin.
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My experience has been that if I’ve entered a TB correctly then the reverse back to a higher price point occurs within a few days. If this does not occur don’t panic. Be patient and simply Hunker Down on the TB and wait it out. If APPLE goes bankrupt and you were to lose everything the little 5-10% TB would be the least of your concerns.
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It’s never a good idea to initiate a TB if you are not following a company closely. Otherwise, how in the world would you know if its a decent risk/reward TB?
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Don’t use TBs to juice your bottom line performance on stocks you don’t own unless you think you might like to won them for at least a little while. See how this works?
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Ok so thats all I got - however, if I think something else up I’ll post it here where I know all of the folks dedicated to TBs will be waiting on pins and needles.
Oh - one last thing before I get to the meat of the post: several people have asked me how to manage the total number of TB’s they might have at any given time. And this answer is relatively simple: using the 5-10 rule you can invest in any number of TBs until you either run out of money reach your very on borderline risk aversion comfort zone.
For those of you who are still a little cloudy on all this, totally understandable given the dynamic wealth building dynamics of the correct use of Trading Blocks - I am considering putting in a hot line where investors can simply call and obtain up to the minute advice on whatever Trading Block they might be considering. Since I am frequently tied up on some other things I am asking a friend of mine - a Mr Awdopolis who owns the butcher shop down the road, if he could handle the calls. He is a swell guy and if you overlook the accent he would give you excellent TB advice. I’m thinking $19.99 a call ( I have to split the fee with him so when you think about it… Champico Industries would only make $10 bucks or so for some amazing wealth building guidance. Still bucking out the details but once its firmed up I’ll let everyone know.
So what are the potential TB opportunities this week? First lets take a look at those opportunities close to home - already in the portfolio:
Ok a slight hold up. The All Too Lovely has something or other for me to do and I suppose it has something to do with the big Easter egg hunt. So I’ll finish this in a bit with Part Two.
Happy and Blessed Easter to All!
All the Best,