Posts filed under: Podcast

In this episode, I introduce the US income tax provisions that apply to personal investors and traders.  I’ve got 10 years of experience compiling and filing my own tax returns on these activities, so I’ve got the real-world know-how to help you make sense of this complex topic.  Over the years, I’ve dealt hands-on with such topics as: wash sales, PTPs, K-1s, options exercise and assignment, qualified dividends, Section 1256 contracts, and more.  This is the first part of a multi-part series.

Important disclaimer: I recommend you consult a tax attorney or CPA for advice on your personal tax situation.  I am neither a tax attorney nor a CPA.  Furthermore, I can’t possibly know all the details of any listener’s unique financial and tax situation.  Therefore, I’m not in a position to provide personalized recommendations and this podcast is not to be construed as such.

 

Sign up for FREE email updates to be notified of new podcast episodes, timely videos featuring market analysis and commentary, and much more.

(CC image by Chris Potter on Flickr)


Section 1: Why Is This So Important?

  • You’re responsible for your tax return, even if you hire someone to do it
  • Brokers and tax preparers make mistakes; check their work
  • The benefits you get when you understand the tax consequences of your trades

Section 2: Basic Principles

  • Type of account
    • Taxable accounts: the main focus of this series
    • Tax-preferred retirement accounts
  • What is income?  Four types
  • Amount vs. timing

Section 3: How Will I Be Taxed on My Investment Activities?

  • Mutual funds
  • Most individual stocks and ETFs
  • Section 1256 contracts (e.g. futures)
  • Precious metals ETFs (e.g. SLV, GLD)
  • Publicly traded partnerships (PTPs)
  • Master limited partnerships (MLPs) and royalty trusts
  • REITs
  • Am I a professional trader?

Resources

IRS Topic 429: Traders in Securities

Intro music and mid-program music by audionautix.com

Attribution link for the image of 1040 forms at the top of this post: http://www.ccpixs.com

 

Find more episodes of the Torpedo Trading Podcast at this link

Continue Reading →

Wise investors know that it’s a good thing to keep a portion of assets in cash-equivalents at all times, but do we really have to settle for paltry interest rates like 0.01%?  Absolutely not.  In this episode, I teach you how to put your cash to work without taking too much risk.  With interest rates at historically low levels worldwide, you’ve got to work a little harder than usual to get a decent return and stay ahead of inflation.

Sign up for FREE email updates to be notified right away when a new episode is available!

 

(CC image by Michael Cote on Flickr)

Section 1: Why You Should Never Be 100% Invested in the Markets

  • Cash-equivalent assets serve many purposes:
    • Emergency funds
    • Saving for big purchases
    • Taking advantage of buying opportunities in the market
    • Protecting against bouts of deflation in financial assets, ala 2008-2010
    • Avoiding costly margin debt
    • Reducing risk level of the portfolio
  • Three “buckets” of cash:
    • Emergency Cash
    • Structural Cash
    • Tactical Cash
  • The best way to deploy that cash?  It’s different for each bucket.

Section 2: What’s the Right Amount of Cash to Hold?

  • It’s different for every individual
  • Factors to consider:
    • Personal balance sheet
    • Are you primarily a: short-term trader, intermediate-term trader, or long-term investor?
  • My baseline suggestions for the three “buckets” of cash

Section 3: Emergency Cash

  • Top Priorities: Safety and Liquidity
  • Interest?  Forget about it!

Section 4: Structural Cash

  • Stable value funds in an employer-sponsored retirement account like a 401(k), 403(b), or TSA
  • Build a laddered portfolio of certificates of deposit (CDs) or corporate bonds
  • There’s a right way and a wrong way to do this!

Section 5: Tactical Cash

  • Higher liquidity and yields, but you can lose a portion of your principal in a downturn
  • Short-term bond ETFs and mutual funds
  • Some of my favorite funds for tactical cash

 

Resources

Bankrate Safe and Sound Ratings

Intro music by audionautix.com

Find more episodes of the Torpedo Trading Podcast at this link

Continue Reading →

Real estate packs a powerful punch for your portfolio.  By purchasing shares of a real estate investment trust (REIT), any investor can easily gain access to this vast and powerful asset class.  REITs are especially good for younger people or renters who lack any exposure to real estate.  In this episode I’ll teach you the basics of investing in REITs, what to watch out for, and how to get started.  I also go through a list of my favorite choices to help you find some that may be right for you.

Sign up for FREE email updates to be notified right away when a new episode is available!

North Bay Village

(CC image by Ines Hegedus-Garcia on Flickr)

Section 1: Background & Basics

  • What is a REIT?  How is a REIT different from a stock?
  • Listing types
  • Types of investments held within REITs

Section 2: What Determines the Price?

  • Fundamentals
  • Other financial conditions
  • Societal trends & demographics
  • How to pick a good time to add to, or to reduce, your REIT holdings

Section 3: Why You Should Own REITs

  • Exposure to hard assets that produce good cash flows
  • Income
  • Diversification

Section 4: Areas to Examine When Selecting a REIT

  • Equity REITs vs. Mortgage REITs: Very different!
  • Debt: levels & maturities
  • Exposure to troubled entities
  • Concentrated portfolios
  • Geography
  • Management
  • Tax treatment (United States)

Section 5: How to Begin Today

Resources

Background on REITs

REIT industry financial snapshot

Jeffrey Gundlach betting big on mortgages

 

Intro music by audionautix.com

Find more episodes of the Torpedo Trading Podcast at this link

Continue Reading →

Gold is the one and only investment that I strongly believe every investor needs in their portfolio at all times.  However, don’t go overboard and don’t fall for sales pitches that are meant to frighten you into buying gold.  In this episode I’ll teach you the basics of investing in gold, what it can and cannot do for you, and how to get started if you don’t yet have any gold in your portfolio.  I also discuss how to use fundamental and technical analysis on gold to find the best buying opportunities.

Sign up for FREE email updates to be notified right away when a new episode is available!

 

(CC image by motoyen on Flickr)

Section 1: Background & Basics

  • History of gold as money
  • Who owns it, and in what form?

Section 2: What Determines the Price?

  • Fundamentals: global supply & demand
  • Financial conditions: Supply of money and credit, interest rates (real and nominal), inflation rate, health of the credit markets, and the rates at which these are changing
  • How I create my forecasts

Section 3: Why You Need Gold – The Rational Arguments

Section 4: Risks, Downsides, and Common Mistakes

  • Keeping too much of your money in gold, silver, or mining companies
  • Buying based on fear or panic
  • Buying from a less-than-reputable dealer
  • Buying at the top of the market
  • Security concerns
  • Tax treatment (United States)

Section 5: How to Begin Today

  • Take stock: How to determine if you are ready to purchase now, or if you should wait
  • Choose what form(s) of gold to buy – or, whether to start with silver because it’s more affordable
  • How to buy gold coins
  • How to buy gold bars in fractional/unallocated form (vaulted storage)
  • How to buy “paper gold” (e.g. ETFs)
  • How to buy shares of gold mining companies
  • Advanced strategies for earning cash flow from gold holdings

Resources

JM Bullion: The dealer I trust

BullionVault – secure vaulted storage and online trading of precious metals

Blade Digital Pocket Scale – for weighing coins

History of gold & silver as money

Infographics on the world gold supply and production totals

Above-ground gold reserves by country

Episode 7: Anyone Can Learn Technical Analysis to Boost Profits

Inflation, Deflation, and Your Portfolio

 

Historical gold price chart:

 

Intro music by audionautix.com

Find more episodes of the Torpedo Trading Podcast at this link

Continue Reading →

The mainstream advice on using 401(k), 403(b), IRA, and Roth IRA accounts to build wealth is flat-out wrong if you want to retire early or achieve financial independence.  I talk through the reasons why you should limit your use of these types of accounts if you want to achieve better results than ordinary investors do.  I also explain the limited exceptions to my advice on retirement accounts.

 Sign up for FREE email updates to be notified right away when a new episode is available!

(CC image by GotCredit on Flickr)

Section 1: Background

  • Strengths and weakness of retirement accounts
  • Annual contribution limits

Section 2: The Uncomfortable Truth: They Own Your Money

  • Never forget: Taking control of your own money puts you on the path to financial freedom
  • Mandatory contribution schemes – it’ll happen sooner than you think
  • Politicians are always thinking of ways to put themselves between you and your money

Section 3: It’s Better to Pay off Debt First, Including Your House

  • Most investors don’t achieve a high enough return in retirement accounts to beat what they’re paying on debt
  • There are plenty of very good reasons to rent – Just be aware that if you’re renting, you’re paying your landlord’s debt, and the balance isn’t dropping
  • A prolonged period of low returns is coming – or something much worse

Section 4: Max Out Your Health Savings Account First

  • If you have a qualifying high deductible health plan (HDHP), you are eligible to contribute to a Health Savings Account (HSA)
  • Limits and conditions
  • If spent on qualifying expenses, the money will never be taxed.  That’s never, not ever!

Section 5: A Better Way

  • Contribute enough to your 401(k) to get the employer match, not a penny more
  • If not covered by a 401(k), 403(b), or 457 plan, contribute $5,500/year to an IRA instead
    • If you are covered, only contribute if you don’t already have an IRA or Roth IRA yet
    • There are limited circumstances that let you take penalty-free withdrawals
  • Be an active investor
  • Build a truly diversified portfolio
  • Develop a business, or invest in someone else’s quality business
  • Invest in real assets that produce cash flows

Section 6: Exceptions

  • You are certain you will be in a lower tax bracket for a period of time, starting soon
  • Your company has excellent fund options in its 401(k)
  • You are already doing all the things listed above, have a high income with extra money to spare, and understand all the downsides of traditional retirement plans
  • You plan to work until you drop
  • You hate investing, and will accept mediocre to poor returns just to not have to think about your money

 

Intro music by audionautix.com

Find more episodes of the Torpedo Trading Podcast at this link

Continue Reading →

In this episode, I go through the most common goals that investors seek to achieve and teach you how to use the financial markets to achieve them.  Most investors will want to pursue several of these goals, with one being a higher priority than the others.  Traditional retirement, early retirement, income, capital preservation, and fun are very different goals that each require a unique approach to investing.

 Sign up for FREE email updates to be notified right away when a new episode is available!

 

(CC image by Al King on Flickr)

 

Section 1: Capital Appreciation for Traditional Retirement

Section 2: Capital Appreciation for Financial Independence or Early Retirement

  • Use retirement accounts, but you’re usually better off if you DO NOT max them out
  • Direct more capital towards alternative investments like: your own business, rental real estate, REITs
  • Use options to generate income, including more aggressive strategies
  • Be a more active investor – trade the intermediate-term cycles for extra profit potential

Section 3: Income

  • Appropriate for someone who already has reached, or is very close to, financial independence or retirement
  • Stock selection
  • Preferred stocks
  • Use options to generate income, but conservatively

Section 4: Capital Preservation

  • Laddered portfolio of bonds
  • Preferred stocks
  • Stock selection
  • Use options to limit downside and sell some upside

Section 5: Fun!

  • Futures, FOREX, small-cap stocks, day-trading, etc.
  • Anyone can have an aggressive trading account as long as the risk to the personal balance sheet is kept under control

 

Intro music by audionautix.com

Find more episodes of the Torpedo Trading Podcast at this link

Continue Reading →

(Wrap-up of ten-part series on Financial Truths)

In this episode, I tie together all the concepts I’ve introduced throughout this 10-part series on financial truths.  I illustrate a few different asset allocation ranges that will position you for profits and preserve your capital so you can trade for many years ahead.

Pick one of these asset allocation ranges that best suits your goals and risk tolerance, then just make sure your portfolio stays within the ranges at all times.

This process works for long-term investors in a 401(k) or IRA, as well as those with short-term trading accounts.

 

Sign up for FREE email updates to be notified right away when a new episode is available!

Important disclaimers to review

Asset Allocation Workbook in Microsoft Excel – Download Here

 

Calm

(CC image from Joe on Flickr)

Section 1: Financial Truths for Traders & Investors

  • Review of the series (find prior episodes here)
  • Why I chose the topics I did
  • How it’s different than what many others teach

Section 2: Take Action

  • A flexible asset allocation framework
  • Start today with the attached spreadsheet
  • Find the row that best suits you:
    • Choose one of the four categories based on how active you want to be
    • Move to the right side of the table.  Look at the annual loss section, with the 1-in-20-year, 1-in-10-year, and 1-in-5 year loss amounts: which row matches most closely with your personal risk tolerance?
    • Go to the right side of the worksheet and select that row from the drop-down box.  Those will be your asset allocation targets.

Section 3: Not Quite Right?  Here’s How to Adjust

  • Found the closest fit, but want to reduce the risk?  I explain how.
  • Found the closest fit, but want to take on more risk?  I explain how.

Section 4: The Next Level

Section 5: Make Sure You Stay on Track

  • Calculate and monitor your asset allocation
  • Calculate “asset exposure” for each investment or trading position you own
  • Add up the asset exposure by asset class (simple investment universe) or subclass (detailed investment universe)
  • Note: If you are using a highly leveraged strategy, use total assets in the denominator instead of asset exposure

 

My personal long-term target asset allocation baseline as of Feb 2017:

I’m currently short equities and much more heavily weighted towards cash equivalents (“Currency” category) like CDs and money market funds, based on intermediate-term trends.  This is the long-term baseline.

 

Intro music by audionautix.com

Find more episodes of the Torpedo Trading Podcast at this link

Continue Reading →

Here’s How to See the Trend

(Part 9 of ten-part series on Financial Truths)

Section 1: Why Did Your Short-Term Pattern Fail?

Section 2: Follow the Money: Start with Inflation/Deflation

Section 3: Make a Long-Term Forecast

Section 4: Make an Intermediate-Term Forecast

Section 5: Identify & Trade the Best Opportunities

 

Sign up for FREE email updates to be notified right away when a new episode is available!

 

wide view

(CC image by Ulbrecht Hopper on Flickr)

 

Blog Post References:

An Active Management Plan for Self-Directed Investors

Inflation, Deflation, and Your Portfolio

Fearless Forecasting for Long-Term Investors

Fearless Forecasting for Traders

 

Section 1: Why Did Your Short-Term Pattern Fail?

  • Why do chart patterns fail?  Most often, it’s the higher-level trend – found in the sector, the broad market index, or longer-term stock chart.
  • SBUX looked bullish to a short-term trader on 11/3/15 …

    … but the sector was WAY overextended and at a key level …

    … and the S&P 500 had recovered as much as it could. Nowhere to go but down.

    Long-term chart looked bubbly! SBUX still hasn’t broken this level as of 2/6/17

  • Always study the sector and market (higher-level assets)
  • Always study the intermediate-term and long-term trends (higher-level trends)

Section 2: Follow the Money: Start with Inflation/Deflation

  • What inflation is
  • How we measure inflation
  • Why inflation matters so much
  • How to forecast inflation

Section 3: Make a Long-Term Forecast

  • I introduced this concept in Episode 4
  • Pull up a weekly chart, 25+ years of data
  • Examine the four dimensions of: Price, Pattern, Momentum, and Time (see Episode 7 for details)
  • Choose your baseline asset allocations
    • Best approach: Rank all the choices in your investment universe from highest to lowest Sharpe Ratio
    • Simpler approach: Just adopt my allocations (shown below as of February 2017), but adjust as needed for your risk tolerance, goals, and market outlook
    • More details coming up in Episode 10!
    • As of Feb 2017, I’m bearish on most financial markets over the long-term, so these are conservative allocations despite my relatively young age.

      The sector-by-sector view for serious traders. This shows how I divide my stock allocation across various sectors. They’re ideal targets, not something I try to exactly match my portfolio to. As of Feb 2017.

Section 4: Make an Intermediate-Term Forecast

  • Pull up a daily chart, 8+ years of data
  • Examine the four dimensions of: Price, Pattern, Momentum, and Time (see Episode 7 for details)
  • “Flex” your baseline allocations, going overweight the assets that you expect to rise in the intermediate-term, and underweight or short the ones you expect to fall (review Episode 4 for more details)
  • Overweight bonds, underweight stocks, and short the US dollar as of early Feb 2017. But I’m still diversified.

Section 5: Identify & Trade the Best Opportunities

  • You’re free to trade anything within the asset class or sector; just stay reasonably close to your asset allocation targets
  • Remember that options and futures are leveraged.  Don’t underestimate the exposure.
  • Update periodically
    • Re-evaluate the long-term trend every few months, or sooner if the intermediate-term trend has changed
    • Re-evaluate the intermediate-term trend every few weeks, or sooner if market conditions warrant
  • Learn more macro trading strategies and stay current on market news by viewing our online trading videos and live streams

 

Intro music by audionautix.com

Image credit: blog.uyora.com/author/george/

Find more episodes of the Torpedo Trading Podcast at this link

Continue Reading →

Don’t Let Mental Mistakes Sink You

(Part 8 of ten-part series on Financial Truths)

Section 1: We Are All Human

Section 2: Play Devil’s Advocate

Section 3: Forget Your Cost Basis

Section 4: You Can’t Tell the Market What to Do, So Let the Market tell YOU What to Do

Section 5: Stop-Loss Orders Are Only For the Lazy

Section 6: Know When to Take a Break

Sign up for FREE email updates to be notified right away when a new episode is available!

 

trophy case

(CC image by Ben Sutherland on Flickr)

 

Section 1: We Are All Human

  • No ‘bot’ or ‘algorithm’ can come close to what a good investor/trader can achieve
  • Some high-speed trading firms do succeed, but have to spend many millions of dollars on computers and network connections to do it
  • ‘Flash crashes’ highlight the problems with pre-programmed trading algorithms
  • 2016 British Pound Flash Crash

    New Market Wizards by Jack D. Schwager

Section 2: Play Devil’s Advocate

  • Before placing a trade: visualize the market moving against you, what would that look like?
  • Could you construct a plausible alternative scenario around this?

Section 3: Forget Your Cost Basis

  • It doesn’t matter where you entered the trade
  • Don’t hang on to a losing trade because you want to “get back to even”
  • One exception: a “time-out” level based on total losses

Section 4: You Can’t Tell the Market What to Do, So Let the Market Tell YOU What to Do

  • Examine a chart without bias
  • Markets aren’t tradable 100% of the time

Section 5: Stop-Loss Orders Are Only For the Lazy

  • Stops often don’t work the way they’re supposed to
  • Other traders will exploit your stop-loss orders for their profit – “running the stops”
  • Don’t react too quickly to a breach: Watch the action around the price level
  • “Fake-outs” around commonly-known price levels

Section 6: Know When to Take a Break

  • Thinking too much about past mistakes
  • Being tempted to “double-down”
  • Exceeding a pre-defined risk tolerance

 

Intro music by audionautix.com

 

Find more episodes of the Torpedo Trading Podcast at this link

Continue Reading →

The Right Way to Read a Chart

(Part 7 of ten-part series on Financial Truths)

 

Section 1: What is Technical Analysis?

Section 2: Identifying the Higher-Level Trend

Section 3: Pattern

Section 4: Price

Section 5: Momentum

Section 6: Time

Sign up for FREE email updates to be notified right away when a new episode is available!

 

Section 1: What is Technical Analysis?

Section 2: Identifying the Higher-Level Trend

  • Uptrend: Series of rising lows
  • Downtrend: Series of falling highs
  • Diagnosing trend during choppy periods

Section 3: Pattern

  • Trends (same direction as the higher-level trend): typically consist of 5 waves (3 trend waves and 2 corrective waves)
  • Corrections (opposite direction as the higher-level trend): typically consist of 3 waves (2 trend waves and 1 corrective wave)
  • Basic patterns
  • Advanced patterns: Harmonic (e.g. Bat, Butterfly, Gartley)

Section 4: Price

  • Identify high-probability price targets and zones for trade entry/exit
  • Depth of past trends & corrections
  • Fibonacci retracements and projections
  • Pattern completion targets

Section 5: Momentum

  • Stochastics, MACD, or RSI
  • Examine multiple timeframes

Section 6: Time

  • Less precise than the other dimensions, but don’t ignore it
  • Correction periods should be shorter than trend periods
  • Length of past trends & corrections (e.g. 180 months for long-term cycles, 10 months for intermediate-term cycles)
  • Cycle compression/decompression
  • Fibonacci ratios can work on time as well as price
  • Pattern symmetry

 

Real-Life Examples:

Chart 1: Technical Framework in Action

Chart 2: Profitable Harmonic Pattern Set-Up

 

Intro music by audionautix.com

 

Find more episodes of the Torpedo Trading Podcast at this link

Continue Reading →