Psychology of Trading & Emotional Intelligence

Dr. Pierce is a psychologist and trader. She says the challenges of trading bring out a lot of emotional issues. If a new trader isn’t used to taking risk, for example, then taking a risk and losing money can feel horrible. Of course, doing well can be ecstatic. Harvard Business Review wrote about a similar concept, “Why do some managers seem to enjoy unpleasant on-the-job learning experiences while others just want to quit? Emotional intelligence has something to do with it, according to a study of managers by Yuntao Dong of the University of Connecticut. The researchers found that a highly unpleasant developmental experience increased turnover intention about 20% among managers with low emotional intelligence but slightly decreased it among those with high EQ. Managers with high EQ, the ability to understand and manage emotions, reframe their developmental experiences as valuable opportunities rather than as threatening situations. SOURCE: No Pain, No Gain: An Affect-Based Model of Developmental Job Experience and the Buffering Effects of Emotional Intelligence” EFT is a technique that helps people quickly dispel negative trauma and the emotions associated with them. Markets are commonly described as ruled by fear and greed. When you remove the emotional hooks in your life, you’re freer to make more rational decisions. Those living in the Denver area might consider visiting Charlene Bensen, LPC. Her contact info is: EFT is her specialty. As someone who teaches investing I see two common mistakes. One group of people, most often men, make a brave stab at trading and hope the venture is successful. Another group, sometimes women, recognize a good trade but are too timid to take action. That’s one of the reasons we created 10 trading rules to help minimize the impact of emotions of trading – available free. See sidebar. We also have seven forecasting rules that help our students to both time a turn and evaluate a trade’s probability of success.

The Dow is up 150%; now what?

Both the DOW and the S&P 500 are up over 150% from their lows in March 2009. Traders were able to make much more, but people still have a need for professional help. Successful traders follow rules to help minimize risk. One of our trading rules is to take a macro perspective and move to micro. We’ve always thought most of people’s money should be professionally managed. Annuities serve a purpose with their guarantees but have a risk to inflation. Real Inflation has been running from 9% to 11% over the last couple years. Fixed annuities aren’t keeping up with inflation and when the market falls the indexed annuities won’t keep up with inflation either. They shouldn’t lose principle, which is the main reason for holding them, in our opinion. The DOW is up 150% since 2009. Some of our traders make that in a year managing their own money. Here are a couple examples:  Trent makes 140% in 7 months.  Alex is on track: . Jason did way better: Jason makes 200%. We saw Trent’s trading results for last quarter and it was right around 50%, so he continues to do well even trading on his own, without the newsletter. Jason now makes a living trading. That’s our hope for you too, that you would learn to manage a portion of your money, growing at a rate that helps you catch up to your retirement goals. Still, having professional managers tactically manage a portion at least keeps up with wider market gains makes sense for most people. And yet, mutual funds aren’t designed to make money in a falling market, which will be coming. That’s why financial planners always recommend diversifying. We are the go to source for making money in a falling market; it’s our specialty. Think of it as “hedging”, which is what professional traders do.  There’s more in our book on that subject: Most people need the security of annuities. Most people need a portion of their money professionally managed, and roughly 95% of America is behind and needs the explosive growth that can come from self-management.

DOW returns 1%

A 1% return in almost six months is not enough to justify the risk of a 40% loss. That should be self-evident. Think back over the past 15 years. We’ve had two market corrections around 40%. In each case making back the losses took years. Some of the country’s top forecasters warn the next collapse could be bigger without, a new high to compensate for the loss. We’re used to thinking “the market will always be back”, but that’s just not true. For one recent example, look at the Nikkei, Japan’s leading index. What kind of return do you expect for taking the risk your savings could get gouged by 40%? We’re used to thinking 8% – 10% is normal. Almost half way through the year and the DOW is up less than 1%. That’s an unacceptable risk; your retirement has already been set back by several years in each of the last two corrections. Consider, too, the effect of inflation. Last year real inflation was 9%. You need $109 to buy what took $100 last year. One way of staying ahead of inflation is our option strategy. We employ a method Warren Buffet uses. Already this year our newsletter has pointed to opportunity four times inflation.

The budget crisis

The Andersons

A Budget Crisis Allegory

By Eric Gemelli When the Andersons were a young couple they had many lean years.  Mr. Anderson finished college and eventually advanced to upper management of the company for which he worked. His company was so well run that people would say of him, “The business of Anderson is business”. Mrs. Anderson grew accustomed to a soft life; she always badgered her husband for more trinkets, in shrewish tones, accusing him of not loving their kids. She said they were “essentials”. He observed what his wife thought was essential usually rotted their kid’s teeth, numbed their brain or made them lazy. He pointed out the most loving thing was to teach discipline and live well for generations rather than with excess for a short time. Mr. and Mrs. Andersons always had different ideas about how to spend money and raise the kids, like most couples, but they eventually came to an agreement and the result was good for everyone. Their friends called them “The A-team”, because they seemed to have the golden touch.The alternative is to live beyond their means by going into debt. Years ago the Andersons used to go to church together. One particular Sunday they heard a sermon about the sayings of King Solomon. Solomon, thought to be the wisest man ever, taught “The debtor is the servant of the lender”.  “That’s economics 101”, he whispered in his wife’s ear. Their success is what led to the demise of the family. Their divorce was avoidable, but also inevitable given Mrs. Smith’s (she changed back to her maiden name) unhealthy need for praise. She just couldn’t say “no” to her children or neighbors. Mr. Anderson now sees he was naïve to believe his former wife’s promises to get psychiatric help for her shopping addiction. He tries to keep his word and assumes others share his standards.  He gave his wife favorable terms in their separation, hoping she would reciprocate his good will. She didn’t. Instead, she carefully built a deceptive story and divorced her college sweetheart. With years of practiced charm, she convinced the court to saddle her husband with the debt she ran up. She pretended to work and used the kids as a tool to get sympathy. Mrs. Smith never intended to keep her promise to get help with her addiction. After all, “I’m just trying to help my family”, she rationalized. She doesn’t even think of her false statements as lies, since she feels her goals are noble. Today the kids are late for their appointment with the math tutor. For years their kids have been falling behind and are about to fail. Mr. Anderson cleared the date with his ex-wife; she agreed to have the kids dressed and ready to leave on time. After years of being harangued by his ex-wife he knows if he goes to the door and asks why the children aren’t ready to leave on time she’ll just find a way to blame him, so he sits, waiting in the car, offering an occasional frustrated “honk”, while the kids are inside gorging on honey-soaked “Coocoo Puffs”. Dad warned his ex-wife to set a curfew for the kids.  Dad planned and paid for a trip to the math tutor because the kids are so desperately behind in even basic math skills. Dad showed the kids how to set the alarm, so they could be up and ready.  But they dawdle. Mrs. Smith hates to look bad, so she recruits her neighbors to her side. This isn’t terribly hard since, to varying degrees, each has financially raped their ex-husbands. The neighbors, blinded by a steady stream of partial truths from Mrs. Smith, gossip about Mr. Anderson.   The neighbors all want to be thought of as nice people; they mean well, they just don’t understand the whole story.  Mrs. Smith accuses Mr. Anderson of not wanting their kids to have breakfast. She’s the master of irrelevant phrases that could fit on a bumper sticker: “Breakfast is the most important meal of the day”. That’s true, but Mrs. Smith neglected to point out the kids are now Type-2 diabetics because of their constant diet of gooey sweet stuff. A recent trip to the doctor confirmed the Anderson children are dangerously close to becoming Type-1 diabetics, causing permanent harm and unlikely to return to health. She calls the doctors warnings of possible amputation of affected limbs as “sensational” and “scare tactics”. Besides, they just take their pill and everything seems fine. One of the neighbors, Mrs. Kravitz, is known for involving herself in everyone else’s business. As she ages she’s become a spindly version of her former self. The more she is ignored, the more insistently she shouts her opinions. Mrs. Kravitz confronted Mr. Anderson. She intended to ask a question, but merely stated, almost verbatim, Mrs. Smith’s accusation, “You don’t want your kids to eat the most important meal of the day!” Mr. Anderson is a numbers guy and almost blind to the nuances of persuasion or the power of public opinion. He once observed his former wife lies better than he tells the truth. He presumes everyone knows of the health problems the children have, caused by their sugary meals. Mrs. Smith didn’t intend to make her kids sick, but she constantly acquiesces to their unhealthy requests for “fun-foods”. Mr. Anderson, somewhat lamely, replies to Mrs. Kravitz with a proverb his dad taught him: “All manner of excess can be excused in the name of fun”. Mrs. Kravitz looks upon him with contempt, believing she just heard him imply breakfast is an unnecessary excess. He is pleased with himself, believing she is silenced by his irrefutable logic connecting the science of blood sugar diseases and sugary meals. Mrs. Kravitz marches home and immediately calls some neighbors claiming, “He practically told me he hates bees”.  The other neighbor, drawn in by the sensational nature of the story, wants to know, “What kind of person hates bees?!” “Well, he stood there and told me his kids didn’t need to put honey on their cereal, and everyone knows honey comes from bees.” “Yeah,” said the neighbor, “and honey is a healthy kind of sugar”, the other neighbor added, repeating something she heard in a TV commercial. Both are incensed over Mr. Anderson’s desire to get his kids to trade in their honey soaked “Coocoo Puffs” for healthier steal cut oats. Later that day Mrs. Smith invited all the neighbors over for some Kool-Aid while they rehashed the whole event. Mrs. Smith erroneously concluded, in bumper sticker fashion, “ we don’t really need math skills anymore, now that everyone has a calculator on their cell phone”. Copyright, 2013 About the author: Mr. Gemelli is the market forecaster who predicted the market crash tied to September 11th in May 2001, in his newspaper column. His column came out, not only at the high of 2001, but the high of the next 5 years. Gemelli has gone on the record in his radio show predicting another major market crash. He is the author of The Pattern of Life, How to make money in any market and recently spoke on the Success At Sea cruise.  More information is available at

The S&P was higher in December 1999

The S&P was higher in December 1999 than in early December 2012. Take a look at this chart – the blue line traces back to December 1999 and is higher than the close on the first day of trading in December 2012. A negative return in exchange for taking huge market risk, for more than a decade, is a retirement disaster, but the reality is worse than it appears. For those investors who bought a mutual fund, the average return doesn’t keep pace with the S&P. Most mutual funds don’t keep pace with the benchmark index. And the news gets worse;  Investopedia says “The average equity mutual fund charges around 1.3%-1.5%”. So, even if your fund kept pace with the S&P, the fees likely ate up any profit. The math is simple: even at only 1% per year, an investor in a mutual fund for the past 12 years gave up 12% profit. Take a look at the chart above. Today’s close on the S&P 500 was 1409. If we subtract 12%, that takes us down to 1240 (the red line). That’s the same place the market was as it set up to crash prior to September 11th and the massive correction in 2008. I’m sorry to say the results are even more harmful. Inflation is destroying the purchase power of that idle money. In 1999 gas sold for $1.14; today, at $3.25, it costs $65 to add 20 gallons to your gas tank versus just $23 in 1999. The real inflation rate, one that includes food and fuel, has exceeded 10% for both 2011 and 2012. Just in the past two years your money buys 20% less. So, the bottom line is you have to either save more or make more. Saving more might be impossible but our newsletter and investor training program is guaranteed to make money if you follow three simple rules (see our agreement: Trent Cline is only 20 years old. He’s not even old enough to buy beer, but he made 165% this year using our investing model. Maybe you could prosper, too. Take a look at his video testimonial

Simple Online Financial Tools

Life Coaches tell their clients who desire successful living to tell themselves the truth. The internet offers useful tools to help us take a realistic look at our finances. Melissa Mains Timberlake, a coach in Chicago, says she’s ” Choosing to look truthfully at who I am, the choices I’ve made and who I’m becoming. Lately, I’ve been courageously considering those area of my life where I feel a sense of uneasiness. Such a gift to accept the truth, embrace my errors calmly and then address them diligently. Dropping the denial games…” I love this next statement best: “… releasing the self-critism, and recognizing that the best way to continue to improve today and tomorrow is to know where I’ve gone wrong. Accept it. Learn from it. Change it.” Everyone makes mistakes; everyone has set backs. Learn and move on. One easy tool that give us a picture of where our finances are headed is a Compound Interest Calculator. In just a few minutes you can get a general idea of the outcome of your savings plan. Take, for example, a 40 year-old who already has $100,000 accumulated. Let’s see what happens if you continue saving $500 per month at a hypothetical 6.5% for 25 years. That would take our imaginary saver to age 65, a point where a lot of people are hoping to work less and play more. There are investment vehicles, like annuities, that claim to pay 8%. Annuities have built in expenses, which may yield only 6.5% after these extra fees. Bank CDs only yield around 1% at the time of this publication. So, using very optimistic yields, tells us, if we start with $100,000, add $500 per month and get 6.5% for 25 years we’ll accumulate less than $860,000. The bad news is Forbes Magazine reports “Just a generation ago, a person with $2 million or more in liquid assets would have had enough for a secure retirement. But not today.” The beauty of these free online calculators is how easy you can vary the assumptions. Most people haven’t saved $100,000 by age 40. Let’s see what happens if our little saver accumulated $50,000 and increases their monthly contribution to $1000 per month, still netting 6.5% annual return. That turns into slightly less than $994,000 in 25 years. Unfortunately there is more bad news. Inflation compounds too. Inflation is currently more than 10% when we add the cost of food and fuel back in to the equation. At 10%, inflation cuts your buying power in half every seven years. My high school English teacher, Gary Masquelier, thought chewing gum in class was an insidious evil that needed to be thwarted with diligence and intention. Former Federal Reserve Board Chairman Alan Greenspan was more concerned with inflation because it is a silent thief. Oppenheimer funds has a helpful write up that explains diminished buying power due to inflation:  Most people can’t save much more than they already do, at least without drastic sacrifice. The one solution is to earn a higher rate of return. We have a 21 year old student who spoke at a luncheon yesterday who said he made more than 100% in just six months using our market forecasting techniques and the trade suggestions in our newsletter. Our 21 year old student is quite bright and has an advantage over most people, but what if you could make 50% per year? We take risks, so be conservative: invest only $2000. You’d have $6,650,000, in only 20 years. You could drive your new Audi R8 to your high school reunion and set on fire a half million dollars, just to tick off your friends, and still be a multi-millionaire! Connect with Ms. Timberlake at

The Trillion $$$ investment you never heard of

ETFs are widely popular among active investors but largely unknown to the general public. ETF stands for Exchange Traded Funds; they are baskets of stock that act like a mutual fund but have become popular due to their lower fees own, low entry cost and ease of purchase. Bloomberg reports there are over 1400 ETFs in existence and each seeks a particular niche. There are ETFs that follow commodities such as grains (GRU) or Gold (GLD). Investors should note the purpose of an ETF is to get a similar rate of change in price, but it won’t be exact. At the time of this writing Wheat futures have risen approximately 50% in the past 60 days. GRU has risen only 40%. There are several reasons. One is GRU includes other grains that haven’t experienced the same change in price, such as corn. Another factor comes from a warning from the New York Stock Exchange – the underlying asset many times is a futures contract. As these contracts mature there is price fluctuation that doesn’t reflect the actual cost of the asset. “ETFs began as a low-cost alternative to the mutual fund, a sort of improved index fund. Nathan Most, an executive at the American Stock Exchange, developed the first SPDR-Standard & Poor’s depositary receipt in 1993,” repots Bank Investment Consultant. SPY is the call symbol for the ETF that follows the S&P. Creating more opportunity and more confusion is the addition of leverage. Some ETFs like FAZ and FAS follow financial stocks, but seek to move an average of 300% more. Both use options to create more gains or losses. Options have a built in “wasting aspect” to them. That is, time diminishes the value. FAS moves with the financial stocks. If they are rising, so is FAS. FAZ is an inverse ETF, also called a “short”. If the price of financial stocks is falling then FAZ is rising. And because of its leverage, it moves faster. In May 2012 the DOW fell about 1300 points and financial stocks fell along with it. FAZ moved up over 50% in the same time period. Used wisely ETFs are an important piece of any investment strategy, but they are not a “buy & hold” instrument. Investors must seek trends, ride them and get out. Timing the turns is critical. Our 21 year old student, Trent C. of Broomfield, Colorado, made over 100% in 6 months using the market timing techniques taught to him by us. Combine the right vehicle, purchased at the right time, investing becomes fun again.

Economy “Stuck”

The December 4, 2011 Denver Post said “More economists are predicting Europe will slip into recession soon, a spillover from a sovereign debt crisis that has roiled stock and bond markets for months.” The Post paints a bleak picture stating, “Italy’s government bonds are 120 percent of the county’s economic output, a burden made heavier by slow economic growth and interest rates that have soared above 7 percent”. Bank Investment Consultant’s November 2011 cover story describes the economy this way: “In a word, it’s stuck. After a brief period of optimism about fiscal recovery at the end of 2010, the mood has shifted and embraced the reality of high unemployment, lackluster borrowing and an unpredictable stock market.” Our local mall in Metro Denver, the Colorado Mills Mall, is a reflection of the poor economy described in the above articles. During the most important shopping season of the year they have eight retail stores empty. At least one of the stores there, D. W. Designs, is only present for the 6 weeks preceding Christmas. This pattern continues throughout town. Colfax Ave. is a major business thoroughfare in Denver and runs past the center of power, the capitol. Prime retail space remains empty on Colfax Avenue and is a foreboding reflection of the trends described here.

Thanksgiving Dinner Inflation

WASHINGTON, D.C., November 2011 – The retail cost of menu items for a classic Thanksgiving dinner including turkey, stuffing, cranberries, pumpkin pie and all the basic trimmings increased about 13 percentthis year, according to the American Farm Bureau Federation. Click on the image for a high resolution PDF version. AFBF’s 26th annual informal price survey of classic items found on the Thanksgiving Day dinner table indicates the average cost of this year’s feast for 10 is $49.20, a $5.73 price increase from last year’s average of $43.47. The AFBF survey shopping list includes turkey, bread stuffing, sweet potatoes, rolls with butter, peas, cranberries, a relish tray of carrots and celery, pumpkin pie with whipped cream, and beverages of coffee and milk, all in quantities sufficient to serve a family of 10. There is also plenty for leftovers. The big ticket item – a 16-pound turkey – came in at $21.57 this year. That was roughly $1.35 per pound, an increase of about 25 cents per pound, or a total of $3.91 per whole turkey, compared to 2010.  The whole bird was the biggest contributor to the final total, showing the largest price increase compared to last year. In addition, “the era of grocers holding the line on retail food cost increases is basically over,” Anderson explained. “Retailers are being more aggressive about passing on higher costs for shipping, processing and storing food to consumers, although turkeys may still be featured in special sales and promotions close to Thanksgiving.
Yearly Averages
1986 – $28.74
1987 – $24.51
1988 – $26.61
1989 – $24.70
1990 – $28.85
1991 – $25.95
1992 – $26.39
1993 – $27.49
1994 – $28.40
1995 – $29.64
1996 – $31.66
1997 – $31.75
1998 – $33.09
1999 – $33.83
2000 – $32.37
2001 – $35.04
2002 – $34.56
2003 – $36.28
2004 – $35.68
2005 – $36.78
2006 – $38.10
2007 – $42.26
2008 – $44.61
2009 – $42.91
2010 – $43.47
2011 – $49.20
“Although we’ll pay a bit more this year, on a per-person basis, our traditional Thanksgiving feast remains a better value than most fast-food value meals, plus it’s a wholesome, home-cooked meal,” Anderson said. A gallon of whole milk increased in price by 42 cents per gallon, to $3.66. Other items that showed a price increase from last year were: a 30-ounce can of pumpkin pie mix, $3.03, up 41 cents; two nine-inch pie shells, $2.52, up 6 cents; a ½ pint of whipping cream, $1.96, up 26 cents; one pound of green peas, $1.68, up 24 cents; a 14-ounce package of cubed bread stuffing, $2.88, up 24 cents; a dozen brown-n-serve rolls, $2.30, up 18 cents; three pounds of sweet potatoes, $3.26, up 7 cents; and fresh cranberries, $2.48, up 7 cents. He noted that despite retail price increases during the last year or so, American consumers have enjoyed relatively stable food costs over the years, particularly when adjusted for inflation. The 13 percent increase in the national average cost reported this year by Farm Bureau for a classic Thanksgiving dinner is somewhat higher but still tracks closely with the organization’s 2011 quarterly marketbasket food surveys and the federal government’s Consumer Price Index for food (available online at . Farm Bureau volunteer shoppers are asked to look for the best possible prices, without taking advantage of special promotional coupons or purchase deals, such as spending $50 and receiving a free turkey. Shoppers with an eye for bargains in all areas of the country should be able to purchase individual menu items at prices comparable to the Farm Bureau survey averages. Another option for busy families without a lot of time to cook is ready-to-eat Thanksgiving meals for up to 10 people, with all the trimmings, which are available at many supermarkets and take-out restaurants for around $50 to $75. The AFBF survey was first conducted in 1986. While Farm Bureau does not make any scientific claims about the data, it is an informal gauge of price trends around the nation. A total of 141 volunteer shoppers from 35 states participated in this year’s survey. Farm Bureau’s survey menu has remained unchanged since 1986 to allow for consistent price comparisons. Article excerpted from AFBF’s website.

Thinking Through Falling Markets

Rob Stein of Astor Asset Management runs a separately managed account strategy with $1.25 billion and works with over 600 financial advisers. Stein has noted his clients are becoming increasingly concerned: “Everybody got mugged in 2008, so they’re walking down the street and hearing footsteps and saying ‘I’m not letting that happen to me again.’ So they’re shooting first.” Investors “used to  to feel you could hide in the alternative space, but have now realized, “Oh, you can lose money there too.” Michael McGrath, head of alternatives at Morgan Stanley Smith Barney, says that if clients are nervous advisers should discuss alternatives with their clients. China’s economic growth is well publicized but Adam Taback of Wells Fargo says “China might be growing at a 10% rate, but long-only equity funds have had a hard time capturing that.” “That’s why investors need to know how to take profits in a falling market. Traders use three primary methods: shorting, inverse ETFs and options,” says Eric Gemelli, an investment and forecasting trainer with