Friday, November 25, 2011
Sunday, November 20, 2011
* Abandoned Baby: Abandoned Baby Candlestick example image from StockCharts.com A rare reversal pattern characterized by a gap followed by a Doji, which is then followed by another gap in the opposite direction. The shadows on the Doji must completely gap below or above the shadows of the first and third day.
* Dark Cloud Cover: Dark Cloud Cover Candlestick example image from StockCharts.com A bearish reversal pattern that continues the uptrend with a long white body. The next day opens at a new high then closes below the midpoint of the body of the first day.
* Doji: Doji Candlestick example image from StockCharts.com Doji form when a security's open and close are virtually equal. The length of the upper and lower shadows can vary, and the resulting candlestick looks like, either, a cross, inverted cross, or plus sign. Doji convey a sense of indecision or tug-of-war between buyers and sellers. Prices move above and below the opening level during the session, but close at or near the opening level.
* Downside Tasuki Gap: Downside Tasuki Gap Candlestick example image from StockCharts.com A continuation pattern with a long, black body followed by another black body that has gapped below the first one. The third day is white and opens within the body of the second day, then closes in the gap between the first two days, but does not close the gap.
* Dragonfly Doji: Dragonfly Doji Candlestick example image from StockCharts.com A Doji where the open and close price are at the high of the day. Like other Doji days, this one normally appears at market turning points.
* Engulfing Pattern: Engulfing Pattern Candlestick example image from StockCharts.com A reversal pattern that can be bearish or bullish, depending upon whether it appears at the end of an uptrend (bearish engulfing pattern) or a downtrend (bullish engulfing pattern). The first day is characterized by a small body, followed by a day whose body completely engulfs the previous day's body.
* Evening Doji Star: Evening Doji Star Candlestick example image from StockCharts.com A three day bearish reversal pattern similar to the Evening Star. The uptrend continues with a large white body. The next day opens higher, trades in a small range, then closes at its open (Doji). The next day closes below the midpoint of the body of the first day.
* Evening Star: Evening Star Candlestick example image from StockCharts.com A bearish reversal pattern that continues an uptrend with a long white body day followed by a gapped up small body day, then a down close with the close below the midpoint of the first day.
* Falling Three Methods: Falling Three Methods Candlestick example image from StockCharts.com A bearish continuation pattern. A long black body is followed by three small body days, each fully contained within the range of the high and low of the first day. The fifth day closes at a new low.
* Gravestone Doji: Gravestone Doji Candlestick example image from StockCharts.com A doji line that develops when the Doji is at, or very near, the low of the day.
* Hammer: Hammer Candlestick example image from StockCharts.com Hammer candlesticks form when a security moves significantly lower after the open, but rallies to close well above the intraday low. The resulting candlestick looks like a square lollipop with a long stick. If this candlestick forms during an advance, then it is called a Hanging Man.
* Hanging Man: Hanging Man Candlestick example image from StockCharts.com Hanging Man candlesticks form when a security moves significantly lower after the open, but rallies to close well above the intraday low. The resulting candlestick looks like a square lollipop with a long stick. If this candlestick forms during a decline, then it is called a Hammer.
* Harami: Harami Candlestick example image from StockCharts.com A two day pattern that has a small body day completely contained within the range of the previous body, and is the opposite color.
* Harami Cross: Harami Cross Candlestick example image from StockCharts.com A two day pattern similar to the Harami. The difference is that the last day is a Doji.
* Inverted Hammer: Inverted Hammer Candlestick example image from StockCharts.com A one day bullish reversal pattern. In a downtrend, the open is lower, then it trades higher, but closes near its open, therefore looking like an inverted lollipop.
* Long Day: Long Day Candlestick example image from StockCharts.com A long day represents a large price move from open to close, where the length of the candle body is long.
* Long-Legged Doji: Long-legged Doji Candlestick example image from StockCharts.com This candlestick has long upper and lower shadows with the Doji in the middle of the day's trading range, clearly reflecting the indecision of traders.
* Long Shadows: Long Shadows Long Shadows Candlestick example image from StockCharts.com Candlesticks with a long upper shadow and short lower shadow indicate that buyers dominated during the session and bid prices higher. Conversely, candlesticks with long lower shadows and short upper shadows indicate that sellers dominated during the session and drove prices lower.
* Marubozo: Marubozu Candlestick example image from StockCharts.com A candlestick with no shadow extending from the body at either the open, the close or at both. The name means close-cropped or close-cut in Japanese, though other interpretations refer to it as Bald or Shaven Head.
* Morning Doji Star: Morning Doji Star Candlestick example image from StockCharts.com A three day bullish reversal pattern that is very similar to the Morning Star. The first day is in a downtrend with a long black body. The next day opens lower with a Doji that has a small trading range. The last day closes above the midpoint of the first day.
* Morning Star: Morning Star Candlestick example image from StockCharts.com A three day bullish reversal pattern consisting of three candlesticks - a long-bodied black candle extending the current downtrend, a short middle candle that gapped down on the open, and a long-bodied white candle that gapped up on the open and closed above the midpoint of the body of the first day.
* Piercing Line: Piercing Line Candlestick example image from StockCharts.com A bullish two day reversal pattern. The first day, in a downtrend, is a long black day. The next day opens at a new low, then closes above the midpoint of the body of the first day.
* Rising Three Methods: Rising Three Methods Candlestick example image from StockCharts.com A bullish continuation pattern in which a long white body is followed by three small body days, each fully contained within the range of the high and low of the first day. The fifth day closes at a new high.
* Shooting Star: Shooting Star Candlestick example image from StockCharts.com A single day pattern that can appear in an uptrend. It opens higher, trades much higher, then closes near its open. It looks just like the Inverted Hammer except that it is bearish.
* Short Day: Short Day Candlestick example image from StockCharts.com A short day represents a small price move from open to close, where the length of the candle body is short.
* Spinning Top: Spinning Tops Candlestick example image from StockCharts.com Candlestick lines that have small bodies with upper and lower shadows that exceed the length of the body. Spinning tops signal indecision.
* Stars: Stars Candlestick example image from StockCharts.com A candlestick that gaps away from the previous candlestick is said to be in star position. Depending on the previous candlestick, the star position candlestick gaps up or down and appears isolated from previous price action.
Sandwich: Stick Sandwich Candlestick example image from StockCharts.com A bullish reversal pattern with two black bodies surrounding a white body. The closing prices of the two black bodies must be equal. A support prices is apparent and the opportunity for prices to reverse is quite good.
* Three Black Crows: Three Black Crows Candlestick example image from StockCharts.com A bearish reversal pattern consisting of three consecutive long black bodies where each day closes at or near its low and opens within the body of the previous day.
* Three White Soldiers: Three White Soldiers Candlestick example image from StockCharts.com A bullish reversal pattern consisting of three consecutive long white bodies. Each should open within the previous body and the close should be near the high of the day.
* Upside Gap Two Crows: Upside Gap Two Crows Candlestick example image from StockCharts.com A three day bearish pattern that only happens in an uptrend. The first day is a long white body followed by a gapped open with the small black body remaining gapped above the first day. The third day is also a black day whose body is larger than the second day and engulfs it. The close of the last day is still above the first long white day.
* Upside Tasuki Gap: Upside Tasuki Gap Candlestick example image from StockCharts.com A continuation pattern with a long white body followed by another white body that has gapped above the first one. The third day is black and opens within the body of the second day, then closes in the gap between the first two days, but does not close the gap.
at 9:20 PM
at 8:51 AM
Friday, November 11, 2011
One of the least understood secrets behind the success of Berkshire Hathaway and its rise from an $8 stock in the 1960’s to more than $118,000 per share today, is that Warren Buffett focuses on two value “buckets” as he put it in a recent shareholder letter. The first bucket consists of the operating businesses in which the company holds a controlling stake and the second of marketable securities such as stocks, bonds, mutual funds, et cetera, most of which are held through the insurance subsidiaries such as GEICO, General Re, or National Indemnity, just to name a few.
This arrangement provides several major advantages to Berkshire Hathaway. First, when stocks collapse, Buffett is able to rely on the cash generated by the operating businesses to provide him with funds to redeploy into the market, buying up assets on the cheap. If he were running a mutual fund, this would not be the case and as the value of his holdings fell, Warren would be forced to sell something that was already undervalued to buy something that was even more undervalued. Second, the operating businesses are insulated from daily valuations (except to the extent that the parent holding company is publicly traded), giving it a much more stable net worth and estimated private market value than a mutual fund would have. Thus, banks are more likely to loan on a long-term, fixed-rate basis to a stable business with real assets such as factories, retail stores, computers, and such than they would be on a portfolio of stocks representing shares of those same companies.
In your own life, you are likely to find that it is considerably easier to raise your net worth quickly when focusing on both of these, taking the same “double barrel” approach Buffett and his long-time business partner, Munger, have made a cornerstone of their empire.
For most people, their primary “operating business” would be their day job. Whether you are a teacher, firefighter, accountant, or part-time babysitter, it is this stream of funds that allows you to pay your bills, watch television, buy groceries, and put gas in your car. It is also this income that provides you with your first real capital to acquire investments.
Just like any good business, you want to grow your profits, or in this case salary, wages, and other income from the job, as much as possible with the smallest investment. Thus, if your choices are working more hours to make more money or going back to school to become a doctor, you might opt for the latter due to the much higher earnings down the road by putting in a comparable amount of double and triple-shifts. This leads to a golden rule of wealth building: You must invest in yourself if you want to experience true financial freedom. This means gaining new skills and turning those skills into monetary gain. Only a few days ago, I read a story in a newspaper about a homemaker that has gotten so good at coupon clipping, she can cut a $150 grocery bill down to $40 – keep in mind, that since food is bought with after-tax income, these results are exponentially more impressive than they may appear.
The reality is that those with specialized skills such as heart surgeons, auto mechanics, dentists, plumbers, and fluent speakers of Mandarin Chinese are not being left out of the global economy. Virtually all of us have the potential to add some of these unique skill sets to our vocational toolbox, but the notion that you are going to be able to graduate from high school with nothing more than a diploma, get a job for life, and retire well is naïve. The genie is out of the bottle in the world of globalization and nothing could reverse that (even if the U.S. were to enact massive trade protections, we would experience horrific recession or depression and China and India would eclipse us at an even faster pace).
Once you have your primary career on track and are investing in your own skills, it might be time to acquire or establish other operating businesses. For some, this could mean building storage units or car washes. For others, it might include starting a lawn mowing service. One member of my family has a career as a flight attendant, production manager at an embroidery company, and then owns a diaper cake design business on the side. She lives off her salary as a manager, using the other two jobs mostly as pure investment capital to ensure that she has millions of dollars in wealth by her forties despite having an average income and supporting a family.
This is where you really have an opportunity to generate cash doing something you love. When adding these other operating businesses, you should strive to find things that make you “tap dance” to work, to borrow a phrase from Buffett. Let’s say you are 25 years old and manage to sell paintings or perform magic at birthday parties and weddings, generating an extra $96 per week (roughly $5,000 per year). That might not seem like a lot but it’s going to add up to $9,266,500+ by the time you are Warren Buffett’s age if you park it in a Roth IRA and manage to generate the historical 11% rate of return the S&P has brought in for its owners over the long-haul. That’s not a joke. By doing something you love, and putting that money into cash generating assets, you can retire rich. As for the bigger house, car, X-Box, and other stuff you want along the way, that’s why you work your primary job and keep investing in your skills. (If you don’t have time for a second job or activity, remember our homemaker who saved more than $110 a week on groceries? That would be more than enough to achieve the same results.)
As you generate cash, you are going to want to have it invested in the most tax-efficient manner possible. That means taking advantage of your 401k, and an individual retirement account such as a Traditional IRA, Roth IRA, or SEP-IRA just to name a few. Here, if wisely and prudently invested, those funds can blossom into a torrent of capital gains, dividends, and interest, all of which is plowed back in to generate even more profits. If the stock market falls, you can take advantage of your operating businesses to dollar cost average your positions, thus taking advantage of the basic principles of value investing.
at 2:28 AM