Markets In Profile: Profiting From The Auction Process - Book Review

Markets in Profile: Profiting from the Auction Process (Wiley Trading)





What Is It About?

This book is about learning how to analyze stocks using price, volume, and time. Covering all time frames, from scalper to long term investor, the book details how understanding the interrelation of all three factors is key to achieving market success. The book does this by focusing on the use of the Market Profile chart for analysis of stock prices across time, price and volume.


What Did I Get Out Of It As A New Investor?

The book provides an excellent description of how and why the various time frames interrelate and work in the stock market. Too often the forces of short and long term appear to the new investor as being at odds with each other. The reality is that both the short and long term time frames compliment each other and provide support to one another.

For the short term investor, the long term individual provides a value reference. For the long term investor, the short term investor provides the needed liquidity to realize the perceived value. This is a key point made in the book. Additionally, the book provokes thought in articulating the point that while not all day traders are long term investors, all long term investors are day traders. That is because on the day a long term investor enters or exits a trade they do so on a day trader time frame. Understanding this, and taken advantage of it, can be important in a fast moving market.

Overall, the book packs a lot of information into just under 200 pages. The book does a good job of using detailed charts to illustrated the examples given. While this may appeal to some, the true value of this book for investor and trader alike is an understanding of how to analyze the various time frames at work in the market in order to assist in the decision making process within ones own time frame.


The Good News

A solid resource for those wanting to understand how price, volume, and time interact within the stock market.


The Bad News

The book relies heavily on the Market Profile style of chart. For those unfamiliar with that system, some of the examples may prove confusing.


The Bottom Line

A good book for those already familiar with the Market Profile system. I would recommend first reading the author’s other book Mind over Markets: Power Trading With Market Generated Information which provides more of an introduction to the Market Profile system in order to fully appreciate the text.


Other Related Reading:

Blog Review: Options The Easy Way

Options The Easy Way

Another great blog that covers options trading is Options The Easy Way. Not much is known about the author of the blog, but from the many educational posts it is evident that the writer truly desires to educate the reader.

The blog offers many insightful posts on options. There are posts which educate the new investor on option techniques and terminology. Posts which discuss option money management to avoid the risk of ruin. Other posts use actual options trades as a teaching tool with charts and discussion of the trade with follow up posts. Simply put, Options The Easy Way covers the material any new investor needs to know about trading options.

Overall, anyone who wants to learn about trading options would do well to start from the beginning of the blog posts and read through to today's current post. Doing so will provide a great start to an options education.

Options The Easy Way

Blog Review: Five Percent Stocks

Five Percent Stocks

Another unique blog I like to read is Five Percent Stocks. As the name of the blog implies, the author buys stocks and holds them for a five percent move or 30 days, which ever comes first.

To be more specific here is what the author has to say about his approach:

In my investing I have had the most success choosing momentum stocks that I see increasing 5 percent within 30 days. I have a simple buy-sell strategy: purchase
at the beginning of an upswing and sell after 5% gain (no
exceptions) or after 30 days, or after a stop loss of 10%.

Now if you have read the site for any period of time you realize that the stop loss is not set in stone and that the author does not simply pick a stock and run with it. As this recent post details, there is a lot of research prior to stock selection. Overall, a nice site to read about an interesting way to play the market.

Five Percent Stocks

Investing Resource Review: Investment U's China and Uranium Report

Two of the hotter topics the last few years have been China and Uranium. Unfortunately most new investors may not know where to begin their research. Fortunately two recent publications from Investment U may assist the new investor in learning about China and Uranium. They are:

   and  

Both publications run 36 pages and read quickly, much as a detailed research notes does. Each booklet gives a brief background of the area covered, recent history of what the sector/industry has been doing, thoughts on where China and Uranium may be going, and specific selections to invest in. For those looking to get a quick introductory read on either China or Uranium, giving the above a read may be worth your while.

Harry Domash's Fire Your Stock Analyst - Analyzing Stocks On Your Own - Book Review

Fire Your Stock Analyst: Analyzing Stocks On Your Own





What Is It About?

This book is about learning how to analyze stocks on your own. Over the course of several chapters the author explains how to get started analyzing stocks, what tools to use, and how to implement the acquired tools. The book covers stock analysis from both a “value” and “growth” point of view and also mixes a variety of fundamental and technical techniques to demonstrate how to analyze stocks.


What Did I Get Out Of It As A New Investor?

This is a good book for a new investor. After spending some time learning about how to think about the stock market, eventually one must figure out a way to participate in the market. This book helps nudge the new investor in that direction.

By covering such topics as valuation, industry analysis, management quality, and price charts, the book covers most major topics in stock evaluation. The book also walks one through financial statement analysis, analyst analysis, and how to look for accounting red flags. Additionally, the book touches on price charts discussing moving averages, volume trading, and trend identification. Overall, this book provides a comprehensive review of every major approach to the stock market.

Most importantly the book ends with two sections which lay out possible approaches to investing from a “value” point of view (that is finding companies priced less than their fair value) or the “growth” point of view (finding companies whose value is mis-priced based on their growth). The author does this by walking the reader through an eleven step analysis for each category, applying what the reading learned from the first two sections of the book to demonstrate how the acquired tools are used in practice.


The Good News

A solid effort to help a new investor learn tools and techniques to put into practice the theory one has learned.


The Bad News

I would classify this has a intermediate text meant for those new investors who have gain some familiarity with general approaches to investing and who are ready to learn more practical techniques.


The Bottom Line

A good book for those looking to apply what they have learned from reading more introductory texts.




Other Related Reading:

Bruce Lee and the Stock Market

The first question that may run across your mind is, what exactly can Bruce Lee contribute to the education of a new investor and trader? In one word: flexibility.

I read all sorts of different blogs and books. Some discuss strictly fundamental analysis, some technical, and others a mixture. Some deal with a short time frame; others long term. Why do I read material that covers the whole spectrum of investing and trading? Because success is not about doing the right thing; it is about doing the thing that is right for me.

Investing and trading is first and foremost an articulation of an individuals skill to critically analyze a situation using a particular methodology and the ability to emotionally implement that thought process using the selected skill set. Some are more suited to an investing process that deals with the short term, others may find that they wish to focus on the long term. Bottom line, successful investing is about being honest with yourself and knowing your limitations.

But deciding on what tools to use, i.e. fundamental vs. technical vs. quantitative, before giving thought as to what tool or combination of tools works for me would seem to be (as my contracts professor used to say) putting the cart before the horse. There are a lot of ways to succeed in the stock market, but at this point I cannot say which one might be best for me. This brings me back to what Bruce Lee may be able to teach new investors and traders about the stock market.

Bruce Lee is often credited with inventing a new style of martial art, or as he might say, a lack of style. Bruce Lee felt that no particular style of marital art was better, or worse, than any other. He believed that one should not invest themselves emotionally in any set paradigm of fighting style beyond a few core principles because doing so would foreclose reform or improvement. He simply felt that in a fight you should use what works and take what works from any place you can find it. That is because all people are different, and if we are all different, than one size of fighting can never fit all. Or in his own words:

Any technique, however worthy and desirable, becomes a disease when the mind is obsessed with it. The highest technique is to have no technique. My technique is a result of your technique; my movement is a result of your movement.

When one has no form, one can be all forms; when one has no style, he can fit in with any style. Empty your mind, be formless. Shapeless, like water. If you put water into a cup, it becomes the cup. You put water into a bottle and it becomes the bottle. You put it in a teapot it becomes the teapot. Now, water can flow or it can crash. Be water my friend.

Successful value investors will tell me that value investing is the way to go because that worked for them. Successful trend, technical, and any other style of successful investor will tell me that their way is the best because that worked for them. But the point is I am not them. To adopt their way as my way before I figure out which way works for me, may not be a way to make me successful. It may simply mean that I prematurely confine myself to a limited form. As the above quotes warn, becoming enthralled with one particular approach simply stunts growth. Rather one should keep an open mind to all methods.

Thereofre, it is important that a new investor should not too soon foreclose any avenue which may lead to success. All a new investor should care about is being a successful investor. Maintaining an open mind as to how one achieves success may serve the new investor well.

Blog Review: Option Pundit

Option Pundit

A new blog I found the other day that I like is Option Pundit. Much like Adam's blog the Option Pundit does a good job of breaking down all things option related, from a look at the week ahead, to individual option trades, to explaining option strategies.

The part of the website that got my attention and I like the best is the Option Pundit Toolbox. Here Mr. Pundit provides great links to option resources important to any new investor wanting to learn about options. For those wanting to learn about options, the Option Pundit blog is a good place to start.

Option Pundit

Thinking About Intrinsic Value

As a new investor I struggled with understanding what exactly “value” is when considering companies and their common stock. I read of “intrinsic value” but such a phrase is inherently contradictory to me. This is because strictly speaking, “intrinsic” is defined as genuine, real, and not merely apparent; whereas “value” is defined as some worth estimated by any amount agreed upon by two or more parties.

Consequently, the “intrinsic” part of the valuation process of a company appears to require an objective standard, while the “value” part may require a subjective application of an estimation of worth. Of course, finding the intrinsic part of value merely requires one to determine that portion of the stock price that represents book value (or one could narrow it further and find tangible book value, liquidation value, or even replacement cost). Unfortunately, most great business that have strong operating metrics do not often, if ever, sell for their “intrinsic” book value. Therefore, it has become necessary to find value by introducing as part of the "intrinsic value" equation an estimation of the value of the business as an ongoing concern looking towards the income stream which the business produces. And that is where the trap is found.

The subjective allure of “value” is a dangerous trap for a new investor who rushes the analysis to focus on growth and skips lightly over the objectively “intrinsic” part of the value analysis. Consider that 80% of the share price of Coca-Cola (KO) is not supported by any “intrinsic” value; rather nearly $40 of KO’s share price represents the expectation that KO and its brand will produce a continuing income stream as an ongoing business. While the prospects that KO will continue to operate as an ongoing business may seem certain, there are many other companies whose business prospects are not so grand. Yet many of these less stable companies’ share prices are set and valued by this expected future income stream as opposed to any true intrinsic value.

I realize then that when evaluating a business for a suitable investment it is appropriate for a new investor to seriously focus on the intrinsic portion of the valuation in order to ground ones expectations in tangible reality. While it is one thing to pay $47.00 per share for KO and receive only $7.00 in tangible value, it is quite another to do the same for a company with a less robust history.

Only after ascertaining the actual value of a company should an attempt be made, with restraint, to guess at the subjective estimation of that portion of value which lacks a basis in any intrinsic reality. Doing so may reduce the loss of capital.

Investing Resource Review: Martin Whitman, Third Avenue Funds

Third Avenue Fund

The great thing about the Internet is that you can access materials which help one to invest that would otherwise be difficult to get. A source of useful material for the new investor is the thoughts and writings of successful fund managers. Thanks to the Internet, most fund managers post shareholder letters or other insights where anyone can read them.

One of my favorites is the quarterly shareholder reports from the Third Avenue Fund led by Martin Whitman . The quarterly reports provide great insight into Mr. Whitman's brand of value investing. The quarterly shareholder letters provide analysis of the what and why of Third Avenue Fund's buys, additions, and sells. Mr. Whitman and his crew also discuss their approach to, and thoughts on. the market. It is a resource which helped me understand investing better and I would recommend it to other new investors.

Third Avenue Fund

Investing Resource Review: Michael Mauboussin, Chief Investment Strategist of Legg Mason Capital Management

Mauboussin on Strategy

The great thing about the Internet is that you can access materials that would otherwise be difficult to get. A source of useful material for the new investor is the thoughts and writings of successful fund managers. Thanks to the Internet, most fund managers post shareholder letters or other insights on the Internet where anyone can read them.

One of my favorites is Legg Mason Capital Management's Michael Mauboussin who writes a semi-regular commentaries on investing entitled Mauboussin on Strategy. Writing on a variety of subjects Mr. Mauboussin provides a great learning tool for the new investor. It is a resource which helped me understand investing better and I would recommend it to other new investors.

Mauboussin on Strategy

Blog Review: A Dash Of Insight

A blog that I found, lost, and found again is Jeff Miller's A Dash of Insight.

When I first came across this blog several months ago it just did not click with me. But that was more my fault then Jeff's. At the time I discovered A Dash of Insight I had my own idea of what was supposed to happen in the market, which differed from Jeff's view. It also did not help that my view was wrong. What I failed to appreciate at the time was that Jeff does not write from any particular view point.

Much like one of my top five blog picks, Bill Rempel's Nodoodahs blog, Jeff does not massage the data to fit his view. Instead, like Bill, Jeff lets the data guide his view. While that approach may not satisfy a reader as much as the "sky is falling" tone some blogs take (to see what I refer to go read Bill's blog and watch him wrestle with some bears) it is the right way to approach the stock market. Unfortunately it took me a minute to get that through my skull so I could appreciate it.

After having it on my newsreader for a few weeks, I let Jeff's blog go. As Vivian Ward might say, "Big mistake." Over the course of the next several weeks I would come across Jeff's blog, most often as a daily link from Abnormal Returns. As I would read the occasional link, I realized that I was wrong in my decision to remove Jeff from my daily reading. It is now back on my newsreader for the simple reason it provides insightful commentary on the stock market.

So if you are looking for a blog that makes an honest effort to allow the data to provide guidance in understanding the market, you should give A Dash of Insight a read. But please don't make the same mistake I did and cut Jeff off too short.

A Dash of Insight

Make Your Own Widget News Reader

You may have noticed that I have cut back on the book reviews and other investing posts. I have been playing around with the blogs layout and such. Will be back on Monday with the start of some book reviews. But today I wanted to talk about another thing you can do with widgets.

Now I am not an expert with computers and code. If I were my name probably would be Candice. But even I can see that newsreaders are fast becoming irrelevant, especially if you blog.

How so?

Well the purpose of a newsreader is to collect your feeds so you can easily scan to see if there are posts you want to read. Well who needs that when you have a blog and some widgets? You can just make a quick blog page and drop your feeds into it. Not only that, you make it easy for people who read your blog to see who and what blogs it is you are reading.

I created this page in a few minutes. As you can see, the format styles can be whatever you want, from straight headlines to the whole post (although I did not do that and would not for the reasons stated in my last post) and from small boxes to the whole page. You can have the last five headlines or the last 100.

I used Howard's as an example but will be adding more blogs from my blog roll that I read everyday.

And if you have a favorite stock that you want to keep up on when bloggers post on it you can use the google finance rss feed to do so as can be seen by the widget which is about Wal-mart. Or if you want to stay on top of the Yahoo latest news you can do that too.

Of course if you use blogger and google reader you can do it pretty easy as shown with the last widget.

About the only thing I did not figure out is how to get two widgets side by side to use up more of the screen space. Maybe if I ask real nice Candice will tell me how to do it. :)

Are you getting ripped off?

WARNING: I get on a soapbox in this post.

Now don't get me wrong, I love aggregators. But there is a right way and a wrong way to do it in my opinion.

A great blog that does it right is Abnormal Returns. Abnormal Returns posts a daily link of interesting articles. But they post the title and link only. You actually have to go to the website where the article is hosted. To me anyone who wants to do a post which drives traffic to a blog, even if they sell ads while doing it (and Abnormal Returns does not), is fine because in the end one has to visit the author's original site. Or in the case of Seeking Alpha, while they post a whole article which does not require a visitor to go to the actual author's site, they have the permission to do so.

But what happens when a website takes your RSS feed, grabs it, and places it in their blog or website to allow their readers to read your content without permission? And they do it while serving their own commercial purposes. In that case I get a bit perturbed.

That is because I think of an RSS feed as a device meant to make it easier for my readers to read my blog. While it is a publicly available device, an RSS feed allows my readers to PRIVATELY read my blog on whatever newsreader they choose without actually having to visit my site. I do not think of my RSS feed as something which makes it easier for you to allow your readers to read your blog to support your purposes, commercial or otherwise.

Thanks to a heads up from Adam I ran across a website that is doing just that. And selling something while doing it. Fortunately for me, my content is not deemed worth stealing as I do not appear on this site Adam found. But a lot of blogs that I read and admire do. And I was just wondering if they even know it. If they do and are okay with it, great. But if they don't than I just wanted to let them know, and this post was the easiest way to do it.

So here is a list of some of the blogs which, in my opinion, are having the content of their feeds used to support another blog/websites commercial purpose:

Gannon On Investing

Trader Mike

Fat Pitch Financials

Bill Cara

A Dash of Insight

Abnormal Returns

Crossing Wall Street

24/7 Wall Street

Controlled Greed

Between The Hedges

Bullish Jim

Footnoted

Downtown Trader

Fallond Picks

Traderfeed

Zen Trader

Peridot Capital

Confused Capitalist

Random Roger

There are a few others that I do not read as often but just don't have time to list right now. A couple, like The Kirk Report, seem to have found a way to incorporate an error message into their blog to stop this.

Now this website does provide a link to both the site and its feed, but it also allows one to read all the content of the blog without ever having to go to that specific blog. Again, maybe the above blogs are cool with it, maybe not. But I know I would not be and I know Adam was not. I just thought I would let you know, because I would want to know. So if you have one of the above blogs or know someone who does and want to see where it is at just drop me an email and I will send you the link.

END OF WARNING: Getting Down From My Soapbox

To end on a humorous note, I do note that Broker A's Fly Site is not included. Perhaps it is the numerous F-bombs which saves him. LOL.

Investor Resource Review: Widgets and del.icio.us

I must admit I am a bit slow. Despite Howard touting widgets as the next big thing for a while, I just did not get it. Further, while a lot of people use del.icio.us to share readings they think are important, I was not too keen on the idea. So I am a bit embarrassed to say it has taken me a while to figure out how to combine the two, widgets and del.icio.us, into something useful for myself and hopefully readers of this blog. I just had not seen how the two ideas could merge into something I think is pretty cool. Until now.

As you know, I like to read a lot of blogs. For example, I read Trader Mike, Trading Goddess, Bill, Maoxian as well as those blogs profiled here, because they help me grow as an investor. Over time, as I have read the blog posts, I have come to trust the judgment and insight of the blog authors. I am not saying I agree with everything they write or that they are always correct. Rather, I am saying I have found that what they have to say is always thought provoking and worth my time to read. My problem was, in between blog posts how can I learn more from them? Better yet, how can I see what they are reading which inspires their own development? That is where del.icio.us comes in.

As many of you already know, del.icio.us is a social bookmarking website. Essentially, you read an article on the web, like it, save it to your del.icio.us account, and other members of del.icio.us who are in your network can see what you are reading. Therefore, when those bloggers who I like to read are also part of del.icio.us, I can quickly get an idea of what articles they are reading with links to those articles. (Ed Note: This may seem painfully obvious to most of you, but Steven was not kidding when he said he was a bit slow).

Now my next question was, how can I use that to help others? That's where Howard and the widgets come in to play. Del.icio.us allows me to link to the RSS feed for either my own current bookmarks or those of my networks. In other words, I can easily "see" in an RSS feed not only what I like but what everyone else who is in my network is currently reading and thinks is worth bookmarking and sharing.

So I asked myself, why don't I just take that RSS feed drop it into a widget and post it on my site so my readers can see what I or others that I trust, are currently reading. Of course after a minute, I realized that I had an ethical problem with dropping the RSS feed of my del.icio.us network on my blog. That is because while those in my network obviously have no problem sharing their submissions with me, that is not the same as wanting me to "publicly" post them on a blog for my own purposes.

So instead I decided to just use my own personal selections from my network that make up my bookmark list along with my own readings. I then created an RSS link in a widget so that everyone who comes to the blog can see, click, and read. If you look on the right of this post you will see the last several articles I have posted to my del.icio.us account with an attribution if I did not find it myself.

Let me know what you think.

Blog Review: The Kingsland Report

A blog that I found recently and now include in my daily reading is Jim Kingsland's The Kingsland Report.

Just about every day the blog author provides a morning market commentary and an evening review wrap-up. In between are insightful comments on wide range of market topics, such as, futures, metals, stocks, and general market and economic commentary.

I feel that the hallmark of a good writer is the ability to convey relevant information in the least amount of space possible. It is the hardest thing a writer can do and Jim does it well.

If you are looking for an insightful blog, which reads quick, and covers a wide range of topics, Jim's blog may be for you.

The Kingsland Report

Investor Resource Review: Stock Screen - Benjamin Graham Simple Stock Screen

I collected a lot of stock screens this past year. Most use the free deluxe screener available at the MSN Money website. The screens are sometimes hard to find on the MSN website, so I thought I would share them.

Here is a simple screen based on Benjamin Graham's teachings later in his life.

1. Stocks with earning yields twice the corporate AAA bond rate.

2. Stocks with a leverage ratio of less than two.

3. Optional: A market cap parameter or index parameter.

Here is how you would enter it with the MSN screener:

P/E Ratio: Current <= 9.2 Leverage Ratio <= 2 Market Cap => 1,000,000,000


Here is a link to read more about this screen and how it has worked for the past several years.