Thursday, May 31, 2007

Stock Screen: A Kirk Report Inspired 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 what I found.

One of the most popular investing websites is Charles Kirk's The Kirk Report. Much of what he does involves screening for stocks. Below is a screen which is based on several parameters that Mr. Krik is reported to favor. Among other factors the screen looks for poor performing shares with good fundamentals, strong earnings and improving relative price performance.

Screening parameter:
Return on Equity >= 15 (Increase higher to 18%, 20%, etc., to narrow choices)

Screening Parameter:
Leverage Ratio <= 5 (reduce to see stronger balance sheets)

Screening parameter:
Price/Cash Flow Ratio >= 0.1

Screening parameter: 12-Month Revenue => 40 million

Screening parameter: Rev Growth Qtr vs. Qtr >= 20 (reduce to 15% if not enough candidates)

Screening parameter: : 6-Month Relative Strength <= 40

Screening parameter:
On Balance Volume >= 75

Screening parameter:
Last Price >= 50-day Moving Average

Here is a link to the MSN article by Harry Domash with a description of how and why the above parameters are used.

Wednesday, May 30, 2007

Discount Online Option Stock Brokers

As a follow up to my review of online discount stock brokers I thought I would take a look at option stock brokers and what they charge. I went around the various sites and priced option trades for contracts in various sizes (1 contract, 10 contracts, 50 contracts).

I limited my search to the cost of option trading. While important, cost is but one factor. Other factors that may influence the selection include option research tools, execution, and trading interface. I also ignored any discounts applicable to active traders and used the regular price listed. Here is what I found.

OptionsXpress (OXPS)

First up is OptionsXpress. I thought they might be the least expensive, but I was wrong. A single option contract is $14.95, ten contracts are $15.00 and 50 are a whopping $75.00. Perhaps the features of the website make up for the trade cost.

E*Trade (EFTC)

At E*Trade an option trade will set you back a trade fee of $12.99 plus .75 cents per contract. Therefore, a single option contract is $13.74, ten contracts are $20.49, and fifty are $50.49.


Scottrade charges a flat trade fee of $7.00 plus $1.25 per option contract. Consequently, a single option contract is $8.25, ten contracts are $19.50 and fifty contracts are $69.50.

TD Ameritrade (AMTD)

TD Ameritrade also charges a flat fee per option trade. That fee is $9.99 per option trade plus .75 cents per option contract. One option contract sets you back $10.74, ten option contracts go for $17.49, and fifty are $47.49.

Interactive Brokers (IBKR)

One of the least expensive option brokers is Interactive Brokers. There is no trade fee with each contract costing .75 with a $1.00 minimum. Under this fee structure one contract is $1.00, ten contracts are $7.50 and fifty contracts are $37.50.

Interactive Brokers also has a separate breakdown by option price. If your option is price at .10 cents or greater, the above rates apply. If it is priced between .05 and .10 cents the per contract price drops to .50 cents and anything less than .05 cents goes for .25 cents a share.

It would appear that Interactive Brokers is the cheapest but there is one thing to keep in mind. Interactive Brokers caters to the active trader. Therefore there is a certain minimum needed to avoid an automatic charge. One must execute $10 worth of traders per month or be assessed a $10 per month charge. Also one must also trade a total of $30 to avoid the data feed charge of $10 per month. Therefore at a minimum one will be charged either $20 per month ($240 annual) or trad enough to satisfy the $30 ($360 per year) minimum activity.

MB Trading

Much like Interactive Brokers MB Trading charges no trade fee and a low per contract fee. A single option contract cost $1.00, ten option contracts $10.00, and fifty contracts $50.00. One must trade a minimum of 10 contracts per month or a $10 ($120) per month fee will be assessed.

Trade King

A low cost surprise is Trade King which charges an option trade fee of $4.95 plus .65 cents per option contract. A single contract goes for $5.60, ten contracts for $11.45, and fifty for $36.45.


Zecco is relatively new and offers low cost option trades. A flat fee of $3.50 is followed by a .60 cent per option contract charge. A single trade goes for $4.10, ten contracts for $9.50, and fifty for $33.50.

Think or Swim (SWIM)

Think or Swim is the final broker I researched. It offers the most flexibility on option trade pricing. The standard option trade rate is the lessor of $2.95 per contract or $1.50 per contract plus a flat fee of $9.95. Under this pricing scheme a single contract is $2.95, ten contracts is $24.95, and fifty is $84.95.

What is unique about Think or Swim is that they allow you to choose form several different pricing plans and will even allow you to keep the pricing plan you used at another broker.The first standard alternative rate is $1.25 per contract with a $12.95 minimum. Under this plan a single option contract is $12.95, ten contracts are $12.95, and fifty contracts are $62.50.

The second alternative pricing structure is .95 cents per contract with a $19.95 minimum. Both a single and ten contract option trade are done at the minimum under this plan and a fifty contract trade goes off at $47.50.As mentioned you can also choose to use any other brokers pricing scheme as detailed on Think or Swim's Rate Sheet.


OptionsHouse is a new broker (January 07) that offers aggressive pricing for option traders. The cost for options trades are a flat $9.95. So for one contract you pay $9.95, 10 contracts $9.95, and fifty option contracts $9.95.

While OptionsHouse is a new brokerage it was given four stars by Barron's in the March 2007 stock broker review and rated as one of the best brokers for options traders.


It usually does not make sense to trade one option contract. But if you must then Think or Swim at $2.95 is the lowest cost. At the other end, most will not trade fifty or more contracts, but if you do it will be hard to beat OptionsHouse at $9.95, which is over twenty dollars cheaper than either Zecco and the highly regarded Interactive Brokers.

For the majority of traders who trade in the ten option contract range the brokers ranked in order from most to least option trade price for ten option contracts are:

E*Trade $20.49

Scottrade $19.50

TD Ameritrade $17.49

OptionsXpress $15.00

Think or Swim $12.95

Trade King $11.45

MB Trading $10.00

OptionsHouse $9.95

Zecco $9.50

Interactive Brokers $7.50

While Interactive Brokers does come out the least expensive it must be remembered that one will spend a minimum of $240 per year either in trades or fees. Excluding Interactive Brokers would leave Zecco as the lowest priced broker. Of course the relative newness of Zecco may put some off. Of the brokers which cater exclusively to option traders OptionsHouse and Think or Swim appears to be the best price with no minimum trade fees.

Saturday, May 26, 2007

Stock Gumshoe - Blog Review

Stock Gumshoe

Have you ever received an unwanted email hinting at the next great stock and wondered what it is?

Have you ever received junk mail with a teasing description of a stock and tried to guess at it identity?

Well Stock Gumshoe is the blog for you. The blog at Stock Gumshoe is devoted to taking the descriptive teases found in ads for stock picking newsletters or the so called news articles from some sites that are nothing more than a come-on for their services and figuring out what hidden stock is being touted.

Discussing not only his own selections but those submitted by his readers, the author takes the clues contained in the newsletter teasers and searches for the unnamed stock. An example of the authors abilities is this analysis of an unnamed water stock found in a Motley Fool ad.

Overall, Stock Gumshoe is a blog that is worth reading for its unique offering among the numerous investing and trading blogs.

Wednesday, May 23, 2007

World Beta - Blog Review

World Beta

Another website I enjoy reading and which has made it on my RSS feed reader is Mebane Faber's World Beta blog. The World Beta blog describes itself as focusing on:

a worldwide beta asset allocation program. It also tracks global alpha portfolios comprised of ETFs, mutual funds, and closed-end funds. Lastly, it follows portfolios based on the top value and activist hedge fund managers through their 13F filings.

Offering daily commentary on a wide range of economic and stock market related events the blog informs as well as educates. In particular, I find useful the several portfolios created by the blog author which gathers and presents the holdings of several hedge and activist funds. A good place to start researching those portfolios is to follow this link which is the most recent update of the Hedge Consensus, Activist Consensus, and Hedge Fund Best Ideas portfolios presented on the website.

Overall, World Beta presents useful information in a succinct and insightful manner useful to the new investor.

Tuesday, May 22, 2007

Fear, Not Greed, Must Animate Your Investing Decision

Greed. It is the motivating emotion for anyone who invests or trades. Greed, despite what some would say, is neither good or bad. Greed is nothing more than the desire for more than needed. That is why I invest, to achieve excess wealth such that I have more than I will need at some future date.

But while I invest and trade because of Greed, I do not let Greed animate my investing and trading decisions. Rather, I rely on an entirely different emotion to guide my way in the market. The emotion on which I rely is Fear.

I rely on Fear because I find that it provides the voice of reason in contrast to Greed’s “siren song” which often sounds pleasing, but masks hidden dangers. My Fear serves to place a rationale check on Greed’s unbridled enthusiasm telling me to buy, buy, buy or sell, sell, sell. No matter a trader or investor, fear should have the same value to you.

Whether you follow a fundamental process and find an asset that sells for sixty cents on the dollar; or you are a technician whose analysis indicates that a stocks behavior is demonstrating a positive risk to reward scenario, Greed without Fear exposes you to unknown factors. Greed tells you all the reasons why you should make the trade, Fear asks you to consider why you should not.

Yet most would rather be Greedy than Fearful. Perhaps because nothing that serves to check your passion is ever popular. Yet Fear, properly embraced, can serve you much better than Greed. Fear, unlike Greed, forces you to stop and ask yourself not what is it that my Greed will earn me, but what is it that my Greed will cause me to lose. That is Fear’s value to any new investor or trader.

Fear may not be as sexy as Greed, but it will make you a lot more money.

Monday, May 21, 2007

Competition Demystified - Book Review

Competition Demystified: A Radically Simplified Approach to Business Strategy

What Is It About?

The book devotes itself to understanding and explaining how to analyze the competitive advantage a business may or may not posses. The book simplifies the analysis, arguing that a competitive advantage analysis simply determines whether there exits barriers of entry that protect the incumbent firm.

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

A straight forward book which explains competitive advantage in a manner easy for the new investor to understand. Using discussion and case study, the authors explains how an investor should determine whether a competitive advantage exists in the firm under review. The best part of the book is a simple decision tree that repeats throughout the book, showing how too quickly asses any competitive advantage that may exist. One of the better books I have read that added to my development as a new investor.

The Good News

Understandable without sacrificing depth, this book does a great job demonstrating to a new investor the required analysis for finding competitive advantages.

The Bad News

Written by a college professor the book reads as a textbook. The reader would be better off digesting the material over several weeks to allow for consideration of each chapter.

The Bottom Line

Great book for those looking to gain knowledge on the subject of competitive advantage.

Other Related Reading:

Wednesday, May 16, 2007

AAII: American Association of Individual Investors - Investing Resource Review

American Association of Individual Investors (AAII)

The American Association of Individual Investors (AAII) is one of the best resources for a new investor. Reasonably priced yet comprehensive in coverage, AAII.Com is all about educating new investors. AAII is simply one of the best values out there.

A one year subscription to AAII costs a paltry $29.00. I say paltry because for $29.00 one receives quality information that could easily cost much more. A year's subscription entitles one to 12 issues of the AAII Journal both print and online. In addition, there are numerous resources on how to build a portfolio and how to invest in stocks. As an example here is a recent article on how to trace a firm's cash flow.

Perhaps the best part of AAII is the Stock Screen section. Every month AAII updates several stock screens developed and based on the teachings of several different investors and traders. For the value minded there are screens based on the works of several famous value investors including David Dreman, Benjamin Graham, and John Neff. For the growth investor there are screens based on the work of Phil Fisher, Martin Zweig, and others. Overall, for a new investor the screens provide the ability to study how a screen works and to develop ideas form them.

AAII was one of the first subscriptions I paid for when I started last year and I renewed this year. I recommend it to new investors. For $29 it is well worth the money spent.

American Association of Individual Investors (AAII)

Tuesday, May 15, 2007

Bespoke Investment Group - Blog Review

Bespoke Investment Group

I usually read a blog for at least a month or two before deciding to add it as part of my regular feed reader lineup. Time is short and I like to get a feel for the blog before I make the commitment to add a blog to the 20 I check everyday. But in rare cases I make an exception. The Bespoke Investment Group blog is one of those exceptions.

Barely over two weeks old this blog has already impressed me with not only the quality of their writing but the well researched content as well. Covering such topics as commodities, ETF's, stock analysis, and the economy the Bespoke Investment Group blog provides just the type of analysis investors and traders should be reading and learning from. A fine example of how Bespoke Investment Group can help the investor or trader is found in this very useful ETF Cheat Sheet.

Overall, I recommend the Bespoke Investment Group blog as one that should be read regularly.

Bespoke Investment Group

Friday, May 11, 2007

30 Days To Market Mastery: A Step By Step Guide To Trading - Book Review

30 Days to Market Mastery: A Step-by-Step Guide to Profitable Trading (Wiley Trading)

What Is It About?

This book provides a step by step guide on how to trade. The book divides into 30 different chapters, each one teaching a new lesson. The book is structured for reading over a thirty day period in order to fully digest each lesson. To that end, each lesson concludes with a short quiz asking multiple choice questions on the material covered or presenting charts which the reader must interpret.

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

A complete book for a new trader. Offering both theory and practical application the book excels in helping new traders understand what it takes to develop a trading system. The book does this by providing a comprehensive overview on how to trade.

Starting with the basic understanding that all trading systems require a setup, trigger, and follow-through, the book does a good job showing the new trader what it takes to develop and implement a trading system. Using specific examples, with detailed charts and explanations, the book provides several different trading systems which a new trader can study. Demonstrating its commitment to teaching the new trader, the book provides a short quiz at the end of each chapter. These quizzes are not just a retread of material described, but actually challenge the reader to demonstrate competence as the read the book. Overall, this is one of the few books that covers all one might need to read in order to grasp how to trade.

The Good News

The most complete book for the new trader I have read.

The Bad News

Not well suited for those who have a distaste for charts or technical indicators.

The Bottom Line

A great book for the new trader looking for a step by step guide on how to trade successfully.

Other Related Reading:

 My Review    My Review

Benjamin Graham Loved Traders Too

I read a lot of different blogs which focus on one style of investing to the exclusion of another. As I have mentioned before, I do not believe that there is only one style of investing or trading that can lead to success. Nor to I believe that there is a "right" way to invest or trade. Rather, I embrace the idea that every new investor or trader must find that style which fits their specific skill set in order to achieve market success.

I am glad to see that I am not alone in this approach to achieving stock market success. Most stock bloggers will be surprised (especially the more ardent fundamental investor) to know that Benjamin Graham supported such a view. Towards the end of his life, Mr. Graham stated that one should do those things that you know you can do well.

As detailed in "The Rediscovered Benjamin Graham: Selected Writings of the Wall Street Legend" Mr. Graham specifically stated that:

If you can really beat the market by charts, by astrology, or by some rare and valuable gift of your own, then that's the roe you should hoe. If you're
really good at picking stocks most likely to succeed in the next 12 months, base your work on that endeavor. If you can foretell the next important development in the economy, or in technology, or in consumers' preferences, and gauge its consequences for various equity values, then concentrate on that particular activity. But in each case you must prove to yourself by honest, no-bluffing self examination and by continuous testing of performance, that you have what it takes to produce worthwhile results.

Of course, Mr. Graham made clear that fundamental investing with a margin of safety was best in his opinion because that worked for him. But as the above passage indicates he acknowledged and accepted that each investor and trader must determine for themselves which means would provide success, provided that the selected means was subject to rigorous testing to ensure its validity.

Although it is difficult for the new trader or investor to cancel out the noise of various sources which champion exclusively one point of view, that is what you must do. In the end, being honest with yourself, even if it means following a system of trading which others may scoff at, is precisely the most important step in achieving stock market success. And if you don't believe me, than heed the words of Benjamin Graham, who eloquently defends the proposition that one size most definitely does not fit all and that we each must strive to identify that manner of investing and trading which best suits us individually.

Sunday, May 06, 2007

Best Blog To Read If Your Wife Just Gave Birth To Your Baby

Abnormal Returns

Little did I know that less than 24 hours after my last post my wife would deliver to me a baby boy. But that is what exactly happened early Thursday morning. While I may still not be back to regular blogging for a bit of time I did want to recommend a website which may appeal to those short on time who desire to stay informed in a most efficient manner.

As I have said before, one of the most useful blogs I read is Abnormal Returns. Everyday Abnormal Returns provides a comprehensive review, with links, to some of the best investment/economy related posts on the Internet. Often, the posts are organized around a daily topic or theme. But the true value of what Abnormal Returns does is only realized when one is pressed for time.

For the last few days, time has been short and I have not had the ability or desire to leisurely browse the Internet for investment related articles. Thanks to Abnormal Returns and its links though, I have been able to quickly find and read nearly all the important headlines and blog posts necessary to satisfy that daily news fix I crave.

Consequently, Abnormal Returns gets my vote for "Best Blog To Read If Your Wife Just Gave Birth To Your Baby (or any other event which may cause you to be short on time)." Simply put, if you are short on time and need a blog that collects the most relevant daily links to the best investment related articles on the Internet, Abnormal Returns is where you need to go.

Abnormal Returns

Wednesday, May 02, 2007

A Note To Readers Of This Blog

As many of you my know already, my wife and I are expecting are first child on May 8th.
Of course he may have a different timetable.
Therefore, I just wanted to drop a quick note and let those who enjoy reading my blog regularly know that I may post sporadically or not at all in the next few days or weeks.
Hopefully you will stick around and be here when I get back.
Take care

Don't Worry About The Market

Do you think about beating the stock market? Well you shouldn't. I don’t. Here’s why.

During my first year of law school, like many other first year law students, I was very stressed out about exams. In law school unlike undergrad, there are no mid-terms, papers, or other ways to earn points towards your final grade. There is but one examination which can cover a semester or even two semesters worth of material.

This of course leads to much discussion among students about the “test.” How difficult the exam is and whether one could do well enough to “beat” the test were common concerns raised. And for a while I joined in the stress fest, until someone told me a funny story.

The story went like this:

There were these two hunters who decide one day to go hunting for a bear. After several days on the hunt they had yet to capture their prize when out of nowhere a bear jumps from behind a thicket. Being the inexperienced hunters that they were, the hunters drop their weapons and begin to run down the trail with this very angry bear hot on their heels.

After a bit of time, and without much success of eluding the bear, one hunter turns to the other and gasps “Hey, I sure hope we can outrun this bear.” Being a bit more in shape than the other, the second hunter just turns and smiles and as he begins to run faster yells back over his shoulder “I don’t have to out run the bear, I just have to outrun you!”
Once I heard that I never worried about law school exams again. Oh sure, I still studied hard in order to get the best result I could, but the anxiety of failing dropped away. You see, law school exams are graded on a curve. Therefore, nobody beats the test. If there are a hundred points on the exam and the best score is 90 then that is the A+ paper. All other grades flow from that. I realized I did not need to beat the test to survive, I just needed to do better than my fellow students.

Once I knew that, any stress I had about the test disappeared. I began to look around at my fellow students and assessed my chances of running faster than them. And I liked the odds.

Now of course by now you may be wondering what does this have to do about the stock market for a new investor or trader. I think it is important to remember that the market is made up of individuals. When you buy or sell you are not buying/selling to the market, you are conducting an individual transaction between you and another person. Consequently, you should not be worrying about beating a market or some arbitrary index, you should be thinking about the person on the other side of the trade.

If you are a fundamental investor and you buy a stock because you think it is undervalued, you should ask yourself “why does the person selling think it is overvalued enough to sell.” If you rely on charts which indicate you should sell, do you ask yourself “what does the buyer see in his chart that I do not?” Instead of getting excited that the market has made a mistake, you should look to make sure you are not the slow one making the mistake.

As you develop as a trader or investor don’t spend too much time worrying about beating the market. Instead focus your energy on doing the best you can do relative to other investors and traders. You don’t have to beat the market, you just have to be more right than the next person when you make a decision.

After all, the devil always takes the hindmost, don’t let that person be you.