Mexican Stock Market

Before we analyze the history of the Mexican Stock Market or Bolsa, let's first consider the strength of the Mexican Peso. Ten years ago, the MX Peso was worth 9.7 cents and today it's worth 9.5 cents; essentially unchanged. Even though the Mexican Peso is not fixed to the US Dollar, the Peso has held firm with the Dollar at a rate of approximately 10:1 during the past decade, trading in a range from $.088 US / MX Peso to $.111 US / MX Peso.

One of the most significant reasons for the firm currency in Mexico must be attributed to the policies of the new governing party that has been in control since 2000. Mexico has been governed by Harvard alumni during most of the time frame shown above and will continue under the same leadership for at least another four years. The PAN party, led first by President Fox and currently by President Calderon supports balanced fiscal trade, flat taxes, lower taxes, and free trade. Calderon's motto is to "Drive Mexico into the Future" which represents privatization, liberalization, political freedom, and market control of the economy. With these fiscal policies and close ties to the US and Canada, it's no wonder that the Mexican stock market has performed so well, advancing more than six-fold during the past decade.

The EWW fund consists of a large basket of Mexican stocks and trades on the American Stock Exchange. During the past 10 years, the gain of the S&P 500 has been less than 25% while the Canadian stocks advanced approximately 200% and the Mexican stocks a whooping 600%. If you were to average the gains over 10 years and compound them annually, the US stocks have gained at rate of 2% per year, the Canadian stocks at 7%, and the Mexican stocks at 20% per year.

Put another way, a $1,000 investment in the US after 10 years is worth $1,250 today, in Canada it's worth $3,000 and in Mexico it's worth $7,000! A gain of $6,000 in Mexico while only $250 in the US, i.e., 24 times as much! Just imagine, a $200,000 investment ten years ago compounded annually at 20% would now be worth about $1,400,000 or if the gain were taken out each year, you would have had a $40,000 per year income and would still have your original $200,000 principal. Keep in mind that you can live like a king in Mexico on $40,000 per year; even better if you're retired and have social security income to add to your investment gains!

Just recently, we have witness a very tenuous economy in America and a near crash of the US stock market which has affected all economies and stock markets throughout the world. While the US stock market has dropped by 15.4%, the Canadian market fell by only 6.6% and the Mexican market by a mere 4.7%, making it the second least affected market in the world. During the past decade, the Canadian Dollar has strengthened significantly against the US Dollar and the Canadian stock market has far outperformed the US market, falling off its recent highs by a much lesser extent. These facts combined with the cold winters in Canada, provide an explanation for why the Canadians continue to flood the Mexican real estate market.

We were among the first of the fortunate retirees to move to Puerto Vallarta, Mexico in 1997 and have ridden the entire economic wave of growth and prosperity. Not only have our investments in the Mexican Bolsa multiplied by a factor of six but our real estate investments have at least tripled in value.

During the past decade we have witnessed a construction boom in Vallarta and an ever increasing influx of retired North Americans as the population of Vallarta has exploded to 350,000 residents. We have seen a complete revamping of the city's infrastructure with new water treatment facilities, power distribution systems, new and improved roads and highways, a tripling of the size of the International Airport, a tripling of the size of the Marine Terminal, a huge new Bus Terminal, a huge modern Convention Center, etc. Along with the increased infrastructure, all of the "big box" stores including Sam's Club, Mega Wal-Mart, Costco, Home Depot, Office Supply, etc. have moved to Vallarta. A half a dozen new golf courses have been built, a number of new yachting marinas have been built and existing ones enlarged, and clubs for all other activities have sprung up throughout the town.

All of this growth has taken place in PV while the city managers have maintained the city's atmosphere of a quaint Mexican fishing village. The cobblestone roads, the sound of mariachis in the air, the colorful tropical flora and fauna, the magnificent sunsets, the beautiful beaches along the Banderas Bay shoreline, and the majestic Sierra Madre Mountains as a backdrop will always provide the feeling of being in Paradise. This continues to hold true while the explosive growth in Vallarta now provides the creature comforts and conveniences of a large modern city, i.e. the best of everything is available in PV where the average daily temperature from November through May is 73*F with virtually no rain.

In summarizing, if you're approaching the end of your career, retiring and investing in Mexico is worth your consideration. It was the best decision we ever made; one that we'll never regret after enjoying eleven years of fun and prosperity. At this time, we see very few signs of a slowdown in Puerto Vallarta and living conditions couldn't be much better; however, as they say in the investment community, "past performance is no guarantee of future results"!

Determine Stock Market Position

When trading in the stock market, position sizing is where all the tools of money management come together. It’s perhaps the most important part of your stock market money management rules. Position sizing is simply deciding how much you are going to put into any one stock market trade. You can calculate your position size using the other tools of stock market money management, your maximum loss and your stop loss.

However, many stock market traders believe that they’re doing an adequate job of position sizing by simply having a stop loss in place. While this will tell them when to get out of a stock market position, and will, with a maximum loss, determine how much capital they’re risking, it doesn’t answer the question of how much or how many units they can buy.

If you have already calculated your maximum loss and your stop loss, you can take these values, and plug them into a formula that will calculate how many shares you can purchase without exceeding your maximum loss. Although it is simple, the formula I’m about to give you is extremely powerful. The number of shares for your position is equal to your maximum loss divided by your stop loss size.

You’re already familiar with what a maximum loss is; but may not be recognize the term stop loss size. A stop loss size is the difference between your entry price and your stop loss value. If you were to enter the stock market with a one-dollar trade and set your stop loss at 90 cents, the stop loss value would be the difference between your entry price and your stock price, ten cents. Once you’ve entered these values into the formula, you can calculate how many shares you should buy so that you never risk more than your maximum loss.

Let’s look at how the formula works in practice. If your trading float was $20,000, and you were risking 2%, your maximum loss would be $400. If your stock market entry price was one dollar, and your stop loss value was 90 cents, your stop size would be ten cents. Now, the number of shares is equal to your maximum loss divided by your stop size. In this example, you can purchase 4,000 shares. If this stock reaches your stop loss, and you have to exit the position, you know you’re not going to risk or lose more than 2% of your float, which is $400.

This formula ensures the safety of your trading float. A little finessing that some of my clients like to do is to class their brokerage fee as part of the maximum loss. You could do this by subtracting the stock market brokerage fee from your maximum loss. If the stock market brokerage fee was $40 for your return trip, subtract 40 dollars from your maximum loss. Instead of entering $400 into the formula, you’d now enter $360. Once this is computed out, you can determine how many shares you’d buy, and know that you had included brokerage as part of your maximum loss.

By setting your position size so that you follow the 2% rule, you’re using a strategy that will limit the size of your losses during losing streaks. When you experience a winning streak, your position sizes will grow in a similar manner. By changing the amount of capital you’re deciding to risk, you’ll change the characteristics of your risk to reward ratio. All of your stock market money management rules will work together to make your trading system as profitable as possible.

Tips for Stock Market Trading

The internet is jam packed with so-called independent experts who claim that they made a fortune trading stocks. They are only too willing to share those tips with you for a price. Maybe you recognize the name of the expert, maybe you don’t. Which expert is right? Here are 10 tips common to the best stock market trading strategies.

1. Set financial limits. Dumping all your cash into a stock hoping for fast return is not investing. You might as well put that money on a horse in the fifth race and admit to gambling. Stock market investors decide how much money to put at risk before buying.

2. Buy low – sell high. That’s the tried and true formula for making money in the stock market. The problem is determining those points. No magic here, just plenty of analysis and research to achieve that simple yet elusive goal.

3. Price rules, value drools. The best research may show that a stock is undervalued or overvalued but the proof is in the price. For totally absurd reasons a stock price may rise or fall regardless of what you and the experts believe is the value. As with anything, the actual price is what people are willing to pay.

4. What goes up, comes down. Even a Cinderella stock on a wild ride to the top is headed back to the bottom when the clock strikes midnight. Online stock traders must get off with some profits before riding their pride to a crushing loss.

5. Change happens. Stocks are subject to directional swings that make no sense. The trends may show it or the change may be due to external events. Either way, smart online stock traders live with it and move on. Asking “why” is not as important as deciding “what now”.

6. Yield for Curves Ahead. Once a market move is evident, watch for the direction and duration of the trend. Generally a trend move during a bull market is more likely to be positive. A trend move during a stalled or bear market is more likely to be negative.

7. Says who? The internet is jam packed with stock market trading advice from software vendors, online trading firms, stock market newsletters, analysts and people who want to make money from you. How reliable is their advice? Keep a healthy skepticism about whose advice you use in making trading decisions.

8. Expertise is no substitute for Instinct. If technical tools alone made for success than the market would be packed with millionaires. Instinct leads the pack when analysis shows up a day late and a few dollars short.

9. The Efficient Market does not exist. The Efficient Market Hypothesis is a myth. The idea that the stock market will benevolently work itself out from peaks and valleys to a level playing field only works in textbook models of capitalism.

10. Be True to Your School. Consistently apply your trading strategy. Flipping strategies only leads to confusion. If the latest hot tip does not fit your trading strategy, it’s not for you.

Trend in the Stock Market

Everyone who has been trading even for only a short time has heard the adage the Trend is your Friend. If we are trading against the trend we are like salmon swimming upstream. However we should not only know the trend of the stock because a stock will often move in sympathy to how the overall indexes are moving. So first we must identify the trend of the indexes. Then ideally if we can find an industry moving in the same direction of the index we would like to pick a stock from that industry to trade. For example if the S&P is trending up and the overall banking industry is moving up we could purchase stock in Wells Fargo (WFC).

1.Identify the trend of the overall indexes (the S&P, Dow and Nasdaq)
2.Identify the trend of an industry.
3.Identify the trend of an individual stock within that industry.

How To Identify The Trend
There are many different ways to identify a trend. The method we use for determining the trend on an index or industry is looking at the Weekly Charts. When the market breaks above the highest high of the past 3 weeks then we say that the market is in an uptrend. If it has broken below the lowest low in the past 3 weeks then it is in a down trend.

For an individual stock we use the monthly charts and if it has broken above the highest high of the past 3 months then the stock is in an uptrend. If it has broken below the lowest low of the past 3 months than it is in a downtrend.

Technical Analysis Vs. Fundamental Analysis- Technical analysis is the study of price action and timing to enter the market. Fundamental analysis is the use of information about the company's financial condition to make investment decisions.

These are two different and often competing schools of thought where one school says that the other is wrong. At OptionSpreadTrades.com we believe that both schools are right, but give us different information. A useful way to think of it is the fundamentals will tell you Why a stock is moving and the technicals will tell you When the stock will move.

Technical Analysis
There are entire books written on technical analysis and it is beyond the scope of this course. Some of the tools that we use at OptionSpreadTrades.com are things like overbought and oversold indicators like Stochastics, Momentum indicators and Bollinger Bands, which are standard deviations to tell us when a market is going to reverse direction.

Fundamental Analysis
This school looks at things like price to earnings ratios, the amount of debt a company has, and earnings per share to determine the value of a company. It is important to look at both technical and fundamental factors when deciding which stocks to buy or short sell. Because if you buy a stock that is technically ready to move up it is better to purchase one that also has good fundamentals as well because this makes it likely that the stock will move up more than one that doesn't have good fundamentals.

Summary
1. Identify the trend of the overall indexes (the S&P, Dow and Nasdaq)
2. Identify the trend of an industry.
3. Identify the trend of an individual stock within that industry.
4. Technical Analysis tells you when a market will move
5. Fundamental Analysis tells you why a market move.
6. All of these factors are important for deciding which stocks to buy or short sell.

1929 Stock Market Crash

The 1920s were a time of great financial prosperity. During the early part of the 1920s real estate is booming causing many people to get into the real estate bandwagon that was promising riches for everyone. Not only that but the stock market was going up to levels never seen before and this caused a frenzy of buying that everyone wanted to get into. It was such a high time of great speculation and investment that it was called the booming 20s.

If you had invested in real estate or the stock markets in the early part of the 1920s and got out by the middle of the 1920s you would've made a lot of money and been well off, but as with any boom people thought that the stock market was going to go up forever, but as we all well know nothing ever does, and the faster something goes up the quicker it will go down, but nobody could have ever predicted the crash of 1929. It was so sudden and so severe that it caught many people by surprise and left a large part of the investor population in bankruptcy. Let us analyze why this happened.`

One of the biggest problems during the boom time of the stock market is that brokers were so confident that stocks were going to keep going up that they were allowing investors to buy stock on margin. This meant that brokers were now allowing investors to borrow on top of their original investment to buy even more stock.

For example if I have $1000 and I wanted to buy $1500 of stock might broker would have lent me $500 on top of my original thousand dollars to reinvest into that stock. Brokers in the 1920s were allowing their investors to borrow on average of up to 66% on margin , and this was an unprecedented amount of margin that the market ever experienced. This was a very dangerous way to invest. When the stock market crash of 1929 happened within a three-day span.

Investors not only lost 100% of their investment but also the margin call on top of that, which meant that not only did many investors become broke, but on top of that they owed money which they could not hope to pay back. It had gotten so bad that many of the male investors had committed suicide to prevent themselves from paying back the money they all and also protecting their families. After the crash the New York Stock Exchange then implemented rules to limit the amount that a broker can lend to an investor on margin.

Another reason that the stock market crash so suddenly in 1929 is that short sellers were allowed to do short any stock no matter how hard it was going down. Shorting the stock means that you are selling a stock in the hopes that that stock will go down, and when it does go down you can buy that stock and pocket the difference. The short sellers smell blood when they saw that the market was crashing and they made out like bandits, but the effect that they had on the stock market is that they caused the prices of individual stocks to go down so fast and so hard that investors did not have a chance to sell their stock to get out of the market, because the market makers know that the stocks were going to go down and refuse to execute there buy orders. The New York Stock Exchange also make sure that this would never happen again by implementing the uptick rule. The uptick rule is essentially means that you cannot short a stock until there is a green uptick in its price, which means the stock has to go up before you can short it.

The market exchanges learned a a big lesson from the 1929 stock market crash and it saved them many times. For example the stock market crash of 1987 was a good size percentage drop but it was nowhere near the 1929 stock market crash and one of the reasons that the markets recovered very quickly in 1987 is the uptick rule. Short sellers can no longer make an easy buck from the panic and distraught of their fellow investors.

Russian Stock Market

The majority of experienced investors will be fully aware of how poor the Russian stock markets performed in 2008. The Micex (the name of the country's benchmark index) fell an astonishing sixty percent from May to October 2008. The main stock exchanges were forced (by the country's regulator) to close for two consecutive days due to these staggering falls. That was then but things to day are some what different.

"The fight back has begun" shouted one trader, yes the Russian stock markets are fighting back and have had a decent start to 2009. Will this rise continue in the medium to long term? Well who knows? At the moment the people "in the know" are sounding very bullish about the future prospects and believe that there is money to be made.

I was speaking over the weekend to an experienced financial adviser who told me that the Russian market was still trading at a discount of over forty percent to global emerging markets and that he was receiving regular requests from the "big players" within his client bank to start investing their money in the region.

I am not a financial adviser therefore please do not take what I write in this article as "financial advice". I am however a speculative investor who has been "gambling" on a Russian recovery for a while and I am planning to keep investing in the area for some time to come as I believe that the recovery has only just begun.

Watch this space and hopefully we will see a major Russian recovery, I just hope that it happens!

Poker and the Stock Market

I was out of town this weekend in Southern NJ, Atlantic City to be exact. After finishing my business at the convention center, I traveled back to the newest casino, the Borgata where I was staying for the night. I don’t consider myself a gambler and have never enjoyed losing money at the tables. When I do gamble, my preferred games have always been craps and blackjack. Until recently, I had never played at a poker table in a casino environment but I enjoy the game of poker and have only played in backyard and basement games with old buddies. Many people consider the game of poker pure luck but this is not an accurate observation. Many factors run parallel with the game of poker and the game of stock market investing. Luck may play a part but rules, odds and money management are the largest components of the two entities.

When investing in the stock market, it is essential to have a sound set of rules or a system that has been tested in real time, no back testing or historical testing needed. After the system has been tested, the investor needs to follow rules in order to preserve capital and cut losses. The investor must also consider the odds of his/her stock making a gain or making a loss. Price objectives and targets should be a large part of every investor’s system. With proper money management and calculated expectancy, the investor should aim to trade only in situations where the odds are in his/her favor. In a strong bull market, it may not be wise to start shorting many stocks; the odds of making a big gain with this strategy could be very low. Another major component that works its way into investing is psychology and/or human emotion. Stocks are made up of human character traits, similar to the type of people that own them. Some stocks are risky and volatile while other stocks are conservative and predictable. The market repeats cycles and specific chart patterns because humans repeat their actions and character tendencies.

Now, back to the poker table; as I sat down and started to play, my first goal was to become familiar with the character traits of the players around me. With 10 players at the table, I had plenty of time to evaluate the people I was playing with, without risking a great deal of money. After several rounds of play, I was aware that the gentleman to my right would only bet high odd hands and would fold every other hand. He was very edgy and nervous and folded his cards with force when he was angry. The gentleman to the left would also play hands with high odds but I did see him call bets with some hands that were risky with lower odds. One gentleman across the table was the bluffer and always had a smirk on his face with a pair of dark glasses. I challenged this man on several occasions and paid to see his cards because I felt he had nothing. More times than not, I was right and still beat him with an average hand. I could go on but you understand the point I am trying to make: all poker players and investors bring their emotions to the table.

I won’t get into the exact rules of playing poker but I can tell you that only two players are required to bet per round while the other eight can view their first two cards without risking a cent. My game of choice is Texas Hold’em, the current craze across the country and one that excites me when I am in the environment. The two players required to bet represent the big and small blinds. If you are the dealer or anoy other players at the table, you can view your first two cards for free without an bet. If the hand is weak, you can fold and keep your gambling stake.

Here is where it gets interesting; if I have a decent hand, I can decide to call the larger blind and see the next three cards on the flop, which is still a low risk investment. If the flop doesn’t provide me with the cards I need, I can immediately cut my losses short by folding and wait for the next game. The same is true in investing; I can cut a loss short and wait for the next opportunity without risking the farm if I realize an immediate loss. If the cards are good and my probabilities of winning the hand are high, I can call the bet or raise the bet. A fourth and fifth card (the turn and the river) are placed on the table after the flop and betting continues with each round. Again, I can decide if I would like to call, raise or cut my losses short. The connection I am trying to make with investing in the stock market and playing poker relates directly to cutting losses short (capital preservation and money management) and my odds of winning the game (in the stock market this could be called expectancy).

In my opinion, the best game to play at the casino is $1-$2 no limit style. This means that the blinds are held to a minimum and it will only cost you a couple of dollars to see the flop in many cases. The “no-limit” aspect allows your upside potential to be unlimited which carries through to investing. If you cut losses short and ride your winner, the up-side potential in investing can also be unlimited, especially when using options (but that is for another discussion). Last night, I could see my first two cards for free, eight out of every ten hands and I could fold if they were no good. If they were good, I put money on the table after my idea. In the real world, the world of stock investing, you should always put money after your best ideas. The ensuing gain or loss will tell you if you are right. Again, for the umpteenth time in this article, the most important part of both games is cutting losses short and moving on without mixing emotions into the decisions.

All investors and poker players bring emotions to the table, some people control them better while other people employ better systems and understand the odds on a higher level. The bottom line is to understand the situation around you and to use a sound system to raise your odds. Never bet a hand that represents a low chance of winning and never ride a loss that could multiply overnight. Cut losses short and get out of the game and wait for the next opportunity because they are always around the corner.

Stock Market Strategies

Investing in the stock market is something that many people do simply as a hobby, but some people have bigger dreams. So many people want to take investing a step further and gain their financial freedom through it. The problem most people have is that they have no idea how to build on their investments and make sustainable career out of it. I am going to show you a way to invest that allows you to build you gains up and finally get financial freedom.

The method I will be talking about is called trend investing. This is when you look for trends in a stock price. The trend can come in many forms. Some might be a stock price rising for three months and then dropping 20%. Another might be a stock price that slowly drops only to have a big increase suddenly. Either way, this information gives you the perfect information to invest at the perfect times.

Now, how does this method let us build up our investing into a career? Well, you see, a trend is called a trend because it happens over and over again. So, if you can invest in a stock based on a trend, then you can do it again with the same stock. So by writing down the stock and its trend, you now know when to come back and invest in it.

This allows you to mark down multiple trends and have tons of investment opportunities. What if you had 10 stock trends written down? You would always have a profitable investment just waiting for you!