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Showing posts from April, 2014

Round trip stocks: momentum booms and busts

"No tree grows to Heaven." - Old proverb adopted by Wall Street.

What happens to hot momentum stocks when their rocket fuel runs out? How long can they continue to fly before they come crashing back down to earth? Why is the stock that you paid $100 a share for now trading at $39?

These are questions that many novice traders and investors may be struggling with in the wake of the most recent market correction. Momentum stocks have been hit hard as the Nasdaq 100 and Russell 2000 indices have moved lower in recent weeks. Caught unaware by the recent slide, some traders may be wondering when their beaten-down stocks will snap back and allow them to exit with smaller losses (or even reach the mythical "break even" point). 

While growth stocks still firmly within their uptrends may form constructive technical bases and move higher after this correction, others may experience sharper pullbacks or break down into full "stage 4" declines (see chart below). Story st…

Jesse Livermore on being wrong: "Cut your losses quickly"

Legendary trader, Jesse Livermore on being wrong in the markets and how to get yourself right. 

    "The only thing to do when a person is wrong is to be right - by ceasing to
     be wrong. Cut your losses quickly, without hesitation." - Jesse Livermore
A timeless lesson for tough markets and the inevitable losses that will come your way (in good markets and bad) in the course of speculation. Manage your risk, don't let your ego's need to be proven "right" take over your trading.

Related posts:

1. Jesse Livermore on trading (quotes).

2. Marty Schwartz ("Pit Bull", trader) speaks at Amherst College.

GM vs. Tesla stock performance (it's not even close)

General Motors vs. Tesla Motors in charts, from late 2010 to 2014. I'm sharing these charts to highlight the difference between a former industry leader, GM, and the auto industry's current leading growth stock, which is Tesla. 

Let's say you have a choice between a former leader-turned-laggard and an emerging new leader with strong sales and earnings growth. Which investment will you choose? If you select the right stock, you will see a profound increase in your investment returns.

First, let's look at the individual stock charts of post-bailout GM, which emerged from bankruptcy and IPO'd in November 2010, and TSLA which IPO'd in June 2010

GM went public (again) at $33 a share with an IPO day close at $34.19. The stock peaked above $41 in late 2013. Today, GM trades at $34.87, about 2 percent higher than its first day closing price back in late 2010. 




Tesla had a stronger IPO day back in June 2010, surging 41% from its $17 opening price to close at $23.89. 

Init…