Stock Exchange Eliminates Stop Loss and Good till Cancel Orders

AppleThe New York Stock Exchange has announced that on February 26, 2016 they will no longer accept a Stop or Good till Cancel Orders. Many investors use “stop orders” to protect their investments, or so they think. There are many forms of “stop” orders, such as Stop Loss, Stop Limit, Training Stop Loss, etc.

Here is an example, you bought 100 shares of Apple (AAPL) @ $90/share awhile back, and it is now $118/share. You want to protect some of your gains so you entered a Stop Loss Sell Order, Good Till Cancelled @ $100/share. Therefore if Apple drops to $100/share it will automatically sell and you’ll have a profit of $10/share. You can also set a higher sell price, for example, if Apple hits $125/share sell automatically to lock in your profits. The old theory was that every time you buy a stock or fund you also enter a high and low sell price.

However, here is why this doesn’t work so well.

The Stop Loss price, $100 in the above example is not necessarily the price you will get on a volatile daily drop. What happens behind the scenes is that as the stock hits your Stop Loss price of $100, it becomes a “market order” and sell at the immediate “market price”.

However, on a very volatile day like the “flash crash” in August 2015 a momentary, intra-day sharp drop in prices triggered an avalanche of selling and all these Stop Loss orders were hit, but not at the price you would expect.

During a momentary flash crash your $100 Apple Stop Loss price, became a “market order”, but because of the crash the momentary price for Apple dropped below $90, even for a few moments. You stock would have sold for maybe $80, far below what you thought was “a protected” price. Of course moments after you stock was sold for $80, Apple jumped right back up to $108 price for that day. See the Apple daily stock chart above.

In theory the Stop Loss concept was very good, however in the current day of computer trading with 60% of daily volume coming from high-frequency trading there can be unintended consequences.

Don’t fear however, even though the NYSE won’t accept Stop Loss and Good till Cancel orders next year, most major brokerage houses will offer internal systems that should handle your orders in a similar way.



5 Simple Reasons to Sell an Investment

In my last posting “The Easiest Way to Lose Money in the Market – Selling” I discussed how the average investor unfortunately sells when stock prices are dropping and panic sets in.

There are however some simple rules that you can use to determine when is a good time to sell an investment, including stocks, bonds, funds or ETF’s. These rules aren’t for day traders; they are for long term investors.

  1. Rebalancing. Investors need a plan that includes diversification. The larger the portfolio the more diversification makes sense. Let’s say that you determine Healthcare should be 10% of your portfolio. At the end of a quarter you review your holdings and see that your Healthcare has gone up so much that it is now 15%. This is just too high and you decided to sell some of your holdings in this sector and “rebalance”.
  2. The Story Changes. You always need a specific reason to buy or sell a stock. I started buying Airline stocks in early 2014 when I saw that oil prices were dropping and each of my airline stocks had a unique story. American Airlines was bought by US Airways, Delta bought a refinery in Philadelphia, JetBlue announced a restructuring. At the same time I started selling my Utilities in late 2014 to lock in my gains as it became clear that the Federal Reserve would start raising rates in 2015 and Utilities would not be a good place to be for the next 12 months.
  3. Look at the Technical’s. Technical’s refer to stock charts. It is really important that you know how to read and understand stock charts. If you are a long term investor you might want to look at the 12 month “daily” chart. On this chart you can plot the following comparisons:
    1. 50 day EMA (exponential moving average), this is 2 trading months
    2. 200 day EMA, this is roughly 10 trading months
    3. SPY, the industry standard ETF normally referred to as “the market”

Death Cross

Here is an example of a strong selling indicator, a “death cross”. One of my past holdings was AEP, American Electric Power, one of the largest and best run utilities in the country. In the last few days AEP’s stock price ( had a “death cross”, a clear broken trend. The 50 day EMA (black Line) crossed below the 200 EMA (green line). In addition, AEP (blue line) was already trending below the overall market SPY (purple line). Sell, sell, sell! 

4. Play with House Money. When you make a lot of money in a speculative stock, sell some on an “up day” to take some profits. This is especially true in a tax sheltered account like an IRA or 401K plan. Jim Crammer always preaches this.

5. Moves by the Federal Reserve. Never fight the Federal Reserve, as the saying goes, it will bite you in the backside. The upcoming rate hike by the Fed has been telegraphed now for almost a year. This means that most interest rate sensitive stocks or bonds will get hammered. Sell your bonds now, they are already dropping in price and you will lose much more in principal that the very small dividends they pay.



The Easiest Way to Lose Money in the Market – Selling

The average American spends more time researching what’s on TV tonight or their favorite team’s upcoming schedule than their investments. Some do what I call “buy and forget”, others listen to friends and own the latest fad stocks, and finally there is the group that trust someone else to make decisions like financial advisors.

The biggest reason people lose money in their investments isn’t due to a recession, the Federal Reserve or a “bear market”.  The reason they lose is really simple, they sell low! It is impossible to “time” the market, all the experts and talking heads on CNBC have no idea whether the market will go up or down in the short term. Short term being a day, a month or a quarter. In the longer run, stocks always go up, you just need to be patient and do a little homework. The problem isn’t as much buying high, it’s selling low based on your panic.

Take a look at the attached chart, it shows the market over the last 12 months (SPY is the S&P 500 ETF, commonly referred to as “the market”). The blue line is the SPY, the red line shows the 50 days moving average of the stock’s price.


It is easy to see that people who sold their stocks or funds in a panic, lost money. You can use any stock choice you want, the analysis is the same. You are your worst enemy, you sell or switch funds when the market goes down. I really pity the people who sold their stocks in 2008-2009 at the low points when the stock market was demolished. They then sat on cash, CD’s or bonds and missed one of the greatest rebounds in stocks in our lifetime. Along with your homework, time is the most important factor in your ability to make large returns on your investments.

Want some proof? Warren Buffet is currently worth about $73 billion is 84 years old. He made $70 billion of that after he turned 60 years old.  Your wealth will grow exponentially if you just follow some simple rules and don’t panic! Warren buys and sells based on fundamentals and investing in value. He buys low and sells (or holds) when the price is high.

In my next blog post I’ll give you some ideas when to buy and when to sell your investments.

My Top 5 Explosive Growth Stocks for 2015

GrowthEvery diversified portfolio needs an allocation of explosive growth or momentum stocks. These tend to be volatile and should have a great growth story behind them. You can’t pick these stocks based upon a single day or even a month’s performance. They also have a life span that is somewhat governed by technology or major market themes.

Ambarella (AMBR) This is a video chip company whose products are used in the leading wearable helmet camera GoPro (GPRO). They are also a leader in automotive backup cameras. It has a huge upside because, beginning in July 2018, all US made cars and light-duty trucks must have backup cameras. In addition they are a leader in ultra-high-definition TV, a next generation TV that we’ll all have someday. Last quarter, their 4th quarter they beat their revenue and earnings forecast. I bought this stock in late 2014 and it is up 60%. It is up 400% in the last 12 months and trades at a 55 P/E, not too bad.

AMN Healthcare Services (AHS) This company provides staffing and staff management services to the healthcare market. Obama Care has put pressure on hospitals and other healthcare facilities to both find qualified nurses and physicians and manage costs. The healthcare market will continue to grow for years to come and this company is well positioned to enjoy excellent growth. They are up over 100% in the last 12 months and trade at a 33 P/E. I first bought this stock in late 2014 and have added to my position a few times when it hit its daily 50-day EMA.

NXP Semiconductors (NXPI) This chip company provides “near field” communications for products including the Apple iPhone and Samsung phones and tablets. This technology is behind mobile payment systems like Apple Pay and competitive brands. They just recently signed up Chinese consumer electronics maker Xiaomi and acquired Freescale Semi in March. Freescale is a leader in automotive chips for keyless entry. The stock is up 100% in the last 12 months and trades at a 80 P/E. I bought this stock in late 2014 and it is up 40%.

Palo Alto Networks (PANW) This company is a leader in enterprise cyber security. This stock is in my basket of cyber stocks that include FireEye and CyberArk. They all have been hot for the last 6-9 months. Cyber threats will continue to be a hot topic for years to come. PANW and FireEye actually lose money but they continue experience substantial growth. PANW is up over 200% in the last 12 months when I started buying it.

Skechers (SKX) This is a shoe and apparel company. When I moved to Florida a year ago I found that I needs more casual shoes that were very comfortable. I bought a few pairs of Sketchers and I love them. After some research I bought the stock and after flat performance in 2014 it has really picked up. I’ve also seen the 2 founders on Jim Cramer’s Mad Money and they tell a convincing story. The stock is up 90% in 2015 and have overtaken Addidas and New Balance to become the #2 footwear provider in the US. The stock trades at a 32 P/E.

Invest in China – My Top 5 Selections

ChinaAs the US economy goes into a slow growth mode I’ve been increasing my exposure to China. Currently my direct China investments only hold a 4% allocation in my portfolio. My goal is to increase this to 6-7% by mid-summer. I’d like to have 15% allocation to the combination of Europe and China. My actual exposure to China is more than 4% because some of my other holdings have substantial China exposure, like Apple (APPL) my largest single holding alone representing 5% of my investments. In the most recent quarter, Apple sold more iPhone’s in China than in the US.

My strategy in China is to go with the sector winners where possible. Here are my picks; all have provided double-digit returns in the last 12 months.

Baidu (BIDU): Baidu is the “Google” of China, it services including maps, news, video and encyclopedia searches. Baidu completely dominates China just as Google does the Western world. Google has only 3% of the China search traffic and 90% of the rest of the world. I’ve held Baidu for a number of years.

Ctrip International (CTRP): Ctrip is the “Expedia” of China. As a matter of fact Ctrip just acquired a 38% equity stake in eLong, a Chinese competitor, some of this stake came from Expedia another investor in eLong. This stock just hit its 52 week high on Friday, up over 100% in the last 12 months. Ctrip’s mobile app has over 800 million downloads and in Q1 about 70% of all of the company’s online transactions were mobile.

iShares China Large Cap ETF  (FXI): This is my catch-all for all the large corporations in China that trade on the Hong Kong Exchange. FXI track the FTSE China 50 Index which includes the 50 largest companies in the Chinese equity market that are available to international investors. It currently is trading close to its 52 week high, yet only has a P/E of 13. It has returned over 70% in the last year. If you are going to only own one Chinese stock, this is the one to own.

NetEase (NTES): NetEase, operates an interactive online community across multiple areas, including Online Game, Advertising, E-mail and E-commerce.  Similar to Yahoo in the US, it offers news, information, community and communication services, such as photo albums, instant messaging, online personal ads, and online video. Their e-mail services are used by a lot of large corporations. It too is now trading close to its 52 week high and has gone up more than 100% in the last 12 months.

Vipshop Holdings (VIPS): Vipshops has a unique on-line “flash sales” business that really doesn’t have an equivalent in the US. I’ve held VIPS for many years and it’s gone through a recent stock split. This is a controversial stock and can be volatile. They are also a regular discount retailer with many of their own brands, maybe like a smaller version of Amazon or This is probably the riskiest China stock that I own, and my cost is so low that I really don’t want to sell it and pay a substantial capital gains. This stock can easily return 10-15% or more a year and is a great “trading stock” if you have a short-term outlook.

Beware of High Dividend Foreign Stocks or Funds in Your IRA/401K

Foreign TaxDo you know how the Foreign Tax Credit works, you should, it can cost you a lot of money.

Here is another tax tip for those investors who are looking for dividends and have foreign dividend paying investments in a tax deferred account. When you own a stock in a company based in a foreign country you may have to pay a foreign tax on a dividend or capital gain. These tax rates are all based on US treaties.  Whether you know it or not these foreign taxes are automatically deducted from your dividend payment before you even receive it in your account.

The good news is that the IRS will give you a tax credit for all Foreign Tax paid, it actually goes on 1040 Line 48. However, this ONLY works if you hold these investments in a taxable account. if you have these investments in a tax deferred account, you will still pay the foreign tax, but not get the Foreign Tax Credit. 

Here are some examples of foreign withholdings on Dividends:

Australia – 30%

Brazil – 15%

Canada – 15%

Chile – 35%

Chine – 10%

France – 25%

Germany – 26%

Ireland – 20%

Japan – 10%

South Korea – 27.5%

UK – REITS only – 20%

Keep in mind that this is a Tax Credit, it reduces your actual taxes not just reduces your income.

Be careful under what account you invest in foreign company’s that pay dividends.

How Not to Invest in the Oil Market – And My Suggestions

Oil StocksMany of you may want to invest in the oil market, betting that the price of oil will either go up or down. It would seem that the most logical thing to do is either buy the United States Oil Fund (USO)  ETF (buy to go long or short the ETF to bet oil goes down). This ETF tracks West Texas Intermediate oil (WTI), and is down about 16% year-to-date after falling about 45.5% last year.

One problem with this strategy is that you may think that the USO, or the similar OIL ETF’s actually owns the oil in the ETF. For example, most stock ETF’s like the SPY actually own the stocks in the ETF. USO doesn’t actually own any oil as such. Furthermore there are fundamental issues with holding these types of ETF’s for long term investors.

Let me explain. The USO ETF buys “near month” crude oil futures contracts on the NYMEX. Today the near month is the May 15 WTI contract, for which they own 61,041 contracts.


The problem, as any Futures Trader will tell you, is that every month you need to settle up (sell) your position and in the case of USO “roll” into a new position (buy new contract). A monthly futures contract expires at the end of that month. Each time they do this there are both fees involved along with the fact that they are buying high and selling low during the cycle. This is not a great situation for a “buy and hold” type of investor. This USO ETF is a great short-term “trading” stock with plenty of liquidity (daily volume). Their  ETF expense ratios are well above other equity-based energy ETF’s. For example, USO charges 0.45% per year while OIL charges 0.75%.

“Those costs accrue with each passing month. The United States Oil fund saw comparable demand from investors in February 2009, the last time oil prices imploded. From there, spot crude more than tripled from $34 a barrel in about two years. Yet, investors holding the fund captured only about a third of that,” according to Barron’s.  To further complicate the situation, USO has added over $2 billion in new money this year and most of it “shorting” the fund, rather than going “long” in an inverse oil ETF. These huge short positions make the ETF even more volatile. 

As Barron’s also reports, “As more people get into oil ETFs, new investors should understand the potential risks of trading futures-backed funds. Specifically, oil traders should be aware that USO tracks front-month WTI future contracts and the underlying oil market is currently in a state of contango. Consequently, USO could experience a negative roll yield when rolling a maturing futures contract.”

My suggestion is that you invest in the energy sector ETF’s that hold real stocks, like the SPYDR  XLE or the Market Vectors Oil Services  OIH ETF’s. The XLE holds mostly large cap energy companies like Exxon, Chevron, ConocoPhillips, etc. The OIL ETF holds oil service companies like Schlumberger, Halliburton, National Oilwell and Baker Hughes.

I have no idea whether the price of oil is going up or down in the next few months, but I do believe that this time next year both XLE and OIL will be much higher and their lower prices have already enhanced their now respectable dividends (as compared to bonds and US Treasuries.)

Disclosure, I am long XLE,and KMI.

This Stock has been flat for 3 years – You’ll just love it!

First look at this chart, this stock hasn’t moved more than $1.00 in the last 3 years. Why would you possibly want to own it in your portfolio? Because it is a “money machine”!!!!

 Barclays Pre






This is an excellent example of a “preferred stock” that is a money machine. It pays a current 7.70% quarterly dividend that is a “qualified dividend” for tax purposes. The dividend is fixed at $2.03/year. It trades under the symbol BCSPRD (Fidelity) you can look it up on Yahoo Finance under BCS-PD.  Barclays Bank is a UK based and worldwide financial powerhouse. It carries a S&P BB rating (not bad at all). At this current yield, you will double your investment every 9 years by just re-investing your dividends each quarter.  This preferred was originally issued at $25/share and 8.13% yield. As it rose in price to $26.xx the yield dropped to the current 7.7%. If you bought it at the initial $25 price you would still be getting the 8.13% yield.

For those of us who need a well balanced portfolio and are always looking for non-volatile stocks that are also tax friendly, preferred stocks are a great choice. I have allocated a portion of my core portfolio to quality preferred stocks with high-yields.  In general, they don’t go up or down in price but they sure crank out their nice steady dividends.

Preferred stocks act almost like a bond. They have coupon values, fixed dividends, call or expiration dates and so forth.

You can learn more about Preferred Stocks by checking out these sites.


What Type of Assets Go into Taxable vs. Retirement Accounts

It really is a classic question many investors have. How do I decide what type of stocks, bonds and funds to put into my taxable brokerage account vs. my tax deferred 401K/IRA accounts? The overall idea is to reduce the impact of taxes on your investments. There is no “one size fits all” approach and sometimes your allocation depends on what stage of life you are in. I’ll assume in this article that you are over 50 and planning or are in retirement.

Tax Deferred 401K/IRA Accounts:

  1. The strategy is to have higher tax items in these accounts.
  2. Stocks or funds where dividends are taxed as “ordinary income”.
  3. Mutual Funds or ETF’s that have a high beta, or churn. This means the portfolio can have big tax consequences since they typically have short term capital gains taxed as ordinary income.
  4. REIT’s and BDC’s, whose dividend payouts are generally considered nonqualified and taxed at ordinary income tax rates.
  5. Any preferred stock who’s dividends are taxed as ordinary income, i.e. preferred REIT’s.
  6. Trust preferred’s that are taxed as ordinary income.
  7. Dividends from some foreign stocks and funds that are taxed as ordinary income.
  8. Options trading

Taxable Accounts:

  1. Strategy is to have tax friendly assets in this account and also a high degree of control.
  2. All cash for retirement living expenses or an emergency fund.
  3. Growth stocks that don’t pay dividends but will be held for long term gains.
  4. Tax-free bonds and bond funds.
  5. Unless you are looking for a “no-income” approach, stocks or funds with “qualified dividends”.
  6. MLP’s, if held for a long time since most distributions are a “return of capital” until the stock is sold.
  7. Any investment used as a “hedge” such as Gold stocks, inverse S&P etc. since they can be used for an offsetting capital loss at tax time if desired.

ROTH IRA Accounts

  1. This is the best account to hold high tax items in.
  2. It is also probably the safest place to shelter future income since the government has constantly changed tax rates and thresholds on taxable and tax deferred accounts (ordinary income tax rates). It’s hard to believe the government would change the tax-free provisions of the ROTH IRA.

How to Easily Beat 80% of Hedge Funds – Just Buy the Market

You see all the talking heads on TV, explaining how they are long xxx stock and short xxx stock. They toss out complicated terms like forward EPS, tangible book value and so forth. Many have analysts on the payroll to help them pick the very best investments. Yet in 2014 about 80% of Hedge Funds are reportedly underperforming the overall all US market, namely the S&P 500 index (SPY). SPY is an ETF sold by State Street Advisors that is commonly referred to as the “market”.

Just to clarify a common misconception, many investors think the Dow Jones Industrial Averages “the Dow” is “the market”. It isn’t predominately because it is a very small sampling of 30 very large companies. In addition it is know as a “price weighted” average. This means that a 1% change in a $100 stock has twice the imp[act as a 1% change in a $50 stock. Therefore, if IBM at $155 and Visa at $258 have bad days the Dow average will be down sharply, but the overall market could be up nicely.

Today it is really easy to have a “market performing” investment portfolio, just buy the market. Arguably the great investor of all time, Warren Buffet suggests that people who don’t want to take the time to actively manage a portfolio just buy the S&P 500 Index. The S&P 500 Index is actually 501 stocks, and 500 companies. It just so happens that Google is listed twice due to a split into type types of shares for the same company (voting and non-voting).

If you put all of your investments in just the SPY ETF or the Vanguard S&P Index ETF “VOO” you would have made over 14% in the last 12 months. In addition you would have collected 1.9% in dividends.








You can choose either fund, it just so happens that VOO has a smaller annual expense fee of 0.05% vs. the SPY at 0.09% expense ratio. If you had a $1,000,000 investment the SPY ETF would costs you $400/year more in fees than the VOO.

If you want to beat the Hedge Funds and most other investment managers, it is simple, just invest in the “market”.