After 17 years I have learnt a thing or two. Most wall streeters start by telling what stock pick was a double or triple bagger. I will start with all my losers. Remember Adelphia, Iridium, Lucent and a bunch of those dot com IPOs ? Those were some of my losers; they all tanked to zero, so how come I am still around. Well Lucent merged but you know what I mean. So lesson number one was to take the loss and move on. But my losses were not very much, how is that. Well, I noticed fast enough and did not loose much on these stocks. In fact I went cash before the dot com bubble burst. That is my point to quickly identify the mistake, take the loss and move on & not sit and wait. Let the winners run and cut your losses,

You have heard this before but you still don’t practice it. It is hard to take a loss but it is part of the trading process and you cannot escape it. The big gurus tell you to have a tight stop, well then all that happens is your stop is hit and you are out with a loss. I never use stop losses, I watch and decide on when I have had enough and bail. You have to let the trade play out not rush to bail with a loss. To be successful you must have the ability to take a loss. Even Warren Buffet takes a loss every now and then. Remember his two rules of trading # 1 Do not loose money and #2 Do not forget rule # 1. What does he mean? That’s it, cut your losses and move on, preserve your capital and remove that distraction. If you are bogged down in a looser how will you spot the winner. In no particular order here is the Tony method….

1. Write a trading plan for the day: you ask how? Read Yahoo Finance headlines, Briefing.com, Barrons,

Economic reports etc see the political headlines and then connect the dots to the market. Look for analyst upgrades and downgrades. See what a market celebrity is saying, like a Bill Gross or Meredith Whitney. That will set the tone for the day. This will guide you to follow the momentum and direction. I know it changes by the hour but you will have some grip on what is going on.

2. Fear: It is the reason why people fail in the market. Be fearless, the only thing you have to fear is fear itself? Who said that FDR. If you can handle fear you will succeed in this business. Remain calm, un-phased, re-group, re-focus, switch strategy and fight back. This is not the end of the world, you will be fine. Something else will come up and remember what ever happens is for good.
3. Buy gap down and short gap up: This is based on the premise that gaps tend to fill This strategy has a good track record for working but nothing is a sure thing in this business. You still have to watch your position and play accordingly.
4. Where is the stock price going not where it has been! Just like it says, ignore if the stock was high or low but where will it go in future. You will never be able to pick the bottom so you have to follow the trend. If the stock is trending higher in higher volume then you can buy or short in vice versa conditions.
5. In the stock market everyday is an opportunity, the questions is how to find it? Can’t beat ‘em join ‘em, so be flexible and change direction. But too much trading is equally dangerous. Develop the ability to just sit and watch, do nothing. Only go when your buy or sell parameters have reached extremes. Don’t chase just any rumor or news item. Never sell in panic. In fact sell the news. The other traders with more information than you will be selling the news.
6. Lock in profits whenever you can, take what the market giveth. No one went broke taking profits. I know even I have done that, I had AIV from the low 20’s and I took to the 60’s but did not sell, guess what it is now back in the 30’s. So lock in the profits and move on.
7. Technical Analysis: This is essential in today’s trading environment. Get a good book and learn how to draw moving averages, support and resistance, bollinger bands, RSI, MACDh, familiarize yourself with fibonacci retracements and learn how to make just normal trendlines on the chart. Don’t go crazy on technical analysis, just use it as a guide. Volume is the one to watch, its something no one can hide.
8. Trading is an art and not a science. So make your artwork, its your style of trading and is different for everyone. Write down whatever works for you and then stick to it like crazy. This will be your system of trading. It can be playing technical bounces or just trading say five stocks that you an expert on. After all you are trading against the experts. On the other side is a trader who only trades that stock and knows the company inside out.

Company analysis: read the 10-K and Qs, if in a few lines you can’t figure out what the company does to make money, just move on. It’s not your cup of tea. I always look at the company debt, book value and customers. These days book value is a moving target so be careful. Books can be cooked but it is hard to cook to the topline so revenue growth is your target. Look for that moat Mr. Buffet talks about, durable competitive advantage. Can others copy this business and start it in a jiffy? If you have more time you can see the # of employees and read up on the CEO.

Investing Philosophy: (remarks made after the 08 crash)

Who would not like to buy stocks at 50% below intrinsic values (net profit plus depreciation less capital expenses) in businesses that have a moat (competitive durable advantage) sounds familiar, we all know about Benjamin Graham and Warren Buffet. But in the real world it is not possible so I like to tweak this conservative method with some real world conditions. If the moat is strong enough I don't mind paying more and if the future in that sector looks good I don't care about the intrinsic value either. Trading can be done in risky stocks but investing must be defensive. Slow and steady wins the race and it is better to be safe than sorry. That is my mantra. Place bets for about a year but only a few bets but with low risk and high uncertainty.

These days investing is treacherous business, imagine when book value is a moving target on a daily basis and those famous level three assets have no value?

We have learnt new terms SIV, CDO and the new ARS. The creative genius of Wall Street is amazing and how they securitized mortgages and then sold them to the rest of the world. What were they thinking, home prices will just keep going up and all borrowers will be able to make payments. Giving loans to people with no ability to payback, liar loans, zero down payment loans, interest only loans. What ever happened to the loan to value concept. Also to blame are the credit rating agencies Fitch, Moody’s and S & P. It was their job to watch over this mess. Anyway the present crisis will take its toll and unless lending starts again we will continue to see home prices decline even if affordability improves. I will make a bullish case and then a bearish case, you be the judge:

Bullish case:

A very trusted funds flow research outfit is claiming that over 5 trillion is on the sidelines in sovereign funds, private equity, endowments, pension funds and money market etc. This is a tsunami and when it hits the market it will take us over 1500 on the S & P in a jiffy and if you are not in you will miss out. Other bullish factors are equally compelling, look at businesses with pristine balance sheets, low inventories (Thanks to new technology) some like MSFT, AAPL, CSCO have billions in cash. Interest rates are still low, unemployment is also low and exports are booming (17% of GDP). Core inflation is still low historically. And the mighty dollar is at a six-month high and looking good. Crude has come down from 147 to 112 area and falling. My target is in the low 90’s.

Three billion folks are joining the middle class on three continents; they want roads, houses, clothes and good food with protein. Now that is another tsunami and it is unstoppable. We may see bumps along the way, China and India are down huge this year but Brazil just became investment grade and Russia is now the largest exporter of crude. Who thought that will happen any time soon. China now has 100 cities with 1 million populations in each that is mind boggling.

Imagine the possibilities and what will infrastructure and food companies do in this environment. I was recently in Spain and when I saw the development in Gijon, Vigo, Bilbao and Valencia I was dazed and stunned by the progress they have made. We are not talking about Madrid or Barcelona here. That shows how fast the world is growing even in remote parts. Shanghai, Moscow and Rio are growing at break neck speed. This global expansion will take us much much higher and there is not doubt about it.

Now my biggest point and that is the human spirit, it is still soaring.

I have not found any openings at Harvard, Yale or NorthWestern,

I will worry when some collage starts saying that we can’t find students and are closing down. The new generation is creating new technologies and improving productivity and new avenues of creating jobs. They are extremely ambitious and want to do better than their parents.

Cutting edge research in nano-technology, alternative energy, genetics and biotechnology can have the same effect that the Internet has done to our lives. Imagine if every house decides to get a solar panel on the roof or a small wind turbine sounds crazy and unsightly but you never know. That will create jobs and lower the cost of energy and prevent global warming. If a golf cart can run on a battery how long will it take to mass-produce a fuel cell that can take a car 200 miles? The possibilities are endless. A portable dialysis machine is on the way, and Intel is not done. They have several more levels of faster, cheaper chips still to come to market.

Bearish case:

Twelve million homeowners have negative equity in their homes and only 85% are able to make their mortgage payments on time. That is huge and we have a 1-½ year supply of unsold homes in the MLS. Until all the foreclosures have cleared and home prices have settled this mess will go on. I think it will take all of 2009 to clean up this over hang on the economy. Lending has come to a halt, now the same bank wants 20% down payment and is not able to sell the loan back to Fannie and Freddy. They will be nationalized, then broken in 10 to 15 parts and sold back to the public as new IPOs.

Jobless claims are rising and all consumer sentiment readings are going as far back as 1970. That is very bearish for the retail sector and durables. Crude even at 112 area is a major drag on the psyche of the consumer. No matter how rich a person is, they all look at the signs driving by the gas stations across the country. Newer jobs are not paying as much and have no healthcare benefits. Considering that the consumer is the driving engine of this economy I’d say we are in major funk. But then again how do you explain the long lines to get the I-phone?

Then we have the big pundits like George Soros and Nuriel Rubini predicting the gloom and doom based on a 2 trillion loss in the housing sector. No doubt this is big and unless the financial sector recovers we will remain in a side ways to downward bias.