Stock Forex

One of my longtime favorite ways to make money on options is to buy when the stock takes a serious dip. Check the company’s story though, to avoid further downturns. Look at the following charts:

Motorola (MOT): The stock was $70 to $80 a share. It’s a great company. Earnings were up but not what analysts expected (the whole high-tech arena was

down) and the stock plunged to the low $50 range. I pur­chased the $55 calls and some $60 calls. When the stock rose, I sold the calls at a nice profit. I’m always doing this play with a dozen or so companies.

I like Orga-nogenesis (ORG). When it dipped down to $19, I jumped back in. I’m do­ing both a pure option play and a covered call play. There are so many companies which fall into this category.

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Supply and Demand. There is a common “wish” that all things be simple. And even if complicated, at least that they be explainable and definable. Do markets move due to a supply and a demand? Yes, to an extent, but there is too much sentiment, too many desires, and far too many biases which come into play.

Market Sentiment

When you have sentimental responses to hard facts, you are bound to get a distortion. Those who believe in equilib­rium or that the market is a zero-sum game are often fooled. A fund manager may make a clever play one day, but then be hoisted on his own petard the next.

Market sentiment is a combination of multiple dynamics at work. If we were to achieve perfect knowledge, have perfect competition, and perfect responses to all this, and more importantly, if we could be detached from the game, then maybe we could pre-guess a movement. But we get nothing perfect and we are not detached. Indeed, we are a part of the course of events.

When we buy stocks, we’re part of the process that drives the stock up; when we sell, we are the opposite. The amount of stock movement depends on where the market is headed— what stage, or cycle it is in.

Influence

We, individually, have little influence, but collectively we have a lot. If we are in the game, buying a stock or many stocks, we contribute. We become part of the trend. We want safety so we go with the numbers—the “herd.”

This has never made sense to me—as most of the stock market makes no sense to me. I love “crazy!” Since I accumu­late wealth through chaos—at least, figuring out part of the chaos and capturing profits amidst it, and since I don’t have to continue in the trend, in fact I can be detached from it (as you can)—then you and I can make incredible returns.

Capitalizing Profits

I wrote my first book almost two decades ago. I have had a wonderful audience—a very supportive following. Those of you who know how I write and how I think will definitely be unsettled by the following chapter!

There is a purpose, a rhyme and reason to my madness. Indeed, it is in my attempt to explain my “stock market madness” that the following is written. Why? People come up and ask me how I can make such fantastic returns. How do I consistently get 10,000% plus annualized returns?

So come along—I hope you’ll come to understand my rationale and my results. It will take a while, but the first part of this chapter is necessary to understand the last part, the crucial part. It may be slow at first, and you’ll have to wade through my “Wade-isms,” as I have never before tried to encapsulate my thinking process and results. This is new territory. Hopefully not the final frontier.

Holy Macro

I hope to give a “macro-view” and use micro examples to justify my reasoning. There definitely is a “herd” mentality and I am not the first one to try to understand it and to figure out how to profit from it, or how to not lose by following it. More importantly, trying to understand this type of stock market mentality is the perfect way to try to figure out just when the “herd” is about to turn. This turning point is the point when a lot of profits can be made. But I’m ahead of myself. That is the conclusion to this chapter. The profit-making point of reversal or correction of a stock is crucial. I bring it up at the beginning so you know where this chapter is heading. I will not be untrue to the theme that has worked well for me, both in my personal investing and my seminars: use a little cash to purchase an asset, get in, then get out with a nice chunk of cash (profits) or smaller cash flows (payments). In short, I want income (cash flow) from dividends, capital gains, option premiums, or whatever income that allows us to live, to pay the bills, and grow rich.

Another theme of my books and seminars is “to whom are we listening?” If you want to make $100,000 a year, why are you listening to anyone making under $100,000 a year? It is to this point that we’ll launch into this area of discussion.

There is a widespread belief that the market is always right. I disagree. There are too many variables. The market is not always right. When it comes to a particular stock, there is definitely too much sentiment to come to any conclusion that a stock’s price is “right.” (I’ll give in on this a little, if you’re determining a stock price based on a “best guess” midpoint price between a high and a low, or a recent support level and resistance level.)

I’ll get back to individual stocks later, but for now let’s deal with the stock market in general.