10 Trading Rules (by ‘Tet’)

1. Everything flows from this first rule and this is the only rule you really need to know. The Federal Reserve ALWAYS wins. The Fed can make the rules, change the rules or simply choose to ignore the rules and you can’t do this. The game we’re playing is a Zero Sum game and the object of this game is simply for the Fed to take more money away from the cows than the cows take away from the Fed. You can either bet like the Federal Reserve does and be a winner or be a cow. These are your only choices. The Federal Reserve takes trillions away from cows each and every year and if you just take a small piece of that action the Federal Reserve certainly isn’t going to miss it. It is the Fed’s job to make you think the Fed is doing something they clearly aren’t doing and it’s your job to figure out what the Federal Reserve is truly up to and place your bets like they do.

2. Yes, Virginia, you can time the market, in fact if you want to take some of what the Fed is taking that’s the ONLY way to make money. Being diversified ONLY guarantees that you’re going to be a loser. Some things go up, some things go down and some things go sideways. You can profit from the market going up or down and conserve your assets by the market going sideways. These are the only directions the market is going to go, betting up when the market is heading down is why the Fed spends billions of dollars on misleading advertising called editorial to make sure cows are betting the wrong direction. Remember the Fed is making Trillions and spending tens of billions on misleading advertisement is a good investment for them.
Two easy cow timing formulas both have over a 90% chance of working each year.

  • 1. Sell in May and go away is the best timing rule a cow should follow, meaning come May you sell your positions and revert to cash. Come October you take your cash and start buying stocks again. Had you followed this one simple rule this year you’d probably be up about 6%-10% right now instead of down about 3%-5%.
  • 2. Never buy in December, December is historically a 90% up month. If your need to sell some stock December is a very good month to do so. This requires that you do your tax planning in October or November but it is well worth doing so. Resume buying in January.

3. Don’t sweat getting in a little early or getting out a little early this is better than getting in too late or out too late. What this means is at the beginning of your investment cycle you should be prepared to take some loses and by getting out a little early you should be prepared to be happy with the profits you made and not worry about what you could have made. Set targets and if you exit after you made your target of 40% and the stock goes up 50% who gives a shit. Set a loss target and be prepared to say you got in too early or you misread the direction all together. Get out at a 2 or 3% loss before it turns into 10 or 20%.

4. Limit your investment choices, there is too much out there to choose from and trying to follow them all will only screw you up. Don’t buy penny stocks or funds; the definition I follow is if it’s not selling for at least $15 don’t buy it. This makes things a lot easier, because it removes a lot of the noise and distraction from your investment choices. I’ve recently added funds to this $15 limit and in the past I violated this rule. I used to buy BEARX which is a short fund I used when I felt the market was heading lower that sells for about $6. In the future I’ll be using one of the Rydex funds to short the market.

5. Everything that you read in a newspaper or magazine, everything you listen to on the radio and everything you watch on TV is either an advertisement or a paid for editorial. There is no investment advice to follow in the newspaper; your 50 cent investment for knowledge is not going to get you any. Every outlet of mass media is a set-up to get you to invest the wrong way with your money. Certainly there are short-term opportunities, Buffett says to do something and maybe for a few weeks there can be some gain to be made. There is nothing I have read from Buffett for over the last five years that I’ve been paying attention that it wasn’t abundantly clear six months later that Buffett was unloading at the time whatever it was he wanted you to purchase. There is NO other way to read a paper than with a contrarian point of view. If the paper says buy, you should sell and if the paper says sell, you most certainly should buy. If they’re hyping it you should be getting ready to sell it and if they’re trashing it you should be getting yourself ready to purchase. In a zero sum game this is the ONLY way for the big money to make money, they don’t steal a billion from each other to make a billion they steal $10 from hundred million cows in order to make a billion.

6. Make sure to keep all your eggs in one basket and make sure to keep a very close eye on that basket. The brokers and the financial advisors will preach diversification and diversification just means more fees for the brokers and smaller returns if any for you. Currently I have only three things going on, cash, one stock and a bond fund, I try to always have cash, because who knows when a real bargain is going to present itself. If I’m in the process of a rotation I might have up to eight different things going on. I know my company’s 401K advisor recommends having eight to ten different funds going all the time, I know of no one making much of a return with eight to ten funds.

7. Know what you are going to do in many different types of environments. You should have a plan if you believe the market is heading lower, direction is all you need to know and there is just as much money to be gained in a falling market as there is a rising market, maybe more so. Do you have an inflationary strategy? A deflationary strategy? Rising or falling interest rates you should have a plan for as well. If the market is going sideways you should have a plan. Everything is an opportunity and the trick is recognizing which environment the market is in. Typically if you asked ten cows what they thought was going on eight of them will tell you the same answer, from this you know to do the opposite. Have a financial plan and always work and refine your plan.

8. ALWAYS play with somebody else’s money and never create a lot of money for somebody else. If you’re a cow there is only one way to play with somebody else’s money, your trading account needs to be in your tax deferred savings account. If you have a 401K plan check with the plan administrator to see if there is a brokerage option for your plan. Why make 40% on something only to pay the government back about 40% of that gain in income tax? A 40% gain in a 401K plan costs you nothing and on top of that your gains should be compounding at a much higher rate. Make sure to check and understand fees, if you’re the one doing the work you certainly shouldn’t be paying a full service charge. Having someone taking 2% of your action in fees is insane, especially when the advice they’re peddling is bad to begin with.

9. Never buy stock or bonds over the fifty day moving average, just as you should never short a stock when it is selling below it’s fifty day moving average. Once again the banksters will tell you to cost average your investments, this is a guaranteed method to lower your returns and help your broker earn more fees. Your 401K contributions should be set-up to flow 100% into cash and you purchase the investment options when they are a good deal for you, not a good deal for whose selling them to you. When you realize that the cows money is flowing into these funds on the 1st and 15th of each month and on Fridays as well you know that buying when all the cows are buying will only get you ripped off. This also means you should never buy anything that can’t be charted. If the 401K plan that you’re in doesn’t offer funds that can be charted talk to the plan administrator to find out which chartable fund the one you’re buying is trying to emulate and chart that. The best choice still is to have a trading account in your 401K so that you can purchase anything you want to, not what they are making you purchase. Buy low and sell high is what you’re trying to accomplish and you certainly can�t do that when you’re paying too much for something from the get go.

10. Don’t get caught up in either the doomsayer’s advice or the market only goes up super bullish advice, because this will only lead to heartache. As far as the doomsayer’s go there is nothing going on in the economy that real money can’t fix. History teaches us that when things get bad enough, real money has always been created and added to the economy, over 50 times in our nations history this has occurred with the last time being 1973 and surprisingly the president wasn’t shot for doing this. Sorry but once again the world is not going to end and even our adversaries have no desires to crash the US economy. On the other side of the coin the super bullish crowd is just plain silly. One need only look at a long-term chart of the market to see that this is not going to happen. The Jim Cramer’s of the world will only end up costing you money and the reality of the situation is that if you would have followed Cramer’s advice for the last four years you would have lost money. Once again, up, down and sideways are the only directions the market can go and there’s money to be made from any of these directions.