When playing the markets for wealth, a certain degree of diversification is needed. To be very truthful, I'm not a very big fan of having too many stocks on your plate, simply because it is possible to water down your results too much by not having enough size concentrated in each play. As an example, if you have a $100,000 account and it's divided equally into 50 different positions ($2,000 per stock), good performance will only come from the whole lot doing well. No single position can really have a material impact on the global portfolio. Now, quite naturally that sounds good if you're big fat loser, but not if you enjoy a high level of accuracy in your market play. When you lose often, you don't want any single pick to be able to greatly impact your results, because most of the picks are bad; however, if you have stock picking talent (like some of you do), then that is precisely what you want. You want each pick to count and count big. So, in truth, the concept of diversification was created for losers.
This idea of little to no diversification is particularly true for short-term day traders. I hate my day-trading students to diversify. Yuk! Phew! But with all this being said, a mild degree of it is necessary when you're playing the market for big money. Day traders are not wealth builders. They go for small change, and some do it so well, that change can actually be really, really nice. But let's face it. That's not where the "real" money is. That's not the vehicle for attaining true, sustainable wealth. I mean the kind you leave behind for the many generations after you. Wealth accumulation, via the market, requires different strategies and diversification is an important key element, as long as it's not carried too far.
Many of you have been following my wealth plays for more than a year now and are familiar with many of the symbols I've been using during that time, because they have not, nor should they, change very often. MNKD, EK, GCA, AA, PSEC, BAC, DGP, SLV, OIL, etc. There are a few more, but when you have a small degree of diversification set up in the right mix of stocks, you can create a steady, and I mean steady, money-making wealth machine. In other words, something is almost always paying you. Let me explain.
The Wealth Machine Never Stops
While gold was ripping to the upside, lining our pockets with fresh, newly minted wealth, what was say MNKD doing? It was declining in a way that was allowing us to build and prepare for when the time came for it to rock. And when gold (DGP) began to cool down after its $10 run (50% gain), what did MNKD do? It picked up the mantle just where gold left off and doubled (100%). And after MNKD doubled and topped, EK got on its horse to keep the wealth machine going. And when EK pulls back (and I sure hope it does soon) watch gold, silver, and perhaps even oil pickup where EK left off.
Do you see what I'm communicating here? People are always asking, "Oliver, every time I log onto FaceBook, you're posting another winning play or shouting about how something of yours is running up. How do you find them so frequently. You're the luckiest man in the world." It's really not as difficult or even as special as it seems. While something is running up, something else I'm not talking about is dropping, giving me the chance to do two very important things: 1) Take profits off on what is running up, freeing my cash up to 2) deploy into whatever is declining downward. It's like a big giant see-saw, only instead of just laughing as we did when we see-sawed in the park as a child, we laugh on the way to the bank. Laughing is good. In fact, its healthy for our bodies and our mental state of being. But laughing while banking...well...you know. That's one of the best types of laughter there is, isn't it? Yet how many people do you see laughing at the bank? No, don't laugh. I want you to think about it. When do you see people just letting out hearty laughs, from the belly, when in the bank? Never. In fact, most have scowls or frowns on their face, right? I used to watch this as a kid when banking with mom. I would feel as though we were visiting a morgue. Never understood it. Today, I rarely make visits to an actual bank, but when I do, I make a point to stop, take it all in and let out a loud one. Yes, people look at me and think, "What the heck is up with this weirdo?" Especially whenever I do it in midtown Manhattan. But hey, the way I see it, I'm here at the bank and I'm here to do one thing...drop off some more wealth. And that's a laughing affair.
Velez Opportunity Updates
Eastman Kodak (EK): This gem has really moved very nicely for us over the past 5 days. From our lowest entry point, the stock is now up 78% and its just the beginning. This stock is a near triple from even these prices in my view, but after pulling 1/3 off on this most recent jump, I'm looking for a nice pullback to the circled are on the chart. There is no guarantee that I will get that, but if it does, you know what I'll be doing, deploying part of what I pulled off right back into the play. The operative word here is "part." I won't put the entire 1/3 I pulled off back on, but rather 1/2 of the 1/3 sold will be put back on. As a general guideline, I use a 1/2 to 1/3 buy-back rule. If I sell off 600 shares, then I re-enter 100 shares at a time or 150 shares at a time. If the run-up is huge, than I tend to use thirds, because the pullback is likely to be prolonged. Of the rally was not that big, I split the buy-back in two. Stay tuned. We are not even close to being done with this baby.
ALCOA Inc. (AA): The second add came rather quickly for me n this play. Listen, people often think that I decide when to do what, but in a very real sense, its the market who decides. I just act decisively when it speaks. AA spoke loudly and clearly by dropping to major price support, while retesting its 200-period moving average at the same time. I think I've got the buy zone right here. Only time will tell, but the signs that the bulls are getting bolder are certainly starting to manifest. Watch me play this one like a champ. I'm excited.
Gold Double Long ETN (DGP): Ah! Gold! What else needs to be said? It's real, rare, transportable, divisible and most importantly discreet. How luscious. Just the mere thought of this four letter word sends chills up my spinal cord right up to the base of my neck. Wonderfully tingly. And it's time to shine again, just might be close at hand. Oh yes, I'm still bullish on gold. I don't care what the so-called talking heads say on their fancy TV shows. Gold is 3,000 an ounce easy and that's being conservative. Some gold bugs believe gold will one day move back to parity with the Dow Jones Industrial Average (DJIA). You see, in 1933, when the U.S. Government took the first step to move off the gold standard, it made holding gold illegal. That's right. It became a crime to have any gold in your possession. You were ordered to return all gold to the government, and if you did not, you were subject to jail time and a $5,000 fine. Do you know how much $5,000 was back in the mid 30s? Wow! Now get this. Our Uncle Sam, god bless him, paid everyone who returned the gold $20 an ounce. As soon as it "confiscated" all the real wealth held by its own citizens, it immediately jacked the price of gold to $35 an ounce and fixed it there until the 70s. Talk about being ripped off. At any rate, in the late 30s, gold was $35 an ounce and the DJIA was trading at 38. Since then, the DJIA moved to over 10,000, while gold has moved to what, 1,100? Are you kidding me? Gold was held back artificially. It's just getting started. Point? We're going higher...and much higher. Mark my words. Today offered an opportunity to make my third entry after taking most of my profits off the table on its historic run to new highs. See profit taking arrow above. That move produced a nice gain that fell just shy of 50%. But this is not over yet. I will play this like a Stradivarius. And if you don't know what that is, look it up. We've got some over head resistance to deal with, but I think that breakaway gap I pointed out is going to get filled over time. And after that, then its on to new highs again. Watch. You read it here.
Crude Oil Total Return (OIL): This is the other gold, black gold that is, and I think it too is poised for some upside. It will take some time though, so my nibbles have been rather light. Today offered the second opportunity to take a dive. Major support (prior low) not only held, a nice bullish elephant like bar took out a rather solid elephant like bear bar. That type of action tends to lead to meaningful runs. Let's see.
A Brief Word About Stops
Many continue to ask me about stop placement with my wealth plays. As I'm sure you noticed, I rarely if ever mention one and when I do, it's mostly to give those who follow me some peace of mind. To be truthful, I almost never think of them. Now don't get me wrong. That does not mean I don't believe in them. Oh no. They are an indispensable tool for those who need rules to govern their actions. Laws, the real ones, are only needed to govern the actions of criminals. I mean, how many people need to be told, "don't kill anyone." "Really, don't kill? I'm sure glad you told me because I was thinking about making killing my life's work." No, most honest people don't need laws to tell them how to be decent human beings. But some do. The same goes for traders. Some are at the stage where they need someone to say, "Johnny, stop it." Stops do that. They serve as an authority figure that says, "Stop it right here." But here me out for a few more moments.
It is possible to arrive at point in your development that will not require many set stops and other similar protectional things. Listen, I don't want to wax too philosophical here, but the point is, I will know when the stock is just not right any more. I don't know when or where that will happen, but when and where it does, I'll instantly and effortlessly spring into action. It's something that just happens, manifests. It's a feeling, a sixth sense, if you will. It's even hard to put into words, but that inner guide is developed over years of getting things right and wrong. It is earned by decades of bouncing back, fighting for your survival and winning. This thing that I speak of is almost like a higher being, a silent presence that is always there, always with you. As you trade, it's there, ever so gently. As you eat, go outside, sleep, wake up, it's there. Once you earn this angelic being's presence and identify and get in touch with it, life in the market becomes much easier, pain-free and less stressful. The things that used to seem very scary and important sort of lose there power to spook or perturb you. You feel a tremendous sense of power and alertness, a deep reservoir of peace and eternal calm. You're in the market, but not of it. You act, but not as a reaction. Your actions are spontaneous and come from a place so deep within you that is like you're not the one acting. The sense of your self is lost and the only thing left is the pure action itself. This silent witness is my stop. This special thing that really has no name is my protection. And I'm going to, over time, share it with you. That will be my gift to you.
