25 Rules of Investing Cramer Versus Carrigan

Bill Carrigan

A few weeks ago I caught Jim Cramer on his CNBC TV show, Mad Money, and listened to his 25 Rules of Investing, along with his Mad Money Stock Worksheet.

These are some examples I fully support.

What sector does the company belong to (natural market rotation), and how has that sector performed? Don't own too many names (overdiversification). Be a TV critic (the experts have conflicts and self-serving agendas) and there's always a bull market (it's up to you or your adviser to find it).

Let me now table two groups of investment strategies, split between those that tend to work and those that tend not to.

Strategies that tend not to work:

Short-term daily charts are fine for the financial pages, but they do not set out the longer-term trends required for investment decisions.

Engaging in sheep-like behaviour by entering overcrowed trades. Some examples were the red-hot potash and energy companies in early 2008. The current overcrowed trade is the buy-gold and sell-the-dollar trade, so use caution here.

Acting on, or following investment folklore such as seasonality, which is now too widely followed to be of any value – when we all know something will work, it usually won't. So don't sell and go away just because it's May.

Investment decisions based on economic data. Follow these numbers and you may as well follow the business headlines of three months ago.

Acting on "buy" recommendations from experts, and then expecting a phone call when they are selling.

Strategies that tend to work:

Following the market leaders such as the financial sector, the technology sector and the materials sector, because no bull market can exist without the participation of these key stock sectors.

Follow weekly and monthly charts, because they set out the longer-term trends in the major stock indexes. This will at least identify bull and bear markets. Keep in mind the duration of the average bull phase is about 28 months, give or take, and the bear phases generally last 15 months.

Use obscure and simple analysis, because if most participants are using the popular 50- and 200-day moving average crossover, you end up following the crowd (remember those sheep).

Another overused study is the Moving Average Convergence/Divergence (MACD) momentum indicator. Some obscure studies are trend lines, cycles, spreads, divergence and point & figure charting.

Our chart this week shows the monthly closes of the Dow Jones industrial average spanning about 15 years.

The Dow is an important bellwether because it is loaded with large multinational companies that are direct beneficiaries of the global economy. If the Dow sneezes, we all get H1N1.

I have placed very long-term trend lines to identify bull and bear conditions. Trend lines are placed joining the lows during price advances and conversely placed to join the peaks during price downtrends. The idea is to join at least three lows in an uptrend or three peaks in a downtrend.

A trend change, or juncture, occurs when any trend line is violated. Caveat: always use a semi-log scale when placing trend lines on long-term charts.

I have identified the bull phase of April 1995 through to February 2001. The bull ended when the Dow broke down under the 1995-2001 trend line. The following down trend ended on or about October 2003 when the Dow broke up above the 2001-2003 down trend line.

The last bull phase is set out in the upward 2002-2008 trend line with the break down signalled in February 2008. The most recent signal was a break above the declining trend line in September 2009 to signal a new bull market.

The only take-away is the slow signals that could be fine-tuned using weekly charts. Have fun, and don't share our little secret.

Bill Carrigan, CIM, is an independent stock-market analyst

Roseman: Online scams abound

November 08, 2009

Ellen Roseman

Craigslist is a popular website, where you can sell your stuff without paying for listings.

But some buyers are more interested in scamming you than in scoring a great deal.

Alan Munro posted an ad on Craigslist to sell a windsurfer board. He got a quick response from a man who wanted to buy it sight unseen and would send a cheque for the full amount.

"I gave him my name and address to send the cheque and gave him five business days," says Munro, a senior financial adviser at Assante Capital Management in Mississauga.

"The time expired with no cheque, so I emailed him back. He said something got messed up with the cheque. Could I email him an invoice through PayPal?"

He did so and got an email that seemed to come from PayPal, saying that a remittance had been made. But since the invoice was in U.S. dollars, he had to pay the difference before the money was released.

Another email from "PayPal" asked him to send a MoneyGram and a scanned receipt to somewhere in Nigeria.

He contacted the buyer, who urged him to send the money for the exchange difference. He desperately wanted to buy the windsurfer board.

Things started to fall apart after that. When checking his PayPal account, Munro saw an invoice had gone out but no remittance had been made. He asked the buyer, who had not supplied a phone number, to call him.

"It was a long distance call that was interrupted with bad reception. I also asked him where he was located. He paused for a while and finally said the U.K.

Then the phone died."

Munro realized he was dealing with a scammer, who showed all the classic warning signs.

Craigslist has one simple rule that, if followed, can help you avoid 99 per cent of all scam attempts.

"Deal locally with folks you can meet in person," says Susan MacTavish Best, a spokeswoman for the classified advertising service.

"Rule Number 2 for avoiding scams is: Never wire funds via Western Union, MoneyGram or any other wire service. Anyone who asks you to do so is a scammer."

Buying something over the Internet presents a problem when the buyer and seller don't know each other.

Some sellers fall for promises from buyers about using a third-party secure service or escrow service, which protects them when making transactions. The vast majority are fraudulent.

Kijiji, another popular website for selling household goods, warns that any emails or websites that talk about secure payment systems are scams, even if they have the Kijiji logo.

Craigslist has similar warnings about escrow services, which also purport to be secure.

To avoid fraud, says Kijiji, ensure that all transactions take place locally and in person. Go to a public place with many people around, such as a coffee shop.

Remember that ads are not reviewed before they are posted on the website. Never send or wire money to buyers, which includes mailing cheques or using payment services such as PayPal, BidPay, Western Union or MoneyGram.

As for Munro, he now believes in dealing with local people you can meet face to face.

"I finally sold the windsurfer to a young fellow from Oakville. I had to give him a discount, but it was well worth it," he says.

Winners and Losers - Jobs

October's job numbers are bleak, a deflating reminder that economic recovery is a slow beast, indeed, and that jobs cut in a slowdown take some time to come back, if at all.

After two months of moderate job growth, employment across the country fell by 43,200 jobs last month, all of them part time, Statistics Canada said Friday.

The drop-off pushes Canada's unemployment rate up 0.2 per cent to 8.6 per cent, which many, including the Organisation for Economic Co-operation and Development, predict will continue to climb, reaching around 10 per cent in 2010.

This erases the positive growth in September of about 30,000 jobs and demonstrates that employers are still hesitant to take on new hires or replace fired staff as this epic downturn begins to unwind.

"(This) undoes much of the surprisingly strong reported improvement in September," Erin Weir, an economist with the United Steelworkers, wrote in a note.

Most of the job losses came from Alberta (14,900), British Columbia (12,900) and Ontario (12,000).

Down south, the news was even more grim, with the United States' unemployment rate breaching the double digits to land at 10.2 per cent, the highest since April 1983.

In Canada, most of the month's disappointing declines came from retail, wholesale and natural resources.

The data, contained in Statistics Canada's Labour Force Survey, showed women aged 25 and older and youths between 15 and 24 accounted for all job losses in October.

"October was a reality check for a Canadian labour market that had been seeing a lot of hiring without much to show for it in terms of production," Avery Shenfeld, CIBC World Markets' chief economist, wrote in a research note.

"October's report hinted that the earlier run-up may have, in part, been statistical noise ... Put the last three months together, and the trend shows very small net hiring on average, a result that is much more consistent with the limited growth we've thus far seen in economic output."

The Canadian Auto Workers said October's job losses highlighted the need for more government stimulus and that service-sector job losses are inevitable when core, unionized sectors are hit.

Ken Lewenza, CAW president, said workers who are still employed face a difficult future.

"The challenge now is that workers in these largely non-unionized industries do not have the same transitional supports and services provided to unionized employees, which creates an even heavier burden for them during bad economic times," Lewenza said.

The job losses would have been even worse, but the 43,200 was offset by a gain of 27,500 in the nebulous "self-employed" category, which many economists discount because it could be involuntary and unproductive.

"We are always skeptical about the self-employed category, but most so during times of recession," writes Stewart Hall, an economist with HSBC Securities (Canada).

"It is fair to ask just what the 27.5 thousand newly self-employed are doing with their time and what kind of contribution they are making to GDP at this point in the economic cycle."

Since employment in Canada peaked in October 2008, the economy has shed around 400,000 jobs.

But the latest numbers, Weir writes, show the first full year of employment data since the economic crash took hold.

And the conclusions are not positive.

"A sectoral breakdown implies a disproportionately large loss of relatively good jobs," Weir writes.

"More than half of the employment decline, 218,000, was in manufacturing.

"Construction and other goods-producing industries eliminated a further 112,000 jobs.

"The entire service sector shrank by 70,000."

It wasn't all bad news, though, with full-time employment, including self-employment, increasing by 16,500 jobs.

Also on the plus side, construction jobs were up, as were transportation and warehousing.

The manufacturing sector continued to fare poorly.

"The ongoing pressures to Canadian manufacturing remain evident as inventories continue to be drawn down and firms remain hesitant about boosting production," TD Bank economist Grant Bishop wrote in a note.

Anonymous Buying Ahead Of Well Testing

QEC-T

Vic Vallance FP Trading Says Unrisked Potential is $41.42 per share

You can buy it today for $2.33 cents and hold on till retirement as a millionaire.

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