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Reconciling the Macro Investor with the Systematic Trader

Wednesday, May 7, 2008 | Teeka Tiwari

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Editor’s Note:  Our weekly telephone call to answer your questions has been posted.  Listen now to hear …
•    Highlights from this past weekend’s “ETF Master Trader LIVE” seminar in South Florida
•    Why Teeka feels that Yahoo! CEO Jerry Yang made a BIG mistake not accepting Microsoft’s offer
•    Whether the Fed is done cutting interest rates, and …
•    Teeka’s biggest fear for the markets – and what he’s most optimistic about
Click Here to Listen >>


I spent this past weekend teaching my new and greatly improved ETF Master Trader System to a live seminar audience. It was an intimate gathering of Tycoon Report readers and Point and Profit subscribers that joined me in Delray Beach, Florida.  

You could not have asked for a greater group of people.  We all got to have dinner and drinks together Friday and Saturday night. I feel both privileged and honored that they chose to spend this time with the Tycoon team and me. (Both Dylan and Chris Rowe joined us for each of the social events!)

In this new system, I go way beyond ETFs and really break down every propriety trading system, signal, and approach that I have gleaned from almost 20 years of market trading. With over 200 pages of new material, 11 hours of instruction, plus private one on one Q&A sessions, we went deep into every facet of my new trading system.

As I went through this process, what became immediately apparent to me was the glaring inconsistency between the systematic approach that I created for ETF Master Trader and the investment approach that I have taken in both my hedge fund and Point & Profit.

In my heart I am a macro guy. I gain a very firm view of what I believe the future will look like, and I commit my money accordingly. I’ve been known to stand my ground through severe draw-down periods in sectors that I believe are being mis-priced. Case in point was my oil service and metals plays that I put on in 2005. They promptly dropped 40%! And with our LEAP option plays, were down significantly more!

Ultimately, my investment thesis was vindicated and the true value of oil service and metal stocks was realized with our stock and LEAP option positions experiencing terrific gains along with three take overs to boot.

But is there a better way?

I think there might be.

Preparing for the ETF Master Trader Live Seminar forced me to crystallize my investment approach into an explicit, step by step, duplicable and systematic program. Since I won't be there to talk my students through their trades, I had to create a system that would teach them not only how to pick trades, but also how to position size, pyramid profits, manage risk and how to take profits.

As I was creating the system I realized that I was guilty of not following all of the techniques that I was being charged with teaching. I was letting profits run into losses, I was attempting to bottom fish before the appropriate signal was given, and I was trading without a firm stop loss on every trade.

What I am saying here is that I realize that being right on the macro trend is only one part of the overall equation. As investors, we must apply a total system to our investments to insulate ourselves from the volatility that can - and will - continue to plague this market.

I am seeing more overall volatility in the stock market now than at any other time in my career. This is actually a net positive for investors, so long as we use strict buy side discipline and have a strategy for taking money off the table for profitable trades.

In addition to using more stop losses in my own trading, I am going to start using a staggered approach for taking profits. I’ve shied away from that in the past because it can be an administrative/tax pain in the neck: selling stocks off in piece meal at different prices. But if I am looking in the mirror (and if you want to survive the stock game you better be able to do that), I can see that a staggered profit taking and faster loss taking approach would have boosted my returns even more.

As self directed investors, we must force ourselves to look in the mirror regularly. This is a painful but necessary skill to develop if you are serious about becoming a great investor.

(Please let us know what you think about Teeka Tiwari's article.)
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“Let the Game Come to You.”

Teeka Tiwari
Chief Investment Officer
Point & Profit




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7 Comments

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  1. Chris (1 year ago) Is this Spam?

    Now you wait just a gosh darn minute....

    You mean to tell ME that Big-T is actually a HUMAN BEING in reality? I want my money back from this mortal!!!



    LOL



    C Rowe

  2. Michael O (1 year ago) Is this Spam?

    Rita,



    I would say to you, always maintain a larger sense of the markets that interest you; a global perspective. Be on guard for currency reversals. There are ETFs that track the major currencies so you could put them in a "watch list" and check once a week or once a month, as you please. Interest rates and inflation may have a large effect on the US dollar's future.



    One possibility for investing in US stocks from a Canadian perspective would be to buy US companies that have a large percentage of earnings from outside the US. These companies are paid in foreign currencies within the country where they operate and then they get a currency benefit as they convert back into the weak US dollar. A couple examples that come to mind are Boeing, Coca Cola, General Electric, ExxonMobil. I am absolutely not making a stock recommendation to you, just citing US companies that do a lot of business on a global scale and may benefit from a currency exchange.



    Canada has some wonderful companies that are making huge profits from your natural resources and they pay nice dividends too.



    Enjoy Tycoon and read, read, read. There is so much here to think about.

  3. Michael O (1 year ago) Is this Spam?

    Teeka,



    When the lightbulb of realization suddenly blinks in your psyche, ain't it grand!



    Reading your words, I could feel that you are energized by your new insight.



    Since I know that you are currently working on your ETF Master Trader site, how much of your realization will be incorporated into the new format?



    Thanks

  4. Rita (1 year ago) Is this Spam?

    As a Canadian just learning to trade/invest, I'm not sure how to deal with the currency issue when it comes to US stocks/ETF's. Buying in the US market means exchanging my CDN to US dollars, & then if the US dollar goes down my profit upon converting back to CDN dollars goes down, or a loss could be increased. Do you think it's probably best for me, the beginner, to stay invested in CDN dollars [ie. the Toronto or Toronto Venture exchanges] ? If yes, perhaps you could also recommend some CND stocks when you do mention them? Are some things only possible on the US exchanges? What strategy do more sophisticated investors use to deal with currency issues? Any suggested references for learning?

  5. Earl (1 year ago) Is this Spam?

    Is the ETF Master Trader System available for sale?

  6. Roger (1 year ago) Is this Spam?

    I'm looking forward to your reports.

  7. Roger (1 year ago) Is this Spam?

    Enjoyed the article. Look forward to learning more.
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