Tool Box

Whatever you are doing, you need the right tools in addition to the right perspective. The photo below is that of a few tools one needs when fishing (yes, including the beer can!). I snapped this picture just this week while on a guided fishing trip on Cape Hatteras sound. We were searching for the elusive red drum. We snagged exactly one during our afternoon trip. Essentially the guide looks for "unusual" activity. We spotted some "unusual" activity--an area of ripples going against the wind direction. There were hundreds of these beautiful red/gold fish (think about water locusts). I'll skip the picture of the fish and get down to the point of this post.

I've been assembling my investor toolkit over the past year and a half. I'll tell you why it works for me. Yours may be different due to the amount of time or background you might have to understand the information. At the very least, you want to ask some intelligible questions about your investments--at least so that the person who is managing your money will feel some periodic accountability to answer those questions.

I consider the "toolkit" to be an amalgamation of interface (I use Fidelity's Active Trader Pro), investor perspective and information. There's an abundance of information as one can readily see by perusing bookstore shelves, internet sites (both free and paid) and periodicals. Sifting through that information is tricky. It's like wading through dark water, and if you are not careful you will have leeches hanging off of you. In fact, I have a few leeches--subscriptions that I need to cull through because their value is suspect.

About perspective: I'm a global learner--which means that discrete pieces of information do not mean a damn thing to me unless I understand the entire picture. Therefore, my perspective is a top-down one. Traders do not care about that sort of thing (at least from what I can tell from the blogs that I read), but I do. Why? I think that understanding the macro picture helps one understand the risk in the market. So if you didn't know that housing was starting to get into trouble in Q4 of 2005 (and I consider that macro view), then you didn't redeploy your capital in time to avoid the exodus. Bottom line: understand which asset classes you want to be in depending where we are in the economic cycle. It sounds simple....unfortunately, experts cannot even agree with where we are in the economic cycle. But knowledge will be your divining rod--cultivate your knowledge base.

Here are a few tools (I'll call this the de minimis toolbox) that I'll mention quickly.

• Peterdag.com: This is George Dagnino's website. Now, I do not mention this for any reason (no compensation or anything untoward) other than it provides comprehensive economic information. Check out the website. There some great free stuff on market cycles. Every investor needs to understand market cycles. Make sure that you have a good enough foundation in macro economics to understand cycles when you hear someone talking about it. Rather than enroll in a university program, you can get fully digested and understandable information through this service. The newsletter is bi-weekly. I also recommend George's book: Profiting in Bull and Bear Markets.

• Billcara.com: More macro view stuff. If you do nothing else, look at his week in review and his comments. Well worth your time.
  

• Stockcharts.com: It's worth developing some foundation in technical analysis. Go here to learn some basics.