Stan Weinstein, Oil and Casualties in P&C

Gary Kaltbaum frequently mentions Stan Weintein's Secrets for Profiting in Bull and Bear Markets. I obtained a copy, using a gift certificate. I recently finished it. I have to say that it is one of the most well-written books for investors/traders. Does it have any new information in it? No. But it is presented in a format that encapsulates points clearly. Moreover, there are Q&A at the end of chapters to help you ensure that you grasp the concepts.

My only complaint is that the graphs in the book are not easily read. The copyright on the book is more than 20 years ago. Accordingly, the screenshots look like the monitors of yonder day! Here's a listing of some of Stan's "Don't Commandments"

• Don't buy when the overall market trend is bearish.
• Don't buy a stock in a negative group.
• Don't buy a stock below its 30-week MA.
• Don't buy a stock that has a declining 30-week MA (even if the stock is above the MA.)
• No matter how bullish a stock is, don't buy it too late in an advance, when it is far above the ideal entry point.
• Don't buy a stock that has poor volume characteristics on the breakout. If you bought it because you had a buy-stop order in, sell it quickly.
• Don't buy a stock showing poor relative strength.
• Don't buy a stock that has heavy nearby overhead resistance.
• Don't guess a bottom. What looks like a bargain can turn out to be a very expensive STage 4 disaster. Instead, buy on breakouts above resistance.

From p. 129.

I can say that I've done all of these things at one time or another!

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Long time readers know that HERO has been in my repertoire. I own a fistful of JUL 30 calls purchased at the end of April when the stock was trading around 26.



I must tell you that Stan would not approve of my buying such out of the money calls. It was a small amount of money--but they are up nicely. MY GOAL, is to maximize my profit. Too often I would treat breakouts as freakish accidents, and I should take my money and run. I've plenty of time on these calls. I also have some DUG calls as a hedge.

I also have two fistfuls of AUG TE 17.50 calls. It, too experienced a break out today.



However, none of these breakouts are due to any prescience on my part, but rather the break out in the energy sector.

The other thing that I did last night was look at charts in the property and casualty sector. What I found were a great many charts that had humongous tops--much like the HMO's. Here's one that had a few characteristics that I liked.

First: It looks like it is creaking over slowly. Notice the volume bar at the current price level. There not alot of support below it to my eye. Second: there was 10M shares of insider transactions disposed of. I generally don't pay too much attention to insider transactions--however when they are of that magnitude, they warrant some consideration. These were made on April 28. You can find this chart on the NASDAQ site here:

Third, it is moving below its 30 week MA. I also have puts on CB and RNR. These are also stocks that have not been heavily shorted. Some of the stocks in this group were in 21, 23 days to cover. To me, that is a crowded trade.

These aren't recommendations, certainly, but I wanted to share with you what I was looking at. Options are risky--and I've made some poor choices when I first started out. But, I've done a much better job of managing my options. I also make sure that if I lose the ENTIRE premium, I will not lose sleep at night.

Do you find it odd that no one is really talking about the property and casualty business? I sure do. Many of them have missed their numbers due to (1) pricing and (2) investment performance. The real stories are seldom the ones that you hear about until the big money has made its move. I did lots of homework (which really means understanding what the risks were). You know what I did not let influence me? P/E. So often--too often--I let P/E (either too high or too low); "too far too fast"; "this is overdone" arguments disabuse me from acting. These P/E's are rottenly low. Bargain basement low.

But...I'm listening to Stan's lessons, and all of the other lessons that I know to be true, but counter to my disposition. We are our own worst enemies. And such a struggle between what we "should" do v. what we "want" to do (oh and for very good reasons), is not one that is profitable to one's portfolio.