In a time when market volatility and equity preservation is of utmost importance, determining the correct number of shares to buy, or “position sizing”, is key to maximizing returns and minimizing risk.
The common investor generally doesn’t spend much time thinking about how many shares to buy or how significant of a position to take. Instead, most investors use a common methodology of trading the same number of shares each time, which usually translates to a specific dollar amount. Other, more sophisticated investors, opt to allocate a certain percentage of their portfolio value to a specific position. Following this train of thought, a new position in a portfolio of $100,000 would transcribe either a $10,000, or 10%, investment or a usual position of 50 shares.
Although these methods may work for some, using the volatility of a specific portfolio is likely to be the most effective decision tool. Measuring a portfolio’s overall volatility enables an investor to decide on what percentage of that portfolio he is willing to risk losing on the new position. This methodology is better explained through the following example. Read More…
by Raghu Gullapalli, SmartStops writer – originally posted at Minyanville
This past weekend I was watching Wall Street 2 on HBO. During the course of one of his monologues Gordon Gekko, played by Michael Douglas said, “Bulls make money, Bears make money and Pigs get slaughtered.”
Did Gekko spell pigs P-I-I-G-S?
Over the past several months the world markets have closely watched the soap opera regarding European debt play out. Perhaps we have mistakenly fixated on the Greek and Portuguese characters when we should have focused on the 800-pound gorilla, Italy.
One group of people who did have their eyes on developments in Italy were Safe Haven investors, i.e., gold speculators. Physical gold and its exchange-traded funds had a strong surge, pushing gold above an important resistance level at $1,550
This group of investors led gold to new Euro/gold highs (something I mentioned previously in Silver Is A Value Buy). This was all before Tuesday’s news of the downgrade of Ireland and the possibility of another round of quantitative easing by the Fed. Thats when the whole world started piling in.
Gold surged again, seeking out the all time highs of $1,577.40 and falling just $10 short.
SPDR Gold Shares (GLD) saw a similar surge, which may well continue in the days to come, as the market begins to price in the Irish default and a possible QE3. The ETF is forming a short-term bull flag and holding well above the 210 day moving average. But with rapid price spikes come rapid declines, SmartStops has the short-term and long-term stops for GLD at $147.52 and $142.55. It is very likely GLD will take out the all time highs of $153.61
A surprise development from Tuesday’s news was the revival of the gold and silver miners. For several weeks, during the commodity sell off which was sparked by increased margin requirements for precious metals, the miners were in decline and then range bound. Silver Wheaton (SLW) was trading below its 210 day moving average a fairly bearish indicator, as was the Market Vectors Gold Miners ETF (GDX). But on Tuesday that pattern may have changed. If SLW continues to rise it may keep going till the next resistance point at $42. SmartStops has the short-term and long-terms stops for SLW at $33.16 and $29.94.
I’m less confident about GDX as it still below the 210 moving average but a few component stocks of the ETF, Goldcorp (GG) and Barrick Gold (ABX), saw impressive runs on Tuesday.
Supply growth for lithium has been on the rise, which could potentially lead to an overcapacity of the metal threatening the industry and pushing prices down and possibly sending the Global X Lithium ETF (LIT) into a tailspin.
According to lithium consulting group, TRU Group Inc., production of lithium has escalated to nearly double what industry demand will need over the next ten years. To put it into perspective, the consulting firm states that lithium pipeline projects and expansions could increase capacity by about 40,000 tpy Li-contained in the next decade, while existing lithium chemical producers have the in-ground resources and ability to meet nearly all market requirements by expanding capacity. Read More…
In 2010, copper locked in a second consecutive annual gain of nearly 33 percent as demand remained elevated due to growth in emerging markets and a weak dollar. As for the future of the industrial metal, copper’s outlook remains rosy as a supply and demand imbalance is expected to take place providing positive price support to the Global X Copper Miners ETF (COPX), the iPath Dow Jones Copper Index ETN (JJC), the First Trust ISE Global Copper Index Fund (CU), the PowerShares DB Base Metals (DBB) and the iShares MSCI Chile Index (ECH).
According to the International Copper Study Group, a copper deficit of 435,000 metric tons in 2011 is expected to emerge in the markets, marking the first deficit in three years, during which global production has averaged 18 million tons. On the demand side, one of the primary driver’s of increased demand is economic expansion in emerging markets. The developing world is expected to at the forefront of global economic growth and with this the need for improved infrastructure and increased construction and manufacturing is expected to keep demand for copper, which is used in electrical wiring, plumbing and in heating and cooling systems, elevated. Read More…
As the overall health of the US labor force continues to remain in question and Central Banks in the developed world continue to implement loose monetary policies, the appeal of metals remains intact resulting in the introduction of ETF Securities newest metals ETF, the ETFS Physical White Metals Basket Shares (WITE).
WITE, which started trading today, is the first US physically backed ETF to exclusively hold silver, platinum and palladium in equal fixed weights. According to the prospectus, the Shares of WITE represent beneficial interest in the Trust, which holds physical allocated silver, platinum and palladium bullion held in vaults by the JP Morgan Chase (JPM). The silver is expected to be held in vaults in London, while Platinum and Palladium are expected to be held in London or Zurich. Read More…
As commodity ETFs have witnessed increased investor demand and increased returns over this year, there have many new resource-specific ETFs brought to market and now the United States Commodity Funds plans to introduce three more funds giving exposure to copper, agriculture and metals.
The three aforementioned resource-specific commodity sub-sectors have been at the pinnacle of performance during the last 12 months and are expected to continue to shine in the near future. Copper, which is used in pipes, tubing, wires and other industrial uses, is expected to witness increased demand over the next few years as global economies, in particularly in emerging markets like China and India, continue to grow. In fact, global demand of copper is expected to outpace supply in 2011, the first time in four years, giving the metal even further positive price support. Read More…
Platinum has witnessed a nice upward trend in 2010 and increased demand from the heavy-duty transportation sector and the industrial sector are expected to provide further positive price support to platinum-based exchange traded funds (ETFs) like the ETFS Physical Platinum Shares (PPLT), iPath DJ-UBS Platinum TR Sub-Idx ETN (PGM), UBS E-TRACS Long Platinum TR ETN (PTM) and the First Trust ISE Global Platinum Index (PLTM).
A primary driver behind the expected elevated demand for catalytic converters made of platinum is due to their ability to reduce noxious vehicle emissions. According to the Wall Street Journal, Johnson Matthey, who controls nearly one-third of the market for platinum and palladium-coated catalytic converters, witnessed a 72% increase in sales of heavy-duty diesel catalytic converters during the first six months of the year as catalyst demand increased. Read More…
In yet another attempt to bolster the US economy, President Obama and his administration used the long weekend to unveil a public works plan that emphasizes on transportation and infrastructure, potentially influencing the iShares Dow Jones Transporation Average (IYT), the PowerShares Dynamic Building & Construction Portfolio (PKB) and the PowerShares DB Base Metals (DBB).
This latest plan is estimated to cost as much as $50 billion over the next six years and includes rebuilding nearly 15,000 miles of road, constructing nearly 4,000 miles of railway, revamping airport runways and moderninzing the air traffic control system. Additionally, President Obama called for an “infrastructure bank” which would focus on funding regional transportation upgrades. Read More…
One month ago, Global X announced the latest addition to its ETF product lineup, the Global X Lithium ETF (LIT), giving investors an easy way to play the metal and it has been a hit.
Since its inception, LIT has topped $20 million in assets and regularly sees daily trading volumes north of a million shares. LIT carries an expense ratio of 0.75%, holds 20 securities, all of which are engaged in some aspect of lithium, including mining, exploration and lithium-ion battery production. According to LIT’s fact sheet, it allocates nearly 23% of its assets to the Chilean giant SQM, nearly 16.7% to FMC Corp (FMC), and 7.8% to Rockwood Holdings (ROC) which is a major lithium compound producer. Also, 51% of the ETF’s assets are allocated to lithium mining and processing and 49% to the lithium-ion industry. Read More…
Increases in investment demand, a recovery in automotive sales and further tightening of emission standards, paint positive picture for the demand of platinum which is expected to support prices of the metal.
Industrial demand for platinum is expected to increase as economies around the world continue to grow due to its versatility, which is boosting its appeal amongst investors. Platinum plays a significant role in electronics in that it is used in the production of hard disk drive coatings and fiber optic cables. As demand for personal computers remains elevated around the world and is expected to further increase as personal incomes rises in developing countries, demand for platinum will likely see positive support.
Demand for platinum is expected to be further supported from a recovery in automotive sales as well as the passage of stricter emissions and regulations on automobiles in the United States, Europe and Asia. In Europe, the region is moving to fully implementing regulation on emissions from diesel engines and in Asia sales of automobiles are expected to remain healthy. A combination of these trends is likely to offer positive demand support for platinum due to its use in vehicle exhaust catalysts which control a vehicle’s emissions. Read More…
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