Bear Mountain Bull

Adventure Capitalist by Jim Rogers

When you need to take a break from the stock trading and chart watching books listed elsewhere in this section, pick up Adventure Capitalist. Ride with Jim Rogers as he takes you on a journey around the world that you will never have the opportunity, resources, nor (most likely) the guts to take yourself.

Rogers circles the globe, driving (yes, driving) a custom Mercedes and trailer through 116 countries over three years. His book provides a truly fascinating account of his travels though those countries—of the food, the people, the cultures, the history, the politics and the economics. And this isn’t some guided tour, with fancy hotels along the way. The trip is filled with difficulties, ranging from stubborn border guards and uncooperative boat operators to civil wars.

Rogers invests his money all over the world, but is not content to manage his investments from his office. He prefers to get a firsthand look at what’s really going on in the various areas of the world where he either has invested money, or is thinking of investing. You will learn quite a bit about simple economics through his examination of a country’s financial condition, why some countries are doing well and why others are not. His diary of the trip (amazingly, not his first!) provides an extremely unique perspective on the rest of the world, including many countries that you and I would probably never even think about visiting.

BMB found Adventure Capitalist to be not only enjoyable, but very educational as well. Give it a read—then see if you can put it down without wondering what adventures await you in the next chapter!

Bollinger on Bollinger Bands by John Bollinger

You may have seen Bollinger Bands displayed on charts before, or seen them in the list of available indicators on your favorite charting web site. If you have seen them, it is somewhat obvious that they are drawn to enclose most of the price movement on a chart. But if you are like BMB, you probably wondered just what these bands were supposed to tell you, and how you were supposed to use them!

Well, no better way to learn than from the guy who designed the bands, John Bollinger. Bollinger Bands are quite simple in construction, but are very flexible in their use, offering a number of different ways to look at them and trade off them. Bollinger’s book describes those methods, along with the his reasons for designing the bands, and his opinions on other indicators that can be used in conjunction with the Bollinger Bands.

One refreshing theme that Bollinger offers throughout the book is that every investor find what methods or systems he/she may be comfortable with. Everyone has different needs, and all situations are not equal - it is important that an investor develop their own style that he/she can work within. You will find his book interesting and easy to read, and hopefully it will encourage you to experiment and find an investment style that works for you!

Hot Commodities : How Anyone Can Invest Profitably in the World’s Best Market by Jim Rogers

Jim Rogers, author of Adventure Capitalist and one of the smartest investment minds around, offers up his opinion that the next secular bull market is already underway. But this bull market isn’t in stocks — it is in commodities.

There have been bull and bear markets in commodities through the years just as there have been in stocks - and interestingly enough, the cycles in the two asset classes tend to occur opposite one another. The last bull market in commodities ended in the early 80s, when no one wanted to have anything to do with stocks. Now, a couple of decades later, we find ourselves in a transitional period following one of the biggest bull markets that stocks have ever seen - and very little attention is being paid to commodities.

What are commodities? Commodities are things - food, fuels and raw materials that are either cultivated and grown, or extracted from the earth. Unlike stocks, commodities are things you can actually touch and feel, and they’re becoming more and more valuable every day. Why? As Rogers explains, the reason is simple: the age-old economic principle of supply and demand.

During the stock bull market of the 80s and 90s, commodities were in their own bear market. As prices of commodities were dropping, many people and companies that were in the business of supplying those commodities were getting out of the business - the lower prices just didn’t make it worthwhile.

In Hot Commodities, Rogers says those days of low prices are over, at least for the next 15-20 years (he presents evidence that the bull/bear cycles last approximately 18 years). He says, particularly with the growth in certain areas of the world like China, that demand for commodities is increasing — but supply remains low, due to the lack of investment in exploration and production during the 80s and 90s. Increased demand and reduced supply means higher prices, and price increases in commodities like precious metals (gold, silver), base metals (copper, aluminum), and crude oil over the past year or two give ample proof that the author is right.

Rogers describes the futures markets where commodities are traded worldwide, and lays out the supply and demand case for a few specific commodities, things like oil, gold, lead, sugar and coffee. He gives the investor some ideas on how best to play the commodities markets, be it through one of a very few commodities mutual funds (including Rogers’ own commodity index fund), investment in the futures markets or a managed futures account, or by buying stocks of commodities related companies. He also points out that the lack of investment vehicles available to the public, like commodity mutual funds, is evidence that this asset class has been completely ignored, and likely has a long way to run!

If I were you, I’d listen to what Jim Rogers has to say. Highly respected among those in the investment community, he was able to retire while still in his 30s. Seems to me, he probably knows what he’s talking about!

There’s more to investing than just stocks and bonds. As an investor, you owe it to yourself to read the book, learn about commodities, and decide which method of investment in this asset class might be best for you. Don’t ignore the bull market that no one is talking about…

How to Make Money in Stocks by William J. O’Neil

While at times you might think this book is simply an advertisement for Investor’s Business Daily (ok, it is - it just so happens that O’Neil is the founder of IBD), that doesn’t really diminish the message the book intends to get across: buying stocks that are both fundamentally and technically strong is a good way to make money!

O’Neil presents the CANSLIM system: CANSLIM is an acronym - each letter stands for a particular rule that a stock must satisfy to qualify as a good buy under the system. I agree, the whole thing sounds a little funny, but it’s hard to argue with. The CANSLIM method looks for stocks that have strong earnings histories, are acting well technically, are leaders in their industries and are in strong markets. Seems obvious to you? I’ll bet you don’t do that much research on every stock you buy!

And there’s more: O’Neil lays out the nineteen common mistakes most investors make (at the very least, every investor should read that!), helps you to understand when to sell your stocks to either cut losses short or preserve profits, and teaches you how to read charts to help you improve your trade timing.

Even if you don’t follow the method exactly, the investing principles presented in this book are extremely sound. You would do yourself a great deal of good by reading this book - it will give you some important questions to ask yourself the next time you’re comtemplating a stock purchase.

For more on the CANSLIM system, check out Canslim.net.

Intermarket Analysis - Profiting From Global Market Relationships by John J. Murphy

If you invest in stocks, understanding the forces than influence stock movement can be of great help to you in making investment decisions. Some of those forces are movements that take place in other markets - namely bonds, commodities and currencies. John Murphy, highly regarded in the technical analysis field, is one of the pioneers of intermarket analysis, i.e., how the various markets are interrelated and how they influence each other.

Murphy’s book is a follow-up to his first book on the subject of intermarket analysis (Intermarket Technical Analysis : Trading Strategies for the Global Stock, Bond, Commodity, and Currency Markets, 1991). He describes intermarket relationships during the period from the 1980s through the fall of 2003, during which some of the market correlations presented in his first book actually changed (read as: he kinda had to do a follow-up!). Murphy attributes the change, with stock markets becoming decoupled from bond markets, to the deflationary environment that began in the late 1990s with the severe downturn in Asian markets and currencies.

Murphy does a very good job of presenting the material in an easy-to-read, easy-to-follow style, with many accompanying charts and graphs. The book is nicely organized, with each chapter examining intermarket relationships during a different signficant time in the markets, times during which either the market movements themselves were notable or other world events had an influence on them (e.g., the 1991 Persian Gulf War). He also explores other important relationships, such as the one between gold and the U.S. Dollar, and discusses the economic cycle model as well as the sector rotation that takes place within the stock market itself.

If you would like to understand market movements from a larger economic perspective (or if you’ve never even given a thought to investing in markets other than stocks!), BMB believes you will find this book quite enlightening. Murphy’s one of the best, and he’s given us another great book to learn from. On the downside: this book isn’t exactly cheap. You might try to get a good price on a new or used copy somewhere like Amazon, or check to see if your library has it. If they don’t, ask if they might be willing order it or if they have a program by which they can borrow books from other libraries.

You can sample this book by reading an excerpt from the first chapter of this book here (PDF format).

Point & Figure Charting by Thomas J. Dorsey

If you’re confused by candlesticks, or baffled by Bollinger Bands, then maybe Point & Figure charts are for you. Simple to construct and simple to understand, P&F charts draw clear pictures of a security’s price movement, independent of time. When the price moves, the chart moves - when the price doesn’t move, neither does the chart!

In Point & Figure Charting, Tom Dorsey presents all of the basics behind the construction and interpretation of point and figure charts. After describing how P&F charts are created, he helps to interpret the picture of market supply and demand they paint, the patterns that form on the charts and the various buy and sell signals they present. He also shows how P&F charts can be used in many areas of market study, and emphasizes the importance of examining a stock’s relative strength and market sector analysis.

But perhaps one of the most interesting topics covered in the book is the Bullish Percent concept: a Bullish Percent Index provides an indication of strength or weakness in a particular market or sector based on the percentage of stocks that are on P&F “buy” signals. Dorsey demonstrates with a few tables how the Bullish Percent Indices he tracks gave him fair warning of the bursting of the stock market bubble in the spring of 2000.

To many, Point & Figure charts provide a simpler, clearer picture of market action than standard line or bar charts. This book will help you to understand P&F charts and how you can make them work for you.

Stan Weinstein’s Secrets for Profiting in Bull and Bear Markets by Stan Weinstein

Plain and simple: Get your hands on this book and read it.

If there is a better book at helping the individual investor interpret stock charts and use them to make better investment decisions, BMB has not yet read it. Mr. Weinstein introduces only the very basic concepts of technical analysis, so he doesn’t confuse you with fancy indicators and complicated formulas. He uses weekly charts to demonstrate how to break stock price movement down into 4 stages and how to recognize when a stock moves from one stage to the next. He then shows, based on these stage transitions, when to buy or sell a stock, and describes how to place trailing stops to limit your losses and protect your profits (BMB strongly recommends the use of stop orders).

In BMB’s humble opinion, these techniques make a great deal of sense for the individual investor. Using weekly charts means you don’t necessarily have to be going over the charts every single day, and it means you don’t have to be a day-trader — you identify and trade on longer term trends rather than short-term movements.

One note on this book: the hardcover edition was published in 1988 (no longer in print), and the paperback in 1992. So you may find that the charts seem a bit dated - but the ideas are not. Read the book, than scan a few weekly charts from the fall of 2002 through the spring of 2003. You’ll see at a glance how this book could have helped you!

(BMB would like to thank Gary Kaltbaum for recommending this book on his radio show.)

Technical Analysis of the Financial Markets by John J. Murphy

If you are serious about technical analysis, this is the one book you must have. But don’t take my word for it: this book is one of the two required texts for the level 1 exam administered by the Market Technicians Association for its Chartered Market Technician certification (the other is Technical Analysis Explained by Martin Pring).

It’s all here: chart basics, support and resistance, trend identification, reversal and continuation patterns, moving averages and other indicators, discussions of money management and trading ideas. Granted, this is a big book and is quite textbook-like, but the material is presented in an easy-to-understand manner (and of course, there are many pictures…I mean, charts!).

Get this book for your investing library - it may very well be the only technical analysis book you’ll ever need!