The Van Tharp Institute

January 26, 2005 — Issue #204

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Tharp's Thoughts Weekly Newsletter


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In this Issue:

February Workshop Learn to Trade Exchange Traded Funds
Feature Article 1

March to The Beat of Your Own Drum, T. Harv Eker

March Workshop How To Develop A Winning Trading System Workshop
Trading Tip

Data Summary, Housing Bubble or Housing Bull Part VI, By D.R. Barton, Jr.

Feature Secrets of the Masters: Trading Simulation Game. Learn about Position Sizing Through Experimenting.
F-r-e-e Online Tutorial

Enhance Profits With Careful Exits, by Dr. Chris Anderson

View this newsletter on-line, or read back issues

 

New Trading Workshop

What are Exchange-Traded Funds?

They are funds that reflect the big sectors of the market.  For example, you can buy a fund that represents the Internet sector of the market and short another that represents the retail sector of the market.  And you can do this in seconds, as soon as you spot what the big money is doing.  So while big money might take a week to move money around, you can jump in ahead of them and take advantage of money flowing into the sector you’ve just bought.  The advantage is huge.

Learn six different strategies that allow you to take advantage of what big money is doing and turn it into big money for you.

 

Feature Article 

March to The Beat of Your Own Drum

T. Harv Eker

"March to the beat of your own drum." In other words, don't follow the crowd. Doing this takes a lot of courage. At the same time, it will foster a lot more freedom, success and excitement in your life. The fact is, it's only when you march to the beat of your own drum, that you create new and original ideas. 

So why is going against the grain such a challenge for most of us? The answer lies in our past. Remember in school, when we were taught to draw inside the lines? Nothing wrong with that, but if we let our spirit roam and drew outside the lines, then, look out! We'd be "corrected" until we developed the "habit" of staying within the artificial boundaries given to us. 

Because of this early conditioning, most people end up living their lives this way, living "inside the lines", otherwise known as our "comfort zone". A comfort zone being an area of security, familiarity, and what others have taught us is "appropriate".

Anything or anyone who doesn't fit in with the "norm" often pays the price of disapproval and scorn. Because being "accepted" and liked is a primary source of security for the ego, most people do their best to follow conventional wisdom and fit into the mold. This not only creates our limits but also crushes our spirit. It takes "guts" to be different; to stand out from the crowd; to break free from the "clone drone" society and be a true individual.

Society creates a paradox; first it tells us not to be different, but then it pays us big money for doing so. Examples include Madonna, Elvis, The Beatles, Ben and Jerry's Ice Cream, Howard Stern, etc. These people created their own style and stood up for what they believed. They drew outside the lines and won! The fact is, people buy "energy". Creativity and uniqueness have a special energy to them. To the contrary, being "boring" is the kiss of death to success.

The real problem is that for most of us, our spirits were crushed early on. Spirit does not understand "drawing inside the lines". Spirit has no lines. It is limitless and has no boundaries. Spirit is about growth, expansion, light, love and joy. Individual, family and social "rules" do not apply. Recognize that when others criticize you, they do so out of fear. But you can be sure that inside each of them is a "spirit" secretly applauding you for breaking free and wishing they had the courage to do the same. Be their inspiration!

Your focus for the next 30 days: Instead of squashing your individuality, celebrate your uniqueness. Instead of getting lost in the crowd, dare to stand out! Get creative. Do something extraordinary. Be unusual. Whatever business you are in, figure out a way to do it, package it, or market it differently than everyone else. The "march to the beat of your own drum" rule also pertains to money and investments. Remember, the masses are broke. Therefore, to be rich you must be a contrarian. You must think differently and act differently. Buy when everyone else is selling. Sell when everyone else is buying. "Zig" when the masses "zag".

Let go of worrying about what other people think of you. Find your own pulse, your own rhythm, and your own beat and begin marching to that. Guaranteed - you will not only feel a renewed sense of spirit and energy but will also dramatically increase your income and wealth.

For your freedom,

T. Harv Eker
Best-Selling Author, President of Peak Potentials Training

Reproduced with permission from the Millionaire Mind E-zine written by T. Harv Eker, president of Peak Potentials Training. Subscribe on-line at: www.peakpotentials.com 

Editors Note: Throughout the issues you will see certain words with odd spellings, such as Fre-deom and mort-gage. This is because spam filters are likely to block message that contain certain words and this is one solution.

 

March Workshops:

 

How To Develop A Winning Trading System That Fits You Workshop

Van Tharp has been studying top traders and investors for over 20 years. In his research, he’s learned how the best traders and investors achieve peak performance. All of these traders and investors developed a sound methodology - and one key portion of their success came from doing the right sort of research.

To duplicate their success, you must focus on the essential elements of system design while meeting your objectives. Therefore, a critical task of system development is developing sound objectives. 

After writing two Market Wizard books, Jack Schwager concluded that the most important characteristic of the top traders and investors he interviewed was that they had adopted a trading system to fit them. 

But to develop a system that fits you, you need to really think about what you want--what are your objectives. It’s not a trivial task. Come to the How to Develop a Winning Trading System Workshop and learn the important elements of system development.

"I’ve proven this formula in helping to develop top traders and investors. Now, I want to offer you the same incredible opportunity to make big money and I’ll take all the initial risk."¾ Van Tharp

 

Trading Tips

Trading Tip

by  D. R. Barton, Jr.

Housing Bubble or Housing Bull Part VI:

Data Summary

We’ve taken a good long look at both sides of the housing bubble (imagine that – someone looking at both sides of an issue…).  Today, let’s see if we can draw any meaningful conclusions from our recent journey through data and perceptions on five key issues related to the housing bubble vs. the housing bull:

1.      Consumer debt:  This is basically money borrowed that is not secured by real estate.  Consumer debt is at an all time high and is growing every year and for the last five years has grown at twice the rate of inflation.  Interpretation?  The average homeowner is leveraged to the hilt.  This gives us a situation where there is very little margin for error in terms of household cash flow.

2.      Mortgage debt:  Unlike previous generations, current home owners are putting less money down and own a smaller percentage of their houses value.  This “mortgage debt vs. home equity” ratio is also at an all time high.  Interpretation?  Still more leverage; people are buying bigger houses with less actual equity invested than ever before.  This gives even less margin for error, say in the case of…

3.      Interest rates:  Because of high demand (real or perceived) for housing, mortgage interest rates have not yet caught up with the rise in general interest rates that the Federal Reserves controls (called, mundanely enough, the Fed Funds Rate).  Government sponsored agencies that serve as third party mortgage lenders such as Freddie Mac and Fannie Mae have provided free-flowing funds, keeping mortgage rates down.  Interpretation?  Homeowners have yet to feel any significant effect of a rising interest rate environment.  Demand and the market’s perception of continued demand currently rules the day.

4.      Supply.  Housing bulls say that supply as a ratio to housing demand, is dropping.  Balancing this statement is the fact that housing supply in absolute terms has increased by more than 250 percent over the last decade and a half.  Interpretation?  There are lots more houses being built.  There are also lots more houses being bought per capita. 

With these data, can we draw any conclusions?  The bottom line is that the housing bulls have one strong ally in their corner:  housing demand.  As long as demand stays strong and growing, we will not likely see the effects of a bubble for a good while.  In the “bubble will burst” camp, absolute supply and a huge multi-trillion dollar industry are growing.  If demands waver, a big collapse is possible. 

What could trim housing demand?  Here’s a short list:

1.      Reduced immigration

2.      Mortgage interest rates catching up with increasing supply rates

3.      Cash flow issues from consumer debt and mortgage leverage.

So for now, in my opinion the seeds of a bubble are sown.  Even the venerable Dr. Steve Sjuggerud has turned bearish on some portions of the real estate market.  BUT housing demand will continue to drive the residential real estate market for the foreseeable future.  Until a triggering mechanism occurs that effect debt loads or one of the other demand risks, I would take great caution in betting against the continued near term rise in real estate.  But I believe that a big “pop” will be heard in the not too distant future.

One key issue that could help you make housing market investment decisions is the issue of fundament values for housing.  How do we determine when housing is fundamentally over-priced or under-priced?  We’ll look at one useful way to measure real estate values and draw our final conclusions next week.  Until then, great trading!

 

D. R. Barton, Jr. is a lead instructor for Van Tharp Institute courses. He is the Chief Operating Officer and Risk Manager for the Directional Research and Trading hedge fund group. D. R. has been actively involved in trading, researching and teaching in the markets since 1986.  D. R. has created extensive and innovative new training products and taught extensively in many investment areas including intra-day trading, swing trading, and cutting edge risk management techniques. 

His writing credits include co-authoring Safe Strategies for Fin-ancial Fre-doom and co-creator and contributing author on Fin-ancial Fre-doom Through  Electronic Day Trading. He also writes a stock screening newsletter called Ten Minute Trader, has feature articles in Market Mastery, writes for Traders-U and is a regular contributor to Tharp's Thoughts.

 

Weekly Feature:

Secret's of The Masters

Trading Simulation Game

Dr. Tharp designed the "Secrets of the Masters™" Trading Game  to help you learn the secrets to trading success before you trade the markets. 

This game totally de-emphasizes entry or "stock picking" and instead requires that you focus on the most important aspects of trading—Position Sizing™ and letting your profits run. Our game has ten levels that get progressively more difficult to master. However, once you’ve mastered these principles, you’ll know you’ve mastered some of the key skills to trading success.

"I have found that it also helps you change the way you frame the activity of trading, because the game focuses on systems results and strips away entries, setups and the other false control illusions that traders inevitably get wrapped up in..."

 

Video Article

This week's F-r-e-e On-Line Tutorial

Enhance Profits With Careful Exits

By Chris Anderson, PhD

Education brought to you in a brand new way.  

Follow the link below and join us in this fun new way of learning.

 
C-l-i-c-k Below

On-Line Tutorial

 

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Van Tharp's Most Recent Market Update including the 1-2-3 Model and the Five Star Model.

Click to Read

Look for a new update next week.

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Quote of the Week:

"I buy when other people are selling." 
J. Paul Getty

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Feedback Corner: 


The ideas learned at the seminar are becoming more meaningful each day as I try to understand them more fully and actually use them. I have clearly changed some thinking about the market and in particular I'm paying more attention to the big picture rather than the day to day activities. It does provide a different perspective. Thanks for the seminar.

Tom Wersten

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Dr. Van Tharp's Trading Discussion Forum
  www.mastermindforum.com

Ask questions, share ideas, information and feedback with Dr. Tharp and other like-minded traders and investors.