Archive | August, 2015

Apiary Fund Traders Manage Risk on the Markets Darkest Day

August 24th will go down as a dark day in market history as the Dow Jones Industrials dropped over 1000 points in early trading.  Days like this bring an ominous air to the hive.

The first profit and loss report was run early Monday morning.  The Dow was just recovering from a 1000-point opening plunge and tensions were tighter than the e-string on a violin.   The seconds seemed like hours while the server churned out the calculation that would give the bottom line for the fund – how many losses, how many gains, and is the fund up or down…

The first number to show up was profits: $33,638.

Next, the losses:  $5,196.

Winners were beating losers by a 5:1 ratio; the early read on profits was nearly 3%.   Tension turned to pure exhilaration as we started going through the detailed report.

The traders here at Apiary Fund are amazing.

I always tell people that the risk management system is for safety and learning.  Yes, it’s true, Apiary Funds money is kept safe by the program that constantly monitors accounts and makes the call many of us are too timid to make – cut the losing trade.   But performance on days like this cannot be attributed to the fail stop of the risk management system, but to the skill our traders have developed as they work toward funding.

The Apiary Fund risk management system keeps the fund safe, but it’s more than that. It’s teaching traders how to manage risk in the tsunami of market disasters.

As good as the numbers were in that first report of the day, what was an even greater accomplishment was the fact that not a single funded trader had been stopped out by the risk management system.

Again, I repeat.  The Apiary Fund Traders are amazing!

Keep up the good work, and happy trading!

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20 Pips Equals Your Success

Ever dream of being that one investor? The one who predicts market events before anybody else knows they’re coming, and gets away with millions of dollars fitting nicely in your pocket? Well, it might be hard to stuff that much money your pockets… but I’m sure you would have no trouble finding a nice safe place to store your millions. Wouldn’t it feel great to make it on the list of legendary traders known for their cunning and incredible returns?

1929: Jesse Livermore shorted the stock market (predicting the crash) and made $100 million.

1987: Paul Tudor Jones shorted the stock market (predicting Black Monday), making an estimated $100 million.

The 1980s (after Black Monday): Andy Krieger shorted the Kiwi (predicting it was highly overvalued) and made $300 million.

1992: George Soros shorted the British pound, making $1 billion dollars (meanwhile Stanley Druckenmiller invested in the german mark and made an additional $1 billion for Soro’s Quantum fund)

2000: John Templeton made $80 million in a week shorting the Dot-Com bubble.

2003: Andrew Hall went long (like, 5 years long) on oil and made enough to land a $100 million dollar bonus.

2007: John Paulson and Kyle Bass both made $3-4 billion shorting subprime mortgages and mortgage-backed securities.

2009: David Tepper went long on banks (predicting they would recover from the financial crisis) and made $7 billion.

Of course, while some take opportunities in the market to make millions, you have to realize the enormous risk behind these trades. As investor Spidey-man would say, ‘With great returns comes risk of great losses.’ For example: Yasuo Hamanaka lost $2.5 billion shorting copper, Brian Hunter lost $6.5 billion in natural gas futures, and Jerome Kerviel lost an incredible $7.1 billion in European futures. Just this last May, China’s richest man lost $15 billion when his company shares plummeted. Ouch – somebody didn’t have their stops on!

The difference between us and them is as simple as a couple of zero’s. Say you make 20 pips with one lot, while somebody else makes 20 pips with 100 lots. You both made 20 pips, but the one with 100 lots made a lot more money. Honestly, it all depends on how much money you put into the trade. The more you practice hitting your 20 pips a day, the more comfortable you’ll become trading in the market. The more comfortable you become in the market, the more money you’ll invest in it. The more money you invest, the more money you’ll make (as long as you’re smart about it). Then, you’ll be hitting your daily 20 pips with 100 lots and making a lot more zeros.

Happy Trading!

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What About Benjamins?

Born in Boston on January 17, 1706 was the tenth son of a soap maker. He was known as Benjamin Franklin, and not only did he contribute to the shaping of science and history but his face graces every $100 bill that’s been printed since 1914. How does our dear friend Ben measure up to his treasured namesake, the $100?

BENJAMIN_FRANKLIN-1 c-note
Benjamin (Franklin) Benjamin ($100)
-Born on January 17, 1706 in Boston, MA -The version we know (with Ben’s face) was born in 1914, when Reserve Banks were established in 12 locations through the U.S.
-Alias: “silence dogood” -Alias: “c-note”
-Spent time abroad as an ambassador in both England and Paris -About 2/3 are in circulation outside the U.S.
-Invented a type of oven, swimfins, and bifocals -It costs 12.5 cents to produce
-Apprenticed at, worked at, ran, and owned a print shop -Printed in Washington D.C. and Fort Worth, Texas
-In 2009, one of the only 1733 original printed copies known to exist of his ‘Poor Richard’ Almanac was sold to an anonymous bidder for $556,500 -When the new version of the bill came out in 2013, the bill with serial number ‘1’ is estimated to be worth somewhere between $10,000 to $20,000
-Lived for 84 years (died April 17, 1790) -Avg lifespan is 90 months (~7.5 year)

 

One more thing you might not have known about Benjamin Franklin. His scientific and financial savvy (along with his good advice) inspired Apiary Fund’s Benjamin Formula. A formula that can help you determine whether or not to take a trade as well as how risky your trade will be. Pretty neat, huh? So follow the example of Benjamin Franklin while you’re trying to make your benjamins today!

“Well done is better than well said.” -Benjamin Franklin

Happy Trading!

For more information on the Benjamin Formula (not the Benjamin Graham formula) click here.

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Why Are Commodity Prices Falling?

Commodity prices are falling. Fast. But why are commodity prices falling if they’re already at five year lows?

Commoditiescrop

It’s not unusual to see seasonal downswings in commodity prices during the summer months, but the magnitude of this past week’s move is so broad that it’s not seasonal but macroeconomic factors leading the charge.

The movement clearly illustrates the relationship between the dollar, interest rates, and commodity prices. Interest rates are increasing.  Dollar is strengthening. Commodity prices are dropping.

The theory behind the movement is that when the Fed “prints money,” the money flows into commodities and pushes prices up – and alternatively prices fall when money becomes scarce.  But what, exactly, is the mechanism that causes this relationship to exist?

Increasing interest rates decreases the price of commodities in four ways:

  1. It increases the pace at which commodities are produced by increasing the incentive for extraction today rather than tomorrow.
  2. It decreases the producer’s desire to carry inventories.  Storage costs increase.
  3. Institutional investors shift investment out of commodities (high risk) and into treasury bills (low risk).
  4. Strengthens the domestic currency, which, in effect, reduces the cost of globally traded commodities.

Right now, monetary tightening is widely anticipated in the US, with the FOMC signaling that they will likely raise short-term interest rates sometime this year – most likely September. It’s not seasonality or an actual change, but the expectation of a rate increase that’s pushing commodity prices lower.

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Currency and Your Wealth

Eastern Europe and the old Soviet bloc during the early 90’s is a perfect example of what happens with extreme fluctuation in currency valuation.

Hungarian ForintDuring that time, there was a great interest in the value of currency.  Everyone, from the butcher to the beggar, was talking about money. I recall walking down the streets of Budapest when a beggar asked for some money to buy bread.  Having been taught by a mom who insisted I help a person in need, I reached in my pocket, pulled out some Hungarian forint, and placed them it in her hand.

I will always remember what happened next.

She looked at the coins, and in complete disgust, spat in her hand and tossed the coins in the street while she murmured some vulgarity about the “worthless” government.

At the time, Hungary was suffering from hyperinflation – a condition where the price of goods and service steadily increased while the value of the Hungarian forint dropped. Nobody wanted Forint because the longer you held it the less it was worth!

There is a great lesson in this…  Storing wealth in currency is a risk.  Yes, you’re parents always taught you to open a bank account and save your money.  While most of the time that is a good practice, there are times when a currency’s value changes.

Wealth is something we’d all like to build.  It is something that we’d like to save once we acquire it.  Wealth is stored in different ways, such as a savings account at the bank, but how you store wealth is just as important as acquiring it because contrary to popular belief, money is not free from risk.

In Hungary, the value of the currency dropped – nobody wanted forint – and so any wealth stored in the form of savings in a bank account was destroyed.

There was an alternative, however; German marks.  While the Hungarian Forint was dropping the German Mark was going up!  Anyone who stored their wealth in German Marks, not only preserved their wealth but expanded it!

Hopefully with this example, you can see how important an understanding of currency is to your wealth.  If you want to be wealthy, you have a couple of hurdles you have to overcome…  First is how to create it, and second is how to store it.  Both are easy to overcome if you understand how currency works and the Apiary Fund is here to help you get over those hurdles!

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