A Silver Lining(?) —in All of These Market Clouds?

All through September and into October, I had the greatest sympathy and empathy for my friends who are invested in mutual funds and stocks. The agony on their faces was exceeded only by what I know was going on in the stomachs. Those were gloomy days. Uncertainty over what the market would do next, reined. Would it ever 'bottom out'?

"Should I sell? Can I afford to hold on? Even if it bottoms, will it not take 10 years or more to ever move back up enough for me to recover what my stocks have lost?"

These are nightmarish questions all investors are asking themselves.

On the other hand, those of us who knew about, and long ago, switched to trading— (and especially trading the e-mini's), September and so far into October, has been nothing but fabulous for us. In fact….Unbelievable.

Several days the market has given us a whole month's profit goal in a single day! It's with considerable reservation that I even talk about this, knowing that my investor friends will look at me and wonder what fantasy world must I be living in?

Oh, if they only knew. If they had only discovered what I (and all 'traders' know), that trading…not investing, is where …not only the real ACTION is, but, SAFETY as well. It's an easily demonstrated fact that the shorter [time frame] one's money is exposed in the market, the greater his chances of it being profitable are. Yes, even maximum profits ….with minimum risk involved. It's even easier to demonstrate how trading takes advantage of the tremendous volatility we've seen! Traders can make good money whether the market is going up or down, and even sideways. Extreme volatility, like we're seeing, means extreme profit potential. And, honestly, extreme [potential] LOSS, as well…if one hasn't mastered 'money and trade management' as a prime trading tactic.

Leaving all of the planning, research and decision-making to a broker or mutual fund manager is very appealing to most folks, especially if they've never heard about or considered any other option. Some 80-million Americans know only this one way of being 'in the stock market'. The large brokerage houses and mutual fund companies hope to always keep it that way. Why would they ever talk about anything but 'investing' and investing for the 'long haul' in all of their TV commercials and advertisements? Those commissions they make for placing buy and sell stock orders for their clients are significant.

But, what about the mutual funds that advertise "No Load" as to their charges? Are they really working for their clients for nothing? Not hardly. Having access to and full control of a client's portfolio account gives them some tremendous advantages, far outweighing a simple 'service charge' for their service. For you see, when you opened your mutual fund account, you signed an acknowledgement that your money is at 'full risk' and subject to whatever happens in the stock market. You also gave the fund's manager carte blanc license to make all management decisions for you. What you didn't realize is that you also gave him full right to buy 'n sell, i.e., trade with the stocks in your portfolio, without ever telling you (or sharing with you the results of his trading). How could they legally do this?

All individual portfolios are aggregated into a large 'house account' from which the Insider traders (company employees) can 'borrow' stocks to trade with. Think about the trillions of dollars (in stocks) that they have available to trade with! We little e-mini traders call them the "elephants"; they call us "retail traders."

They (not the mutual fund portfolio owner) are the only one's taking any risk from their trading. It doesn't matter whether the [inside] trader loses money, or not, he just has to replace the borrowed stock, regardless. No matter at what point the stock gets returned to the mutual fund investor's account, it's worth only what the 'market is' for it on that day and hour. The inside trader, meanwhile, has made some tidy money for himself and his firm…if he's any good at all. (Stocks in a mutual fund account DO NOT physically move in and out. it's just an accounting computer function in the aggregated total of the house account.)

There was an interesting study done in 2005….of the value of the expertise mutual fund managers and stock brokers bring to their investment customers. The bottom line was that since the stock market –historically– rises about 10-15% a year, and has done so through the Great Depression, all of the world wars and even through '9-11', then one should be able to conclude that there is a great chance of one's mutual fund increasing at the same rate …all by itself, with or without any input from the 'manager', if left alone for the 'long haul'. The most surprising thing revealed in the study was the kind of money the Insiders make from their trading activity. Each is trading for not only him or herself, but also for the mutual fund firm. The average income of mid-level managers was $472,000 a years; upper-level managers made $750,000 to a Million dollars a year.

The owner of the mutual fund portfolio? Well, he or she usually realizes whatever the market does. In 2007, it was 11.2% (average) appreciation growth. Some funds actually 'manage' their accounts well enough to beat the market's average. They all love to measure themselves against what the S&P 500 does: If they beat it, they brag; If they don't, they say "Well, the S&P 500 lost this year, also." (They hope the S&P lost more than the client's portfolio did.)

As an e-mini trader…. I keep $10,000 CASH in my trading account. My daily 'goal' is $500.00 CASH and there aren't many days that I don't reach it, or more. I trade e-mini's, which are a simple little 'cash' instrument, in both the S&P 500 and the Russell 2000 markets. I'm in a trade for maybe 5 minutes, on average, during the first two hours that the markets are open each morning. I've usually made my daily goal by then.

If you have a calculator handy, figure what my 'ROI' is on my daily $500 gain …on my $10,000 account. Perhaps you'll understand my passion and enthusiasm for e-mini trading.

There is nothing I enjoy more than sharing and helping others discover what I did back in early 2002. If this intrigues you, spend some time on my web site. There's a ton of FREE information that I've put there for you. You can reach it by simply typing in melhardman dot com.