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Buying and Selling in the Financial Markets is EXACTLY the same as everyday purchases and sales

Featured Article March 25, 2014

2 Most Common Investing Mistakes

Sam Seiden

Online Trading Academy, Chief Education, Products, and Services Officer

 

The world of market speculating is made up of everyone from the active day trader to the longer term investor, speculating in all kinds of markets and asset classes, people all around the globe pushing buy and sell buttons each day in hopes of achieving income and wealth. Never in history has there been so many books written and so much information on the internet on how to speculate in markets for traders and investors. Each weekend in many cities around the world, there are educational seminars given on how to “get rich” from trading. With so much education on how to properly speculate in markets out there, why is it that most short term traders lose money and most long term investors never achieve long term financial goals? How can this be? The answer is twofold and is the focus of this piece.

First, it’s because of most of the books and seminars. Most books and seminars are loaded with conventional Technical and Fundamental analysis which tends to teach you how to buy when everyone else buys and sell when everyone else sells (herd mentality) which is high risk, low reward, and low probability.  Conventional Technical analysis is based on pattern recognition that has people buying after price has rallied and also offers buy and sell signals based on indicators and oscillators that always lag price which means high risk buying and selling. Conventional Fundamental analysis offers buy signals only after good news is present and company numbers are strong. Where do you think the price of a stock is by the time this good news is offered to you? If you guessed high, you’re correct almost always. Remember, the only way to be consistently profitable when buying and selling in markets is to have a strategy that has people buying after you buy, at higher prices than you paid and selling after you sell, at lower prices than you sold at. Conventional Technical and Fundamental analysis does not help us in this regard. The basic principles of these two ways of thinking ensure you will buy and sell with the herd, when it’s too late which means high risk and NO EDGE. If proper market speculating was as easy as reading a book, wouldn’t everyone be millionaires?

The second reason most people lose money in the global trading markets which is really part of reason number one is that they throw all simple logic out the window. When you go to buy a car and you’re at the dealership and see the car you have your heart set on, you see the price and its $20,000. Do you go to the dealer and say; “I like this $20,000 car so much, I want to pay you $30,000 for it.” Of course you don’t do that, you likely offer $17,000 or something like that. In trading, most people wait for confirmation of higher prices and then buy which is the opposite of how they buy things outside of trading, this makes no sense. I once had a gentleman go through our training program and I will never forget the day I met him and spoke to him about the program. He approached me and said he wanted to learn how to trade and join our program. I said, “before we commit to this, let’s have a conversation or two and make sure this is right for you.” You see, I always want to make sure whoever is coming into the training program has the best chance in succeeding. I don’t want to waste their time or ours. My first question was, “What do you do for a living now?” He happened to own and run a pizza chain that he had just sold. As soon as he said that, I knew he had the best chance at doing this because he already knew how to make money buying and selling. In fact, there was nothing about buying and selling in a market that I could teach him that he didn’t already know; I will explain this in a minute.  Our first lesson went like this… I asked him to tell me about his business and he did. He explained that the whole business comes down to the price of cheese. I asked him three simple questions: 1) What is the average price of cheese? “Around $2.00 a pound,” he said. 2) If the cheese you buy is selling at $4.00 a pound, how much will you buy? He said, “As much as I need.” 3) If the cheese is selling at $1.00 a pound, how much will you buy? “As much as I can and store it,” he said. I then told him that he was already a great trader and that there was nothing I could teach him about trading that he didn’t already know. What I could teach him however is EXACLTY what this proper buying and selling looks like on a price chart. He was already buying and selling in a market properly, he just didn’t know what that looked like on a price chart. This was an easy task for me because he already had the foundation of how you make money buying and selling anything down and had made plenty of money from it. The most important part of today’s article for you to understand is this:

The more you can bring the mind set and rules that you use each day to purchase everyday items at the grocery store, appliance store, and so on into your market speculating, the better you will do. Do you ever use coupons to save some money? If you do, you already know how to buy at a low price. Take that same exact mind set and action into your trading world. The mass illusion is that proper trading and investing is somehow different than how we properly buy and sell things in everyday life. Truth is, there is no difference.

Many so-called professionals like to complicate the process with smoke, mirrors, curtains, and sleight of hand. They do this to trick you so that you will transfer some of your account, into theirs, without you realizing it. The key for you is to keep everything “real.” Use your simple logic filter to ensure you will not lose some or all of your account to illusion. For your review, let’s walk through a trade we took at Online Trading Academy.



In the upper left corner of this screen shot, we see a market that is falling fast and reaching what our strategy determined to be an objective demand zone (wholesale prices). Most people would not want to buy in that circled area because there is a downtrend and every book says to never by in a downtrend. There was also some bad news causing price to crash which would make people very nervous when buying at that level. So, most people would not only not buy, some actually sold in that circled area. That is a chart of the Euro. What if I changed the market and made it the market for Samsung Smart (very smart) TV’s like you see on the right. If you saw price decline like that would you be more inclined to buy? Would you be afraid to buy on that decline or would you be very excited? Of course we would be thrilled to buy that TV at a discount. Why then does just about everyone on the planet have opposite feelings or emotions with these two examples. The answer is simple, one is a financial market and the other is an example of anything else we buy and sell in life. Furthermore, you have been brainwashed to think that how you make money buying and selling in a financial market as a trader or investor is somehow different from how you make money buying and selling anything in life.

The chart in the middle, on the bottom is the result of that trade. Price turned higher, giving us a low risk profit on that trading opportunity. The reality is that the Euro was on sale for a short period of time and there was only a small amount for sale at that price meaning once they were all bought, price would rise. The chart gives us all this information if you understand our patented market timing supply and demand strategy.

2 Mistakes the Novice Trader/Investor Made
1)    The seller sold to us AFTER a decline in price.
2)    They sold to us at a price level where the chart told us, demand exceeded supply.

These are the two most common investing mistakes the masses commit around the world which is why most active traders lose money and most long term investors never come close to achieving their financial goals. There is nothing wrong with following the rules of a trading book, just make sure you are the author and that your strategy has you buying at wholesale prices and selling at retail prices. To do this, start with using all the powerful buying and selling knowledge you already possess and use on a daily basis outside of the trading world. Bring this key but simple strategy into trading and you will soon be spotting “blue light specials” all over the place. Never forget, how you make money buying and selling anything in life is EXACTLY how you make money buying and selling in the financial markets.

Hope this was helpful. Have a great day.

Sam Seiden – sseiden@tradingacademy.com

Limited Downside, Major Upside - Various Scenario Valuations of Vringo's Case Against Google

The intent of this article is to mainly run through some of the possible valuations and scenarios that seem evident for Vringo’s approaching expected final verdict against Google on January 22, 2014. It is also to hopefully help provide an idea of what sort of returns could be expected from specifically just the Google court case. This analysis does not include the cases against ZTE, ASUS or any other and those would only add to the total potential value.

I would like to point out that I am not a professional and do not currently hold any designations in the financial industry. I do not claim to understand the situation in its entirety and have no experience in the NPE or Non-Performing Enterprise segment or the legal system. I am merely a physics turned finance student interested in patenting companies and an individual investor with limited experience. With that being said, I have tried to be as diligent as possible and I may be wrong in some of my assumptions or analysis, of which I hope others will kindly point out if any. I will also try to state most of the important assumptions needed to understand where I am coming from.

I will go through the critical assumptions in my analysis, followed by a scenario summary. I will then give a valuations matrix summary on the 9 different most probable outcomes to see what 2 different associated valuations may be in each. Please be advised that I do not address the risk of the company or situations presented and none of the information is to be misconstrued as recommendations despite giving my own opinion at the end that the stock seems to be substantially undervalued and seems to have limited downside. All information was solely presented for discussion and informational basis. Always use your own due diligence in all research and investing matters.

Assumptions used in analysis:

Adword% of Rev	97.00%
Avg US AdWord %	45.00%
Rev base %	20.90%
RR 1	3.50%
Total % of Rev	0.32%
RR 2	5.25%
Total % of Rev	0.48%
RR 3	7.00%
Total % of Rev	0.64%

Scenarios Payout Summary

1^st Scenario – Workaround is found valid

This seems unlikely to me considering the rhetoric on the matter and the opinions given by other knowledgeable authors here on SA. It is still possible that the judge finds the Workaround (WA) to be valid, thus ending any royalties on May 10, 2013. This would mean that the royalties should be paid as follows.

2^nd Scenario – WA found invalid

This scenario is basically to see what the valuation would be like given that the original workaround is invalid, but Google may come out with another workaround right away. This would leave the RR payments to be calculated from November 20, 2012 to January 1, 2014.

3^rd Scenario – WA found invalid and Google pays until patent expiry

This scenario uses the present value of the projected Google revenue at their average revenue since infringement and a [0.41%,4] or [2%,1] discount rate. This scenario also uses the same assumptions as Scenario 2.

Valuation Summary

VRNG Current Market Info
Price	3.11
Market Cap. ($mil)	$262,470,000
Shs Out	84,125,738
Diluted Shares Out	86,102,000
Revenue	$370,000
Price to Rev	716.21
RevPS	0.01482
P/S	212.56
EV	$221,350,000
Price to EV	1.1972
BV	$130,090,000
BVPS	1.5460
Price to BVPS	2.0180

Since a portion of the expected revenue generation from patents in this case is probably already baked into the price, as can be seen from their incredibly high P/S or P/E ratio, I tried to flatten out the huge potential payouts by using the average Rev/yr for the infringing period to see how the price would react to the favourable outcomes. Using the above information and assumptions given, I built a company comparison table given here.

In the comparison, I disregarded the few outlier values, namely those from VHC and WDDD, to normalize the values calculated. For the valuation I decided to look at the EV/S multiple because of the different capital structures of the comparable companies and the P/S multiple method. It should be noted though that EV actually becomes negative for VRNG in many of the more lucrative outcomes and I used the current EV to potential average revenues generated per year for the infringing periods as a basis. Using the comparison table I found the mean or average of the P/S and EV/S ratios and used those to calculate the multiples and target prices given below in the matrix. If I had more time, I would have liked to see some results from other valuation types. If you think there are other valuations you feel are more appropriate, I invite you to write an article too.

Conclusion

It seems from the abundant articles of varying opinion and the number of people shorting the stock, that it is a highly contested one. Though if you have the conviction to go long on this one, it seems from the matrix above that even at what I believe to be the ‘worst’ outcome, there is limited risk at current prices.

Appendix:

History and Timeline of Major Filings

Sept 15, 2011 - I/P Engine filed a complaint against AOL, GOOG et al. for infringements on 2 of its patents, ‘420’ and ‘664’. Patents filed after June 8, 1995, expire 20 years from the earliest filing date. This make the expiration of the patents Apr 4, 1996. However, Patent 664 also has an extension under 35 U.S.C. 154(b) by 467 days, extending the expiry to July 15, 2017. I have however used the expiry of both patents as the April 4, 2016 date in my analysis.

November 6, 2012 - The jury reached a verdict finding that the Defendants had infringed,

and awarded $30,496,155 for past infringements, which did not include interest, and also awarded a running Royalty Rate (RR) of 3.5%.

November 20, 2012 - The formal judgment of the Court was entered into the record

May 10, 2013  - Google allegedly found a proposed Workaround, referred to as the ‘New AdWords’ 5 months and 21 days after the November 20, 2012 Judgement day.

August 14, 2013 – Judge Jackson (JJ) states the Workaround is not colourably different but up to VRNG to prove on an ongoing basis.

Jan 3. 2014 - Judge Jackson provides a firming statement that RR is 3.5% on revenue base of 20.9% should be upheld, but also finding pre-judgement interest of $536,707, and supplementary damages of $16,784,491 without supplementary interest should be awarded. He also defers post-judgement interest and supplementary damages interest and asks for a recalculation.

Various Major News PACER documents

https://drive.google.com/file/d/0B2RRPwEO9xz4LWFXbS1fMGVlVHM/edit?usp=sharing

https://drive.google.com/file/d/0B2RRPwEO9xz4MXY1Z3lTbDQtWWs/edit?usp=sharing

https://drive.google.com/file/d/0B2RRPwEO9xz4ZWt5T0FpcjVtUFk/edit?usp=sharing

https://drive.google.com/file/d/0B2RRPwEO9xz4ZXpGSWZvcElFczA/edit?usp=sharing

https://drive.google.com/file/d/0B2RRPwEO9xz4cm9naVY1WkRaSzA/edit?usp=sharing