One of the most successful patterns in the investing realm is the “cup and handle” pattern. This is a commonly seen pattern on stocks that create huge gains that could change your life. I am sure you are asking, “What exactly is a ‘cup and handle’ pattern?” It is a pattern on the weekly stock price chart that looks like a cup with a small handle. In a bull market you will see hundreds of these patterns and a few of them will lead to major gains of 200% to 1200%. You need to make sure it has all the bullet points below to be a true “cup and handle” pattern.

• Prior price uptrend is at least 30% run up (major price up trend)
• The cup should be over at least 7 weeks
• The handle should be within 15% of the old high
• Handle should last at least one week
• Buy point is right after old resistance (old high)

Not the following: The pull back is from old buyers selling stock that they had at the old high. They sell so that they can cover the price they paid for the stock and fear it might drop again. If you are watching a stock with this pattern, “cup and handle,” make sure to buy right after resistance. Do not be scared, just make sure if the pattern does not work to cut losses.

This is a sample image:

Return on Investment (ROI) is a valuable ratio to look at when comparing two different investment’s returns.

Here is an example:

If you invested in two seperate business ventures, one produces footballs and the other produces basketballs, and the football business had a return of $100,000 and the basketball business had a return of $200,000, which one would you say is better?  Your answer should be, “I don’t know yet, what is the ROI for each business, how much was invested in each venture?”  If you knew that $500,000 was invested in the football business and $2,000,000 was invested in the basketball business then you would be able to give your answer, you would be able to compute the ROI.

The equation for computing return on investment (ROI) is:

ROI = Operating income/Average operating assets

In our example of footballs and basketballs the ROI for the football business is .2, or 20%, (operating income of $100,000/average operating assets of $500,00) and the ROI for the basketball business is .1, or 10%, operating income of $200,000/average operating assets of $2,000,000).  Obviously the football production business is better than basketballs, its ROI is 20% compared to 10%; double!  Think if you used that $2,000,000 that you invested in the basketball venture to invest in more football production ventures at $500,000 per venture with the 20% ROI on footballs you would have had a total return for the period of $500,000 instead of $300,000 an ROI of 25% (operating income of $500,000/average operating assets of $2,500,000) instead of your original ROI of 12% (operating income of $300,000/average operating assets of $2,500,000) when you were investing in basketballs and footballs.  Good thing you understand ROI so you know to move your money out of basketballs and into footballs!

ROI does not always come out of cash, even though in our example it did, an investment can of course include other assets such as securities, inventory, land etc.

Operating income is explained in detail in this article here and average operating assets are explained in detail in this article here.

It should be noted that ROI can also be calculated by multiplying margin against turnover.  However, because margin and turnover both include sales in their calculation the equation can be simpliflied to operating income/average operating assets.

The price a bond is inversely related to the interest rates of newly issued bonds being offered in the market.  As the interest rate goes up for newly issued bonds then the price of your bond with the lower interest rate is going to fall.  It is common sense, an investor is going to want the bond with the higher interest rate so they will pay less for your outstanding bond with the lower interest rate.

The equation to calculate what the price of the bond in the secondary market will be is:

PRICE OF BOND = 1/CURRENT INTEREST RATE

Buy and hold use to be the common phrase at most investment firms. I never really believed it to be the best plan; however, is the idea dead in all investment firms? There are two different thoughts for this topic.

The first thought I have is this method will be dead for the time being. The market took a huge dive, as we all know, and even the most sound stocks have gone down. People will not trust this theory and investors will try a new way to invest for a few years. Then, when they see the market in a bull move for a few years, they will go back to old ways. Getting 8%-10% seems too enticing for doing nearly nothing. The problem is we will always come back to a bear market again. Unless you learned from the first one, you will loose massive amounts of money again.

My second thought is people will no longer adhere to the buy and hold idea.  If their investment adviser does not decide to change, they will be history and the client will move on to someone who adheres to their own investing strategies. An example of a good investor is Gary Kaultbaum. I have mentioned him before on this site. He is a strict investor who only buys companies with growing sales and income. Growth stocks are not risky if strict on selling policies as mentioned in early articles, 8%. The upside is 200% to 1200% gains. That is life changing.

The person who learns form this bull market on money managing will in the future save themselves tons of money. Think if you could have, at worst, cut losses at 8% for all stocks, instead of 20%, 30%, 50% this year. Or even better, listened to people who know what they are talking about and sold stocks before the major downfall. If you are investing your money, it is adivsed you do not simply rely on somoene, but do some homework yourself and keep up to date with the market.

The point of a stock journal is to write down exactly what you bought, when to cut losses, and record gains. A journal will help all investors who have a hard time selling loser stocks. As you have noticed, a lot of my articles have this concept in them - when to sell. For many people, this has been the biggest issue to grapple with. If are not strict to this rule of selling losers at 8%, you will lose money more often than not.

You cannot second guess yourself saying, “Well, what if the stock goes up?” This is not okay, this will make you lose more often than not. Keeping a journal will make the line of selling more definite. You could also go on to record what the stock did afterward for the first few times to see what you would have lost afterward just to prove my point.

*Journals can be paper-bound or electronic on the computer.