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1 Unique Method To Successfully Play A Volatile Market

Summary One way to make money no matter what the stock market is doing. Choosing the right sector is the key – in my case is was specific commodities. Knowing consistent price movements over time will determine the trading spread to work within. There is no doubt we’re in a stock market environment ruled by fear, as confirmed by the extreme volatility in the movement of the various indices. Much of this was triggered by the crash of the Chinese stock market, but even before then there was a growing concern about the dizzying heights the market had shot up to without a correction. The U.S. has went through a mini correction, but many believe we need a deeper and more prolonged one to bring share prices back in line with actual values of companies Other factors given as reason for volatility are low interest rates, which have tempted companies to be more reckless in their spending; uncertainty concerning whether or not the Federal Reserve will raise interest rates; slowing Chinese economy; commodity deflation; and signs manufacturing in America is slowing. I could add many more to the list. Together what it says is investors no longer have some clarity on the future, and that has been the impetus behind the extreme volatility in the market. When visibility is down and parts of the global economy collapsing, it generates an environment of fear. And that’s where we are today. One thing we must do as investors is to ignore the endless financial news headlines about the last big plunge in the stock market, and the soon-to-follow “rebound.” That’s stock price movement that historically precedes a major correction. The day-to-day movements are irrelevant. What’s relevant is if after all the movements the direction remains level or continues on down. Trading in times of fear With future uncertainty can come investing paralysis and fear, as investors move their money to the sidelines to wait to see where things go. That’s a good strategy, but there are many others that still want to find ways to grow their capital in these volatile times. I’m going to share one strategy I’ve used to capture profits in situations similar to this. As a matter of fact, it doesn’t matter whether the stock market is going up or down with this type of trade, as it has volatility built into it either way. I’m talking about silver, although I’m simply using it as a proxy for other commodities or markets that are volatile in nature. I’m going to say that again: I’m only using silver as a proxy for a number of opportunities to make money using this method. I’ve used this with silver in the past, but know of some colleagues that are using it with other commodities right now, and in your specific expertise, there could be many other sectors or segments to do the same thing. Silver trade The first thing to do is identify a highly volatile commodity that moves in predictable patterns. The one I know the best is silver, and it’s one I made a lot of money with several years ago. I decided to go with stocks and not silver options or futures. At the time I was trading was when gold and silver were still soaring, and among the top-performing and predictable silver companies at the time was Silver Wheaton (NYSE: SLW ). It was highly volatile, but it still have a primary upward share price movement, which made up for the occasional timing mistake I made, which forced me to hold it a little longer than usual. Remember, it doesn’t matter whether a commodity is going up or down in price, as long as it’s operating within a trending pattern. That’s where a lot of the risk is mitigated. The other thing is there has to be discipline in not trying to get every penny out of the trade. I always sold when the share price moved within the parameters I had put in place. Once it rose within those guidelines, I didn’t get cute, I immediately pulled the trigger and sold. Did I miss some upside? All the time. But I never regretted it. I made money on trade after trade as long as I stayed within my pre-set parameters. How was the trading performance during this time? At the best I had fourteen straight trades I made money on. Under normal conditions I would make five or six trades, and then lose on one. Keep in mind I was trading with a similar amount of money, so it was like taking 5 steps forward and one step back. It could have been even better, but within my parameters I had a holding restriction, meaning if the stock didn’t perform as expected within a specific time frame, I would sell it. That protected me from losing more than what I would make on one trade. What needs to be known In my silver trading I needed to identify the overall trend direction of silver and the daily share price movement of Silver Wheaton within that trend. Everything else I ignored. When I say everything else I ignored, I mean with the exception of something that would point to a reversal in overall trend. For example, when Silver Wheaton surpassed the $40 mark, I knew it was either going to explode in growth or move up a little more, and then start to pull back. That is how it did move, with it topping off between $46 and $47 a share. I don’t believe it ever closed at that level (during the time I was trading it), but it did reach that in intra-day trading. This isn’t rocket science. Volatile markets like silver, still have patterns within them that can be observably known, and it only takes a little research on the level of the price movements of a stock within that pattern. The only tricky part in my experience was when it not only dropped per its normal volatility, but then dropped a little more than usual for some temporary reason. If I hadn’t committed to a trading time frame, I I would have simply held a little longer and waited for it to rebound, which during the trend, it literally always did. That’s how I could hit it so many times in a row. Again, it’s understanding the flow of the pattern, which can be easily identified with any day-to-day chart. What about making money on the downside? After getting some confidence with Silver Wheaton because of my success, I started thinking about a way I could make money when the price dropped. Keeping within my preferred method of stocks or an instrument that would trade like a stock, I decided to go with ProShares UltraShort Silver (NYSEARCA: ZSL ). What ProShares UltraShort Silver does at its basic level is short silver via different financial instruments. My only problem there was I only allowed myself a certain amount of money to use with this type of trading, so I had to break up the amount I spent on Silver Wheaton if I wanted to take advantage of the downward price movement of silver. It wasn’t really a problem, but it limited my upside because of my refusal to break my discipline. That’s the key to success in this type of trading: you have to stay disciplined within your predetermined parameters. Stray outside of them and you’re likely to get hammered, even if you occasionally get lucky. What has to be watched if playing silver for upside and downside, is one of them aren’t on trend, and if it suddenly moves off trend, you could be hit hard. This is another reason I always sold when it reached the level I was looking for; whether the price of silver was going up or down. This protects you from starting to believe you know what you’re doing in regard to price movements. We can know the trends and daily movements, and within a tight trading discipline, do very well. I can’t emphasize that enough. Don’t start to think you have an inside handle on a volatile segment of the market. That’s why there has to be a system in place that is religiously followed, no matter much more that could have made on a trade. Take the gains and run. Then do it over and over again. To give an idea of how one could lose on a trade if you’re not careful and disciplined, check ZSL when it was trading at just under $5,600 a share. That happened because it was going against trend because the price of silver was moving up. On December 1, 2008, it closed at $5,598. On December 15, 2008, it closed at $3,928. You can trade against trend, but that is far riskier. I had no trouble with it, but I kept a constant eye on it throughout the day. Also understand, these were trades I would usually make within an hour or two. Rarely would I hold on longer than that. This isn’t investing, where I was analyzing the company, it’s trading, where I only analyzed price movements and the trend. I was doing this to play both volatile movements. If silver was going down in price, one could play only ZSL and drop Silver Wheaton. Conclusion Unless you have a nice chunk of extra money lying around for high-risk trading, I would stay with one trend direction and first get a grasp of its consistent daily price movements. I say that because you won’t make as much playing two different trends unless you have significant capital to put into play. You’ll have to wait for your trade to clear, which could take several business days before you have access to your capital again. And if you do that on both ends of the trade, the daily price movement could be up, which if that’s the way you’re playing it, you may have to wait a day or two before it rebounds. That means if you sell on a Thursday, you may have to wait until Tuesday before you have access to your money, and then maybe an extra day or two for the price to be positioned correctly for an entry point. If you haven’t done this type of trading before, that may seem like it’s not a big deal. But when you’re used to moving in and out of the market based upon price movements, it can seem like an eternity, and you may be tempted to get in just to be in the game. Once you decide on a commodity, or possibly a volatile stock, be sure you know the macro-economic situation, the general trend of the sector, and then the consistent price movement intervals of the commodity or company. After you have a handle on that, then develop a simple system to work within, with the most important being the price spread you will buy or sell within. You could make more money without the parameters, but you could lose more too. Under this type of discipline I’ve used it to generate significant earnings time and time again. Keep in mind I’m not suggesting to trade in Silver Wheaton here. It’s only a proxy I used because I made a lot of money using this technique with silver and Silver Wheaton in the past, and it represents the type of predictable volatility needed to make money. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Paying A Premium For Water

Summary Aqua America provides an essential business that churns out profits year after year. In 2005, investors were willing to pay an extraordinary premium for the company. This article details what occurred as a result of this valuation, along with some takeaways that can be gleaned. Roughly, 3 million people living in Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, Indiana and Virginia likely know Aqua America (NYSE: WTR ) as their water utility. Income investors probably recognize the company by its dividend program: having paid consecutive quarterly dividends for 70 years and increased this payout for 24 years. Of course, to generate these payments you need a solid underlying business to fuel the payout growth. To this point, the company has been quite consistent – increasing earnings per share in nine of the last 10 years – and earning reasonable returns on shareholder capital. Of course, this is more or less to be expected. When you sell a good everyone desires and deems essential, it follows that even with regulation, you stand to make a profit. Comparing the major components of Aqua America over the years can better illuminate this strong history along with how investors have valued the company. Business performance is one thing, but investment results can be altogether different. Revenue By the end of 2005, Aqua America was generating nearly $500 million in revenue. Nine years later, that amount had grown to $780 million, or a compound annual growth rate of about 5.1% per annum. This represents reasonable, albeit not astounding growth. Earnings Based on the $500 million in revenue during 2005, the company earned about $91 million for a net profit margin of roughly 18%. By 2014, this margin had climbed to over 27%, resulting in total earnings of nearly $214 million. On an average compound basis, this represents 9.9% yearly growth. This is a bit more impressive. Naturally, the repeatability might be a bit more difficult – you can’t grow margins forever – but it nonetheless provided a nice boost during this time frame. Earnings Per Share If the number of shares outstanding remains the same over the period, total company earnings growth will be equal to earnings per share growth. Yet this situation rarely holds. Many dividend growth companies routinely retire shares over the years. Utilities tend to issue shares due to the capital-intensive nature of the business. At the end of 2005, Aqua America had about 161 million shares outstanding. By the end of 2014, this number had climbed to 179 million, or an increase of 1.1% per year. As a result, earnings per share did not grow as fast as total earnings, coming in at 8.6% per annum. Share Price This is where things get interesting (or cautious depending on your viewpoint) in reviewing the company’s history. At the end of 2005, shares of Aqua America were trading hands around $22. This represents a trailing earnings multiple of about 38. Now surely, Aqua America is a solid company with a proven track record and the ability to meaningfully grow both its business and payouts over time. Yet paying nearly 40 times for a water utility doesn’t appear especially compelling. Indeed, by the end of 2014, the share price had only climbed to $26.70, representing an earnings multiple of about 22. This is the type of thing that you have to watch out for. First, you want to find a solid business, but the next step is to determine whether or not the price paid is roughly fair. In this instance, investors saw the share price greatly underperform the business due to the initial valuation paid. Earnings per share grew by 8.6% per year, yet the share price only grew by 2.3% annually. Total Return Note that while the P/E compression was quite imposing – going from 38 to 22 – it wasn’t the difference between positive and negative. Over longer time periods, investors still would have seen positive (albeit greatly trailing) returns. Over this period, an investor would have collected about $4.30 in dividends, or roughly 20% of your beginning investment. This is a bit more impressive than it seems, it’s just that the starting price paid distorts the benefit of a solid and increasing dividend. Overall, investors would have seen annual returns of about 4% per year. Here’s a summary of the above progression: WTR Revenue Growth 5.1% Start Profit Margin 18.4% End Profit Margin 27.4% Earnings Growth 9.9% Yearly Share Count 1.1% EPS Growth 8.6% Start P/E 38 End P/E 22 Share Price Growth 2.3% % Of Divs Collected 20% Start Payout % 56% End Payout % 53% Dividend Growth 7.8% Total Returns 4.0% As noted, revenue growth was reasonable, while earnings growth was quite solid. (Although these growth rates are partially attributable to a robust acquisition strategy.) The company routinely issued shares, resulting in EPS growth of about 8.6% per year. The first few parts appear relatively normal. In knowing that a company grew earnings per share by 8% to 9% annually, you might suspect that the investment performance was strong as well. Yet this wasn’t the case. Instead, due to a high relative starting multiple, P/E compression gobbled up a lot of the potential. Business performance and investment performance were two drastically different things due to the value others were willing to pay. It’s not that the business wasn’t solid or that you didn’t keep enjoying a higher and higher dividend payment – both situations held. The cause of the disconnection was the willingness and a lack thereof in others of paying a large premium for a water utility. From this history, we can learn two important lessons. First, the price you pay is naturally important – no different than in the grocery store or at the gas pump. If you’re looking for your investment to track business results, you need the beginning and end multiple to be about the same. It’s hard to make a prudent expectation that a company with single-digit growth ought to routinely trade at 30 or 40 times earnings. This focus on value is important. You don’t have to be perfect, but it helps to be aware. From 2002 to 2014, Aqua America grew earnings by about 8.9% per year – quite similar to the 2005 through 2014 period. The difference was the relative valuation at the time. At the end of 2002, shares were trading around 23 times earnings. As a result, investors saw the share price increase by about 8.6% annually during this period – far greater than the period covered above. The price you pay has a lasting impact on performance. Most of the time it more or less works out, but occasionally investment performance will greatly lead or trail business performance due to investor sentiment. The second thing to take away is that the above example wasn’t the difference between positive and negative results. If you pay 38 times earnings for a company today and next year it’s trading at 22 times earnings, it’d be a reasonable bet that you’re carrying a paper “loss.” Yet over the long term, this doesn’t have to hold. Eventually a strong, profitable business will make up for “overpaying.” Granted you’re still going to trail business results, but you would nonetheless end up with positive performance results; thus the focus on wonderful businesses. Ideally, you’re looking for reasonable valuations throughout, but you can take solace in the fact that owning a collection of strong businesses can help alleviate some of your missteps along the way. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The Importance Of Aqua America’s Q2 2015 Earnings

Diluted income from continuing operations per share increases to $0.32. Quarterly cash dividend increases 7.9 percent to $0.178. The ongoing trend of strategic acquisitions is gaining steam and alters the future prospects for Aqua America. Aqua America (NYSE: WTR ), the second-biggest publicly traded U.S. water utility, reported earnings that reinforced its position as an excellent defensive play, a stock that can consistently deliver price gains even during periods of market duress. Aqua reported income from continuing operations of $57.4 million, which represents a notable annual increase of 4.7 percent. Earnings per share rose to $0.32 for the quarter, compared to $0.31 for the same quarter in 2014. As a result of robust customer growth, revenues increased to $205.8 million, rising 5.4 percent compared to the second quarter of last year. On a year to date basis, Aqua America achieved a 9 percent increase in income. During the same period, Aqua completed eight acquisitions, expanding its customer base by almost 8,700 connections. It aims to close at least 15 acquisitions by the end of the year, which is expected to result in an annual customer growth of 1.5 to 2 percent. This is the reflection of its successful strategy to focus on building value by fully optimizing its rapidly increasing asset portfolio while boosting acquisitions and controlling expenses. (click to enlarge) The long standing tradition of substantial dividend increases was reaffirmed . In fact, Aqua has paid a consecutive quarterly dividend for 70 years and the latest quarterly cash dividend of $0.178 per share, 7.9 percent higher compared to the previous quarter, represented the company’s 25th dividend increase in 24 years. It’s clearly impressive that the dividend has been increasing at an annual growth rate of 7.6 percent, which speaks to the company’s financial strength and unfailing commitment to increase shareholder value. In the first half of 2015, Aqua invested $150.1 million in infrastructure enhancements. More importantly, the company’s capital investment plan includes the increase of such investments to $325 million by the end of the year and more than $1 billion over the next three years. This demonstrates the management’s ambition and resolve to move forward aggressively despite the overhanging market turbulence. (click to enlarge) The cornerstone of Aqua America’s success has been its sophisticated expansionary approach aimed at constantly seeking acquisition opportunities that strategically expand its network of municipal and privately owned systems. The success of this approach is highlighted by the resilience shown during the recent vertiginous market swings and the subsequent outperformance of most major indexes. Aqua America has consistently maintained an edge over its main competitors in most crucial areas, and this trend remains intact. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Share this article with a colleague