Interview with Joshua Hayes

General Questions

How long have you been blogging?

I have been blogging since early 2005 when I started a website for friends to read my stock opinions. They wanted to do this because they saw my track record and wanted a place to follow me. Since I did not have any real close friends on Maui with this interest, this seemed like a great idea from my mainland friends.

What got your started blogging?

The request from my old trading/investing friends from NYC and other places throughout the mainland that I met during my early investing days prodded me to start. They missed my stock picks and wanted some help so I decided to help them.

What is the focus of your blog, i.e. how does it set you apart from the other bloggers out there?

The focus of my site is to have YOU in control of YOUR money getting the highest possible returns you can out of stocks. What sets me apart from most of my colleagues is the fact that I mix fundamental analysis, technical analysis, and psychological analysis to come up with my positions. Instead of saying that one way or the other is more important, I use them all to come to the smartest conclusion possible about going long or short a security.

What is it you hope a reader will come away with when they visit your blog?

The most important thing I would like them to come away with is the confidence that they can do this on your own and that you do NOT need wall street. I firmly believe wall street is not out to help the majority of the people with their research anymore and instead use it to benefit their top clients. So I hope people can realize they can do this on their own. If you have 30 minutes a day and give yourself at least one year of pure learning before you start investing, I KNOW you can come out of this site a confident, happy, and fulfilled investor knowing that you do NOT need anyone to tell you what to buy or sell.

Do you like to be edgy in your posts and try and stir up some controversy? If yes…Do you think it being edgy gives you a boost in subscribers?

If by edgy you mean honest, yes! If by edgy you mean that I like to start trouble just to bring readers to my site for shock value, absolutely not. The only time I seem to be edgy is when I tell the truth about some wall street pundits that go out and tell you what to do with your money when they are carrying huge losses on the books. For instance, the past year, one certain guy that has a television show has been telling people to do this-and-that-and-this-and-that without rhyme or a real good reason. Then he says how well you would have been doing investing with him. When I go check out his portfolio that he is running for the “long-term” I see that he is down 38% for the year. Obviously, I am going to call that hypocrisy for what it is. Another topic that gets me “edgy” includes so-called technicians and others that misinterpret chart patterns and call them and review them like they know what they are doing. It is obvious to people like me they are fools and they should be ashamed of pretending to be a so-called chartist.

About Joshua

What would you like our readers to know about you?

I would like your readers to know I am someone that tells it like it is. I give all my buy and sell recommendations to my subscribers BEFORE I enter the orders for my trades/investments. Honesty is the most important thing with me in the stock market. I can’t stand having opinions about the market. I may have “outlooks” on what I think the market will do. But that NEVER enters into my mind when I make a trading/investing decision. So your readers can take calm in knowing that I go long or short a stock for the reason that it is going up or going down. When a stock goes from 50-to-1, like Enron or Fannie Mae, I will not be sitting there telling you to buy it all the way down “because the fundamentals will be turning around.” I will be the one telling you “the trend is your friend and the trend is down so either stay out or go short a bounce to a key moving average.” The bottom line is when it is a bull market I am bullish, when it is a bear market I am bearish, and when the market is flat I am neutral. I take my orders from the market. I do not give orders to the market and tell it “you should do what I tell you to do.”

It’s your blog and you’ve invested so much time into it. Is there a personal connection in your writing to your end users, or do you strictly write what interests you?

Everything I write that day is important NOW to my readers. Every time I write I have them in mind, not me. I have found out in my life that things that interest me don’t interest everyone. So since I have a website about stocks I like to keep it about stocks. I have deep interest in other subjects like politics, sports, religion, television, or engineering, but when it comes to my daily stock market analysis that is exactly what you get—a daily stock market analysis. Now in my chat room and the forums which are on my .com site (.net is the blog on the daily market analysis) we definitely get into passionate conversations that interest me. But normally they interest everyone else too and it definitely can get heated. But we all love each other and see each other as o’hana (family) in the rooms. That is why fighting never last beyond a day when there are arguments.

In other words, if you find that your readers enjoy specific topics, does that influence what you write about?

When it comes to my .net site and my free youtube videos that I place on the blog, I keep it to stocks only. Nobody is visiting that site that wants to hear anything else from me but stocks. If they wanted my opinion on religion and politics, they would have asked me to open a page up for that by now. Obviously, and I don’t blame them, lol, they are not interested in that. They prefer me to stay with the stock market. That seems to be my “forte.”

Trading

Do you trade the markets? If so, when did you start to trade?

I definitely invest/trade in the stock market. My first trade/investment was made in 1996. The move of Iomega (IOM) in 1995 and a few other semiconductor stocks that no longer exist fascinated me and there was no looking back.

What is your favorite instrument to trade (stocks, options, forex, futures, bonds, etc.)

While I have had experience in stocks, options, and futures, I now solely invest in stocks. This has proven to be wise and bad as my stock trading did wonderful from 1999-2007 (2008 was OK). However I made some calls in 2001 regarding long Gold and short the US Dollar that could have made me a LOT of extra income. Next time I “feel and see” another major shift I think I will listen to it.

What is your favorite strategy to trade?

My preferred way of trading is to buy breakouts of leading stocks in leading sectors in bullish markets. Even going long the leading stocks in leadings sectors in a bear market (ie…education, gold) is my methodology. However, going short previous leaders of the most recent bull market (ie…AAPL and RIMM) and going short fundamentally horrible stocks (ie…FNM, BAC, BSC, FRE, CFC) in vicious bear markets like this one is the preferred way to invest in bear markets. If the market is going up I am buying breakouts. When the market is going down, I am going short breakdowns.

What time frame do you like to trade?

This is a complicated answer because it is up to the stock. When I go long a stock it is usually already above the 50/200 day moving average. So for however long this stocks stays in an uptrend above these two averages is how long I stay long. That could be two weeks or two years. So it is completely up to the stock. If I go short a stock, it is reversed. I stay short for however long the stock falls and stays below the 50/200 day moving average. If after a long uptrend or downtrend the stock either breaks down or up through the 50 DMA on HUGE volume I will fully sell/cover my position. The final cut loss, after a long gain without any HUGE volume, is a close above or below the 200 DMA. I NEVER add to a losing position! I am either right right-away or I cut my loss.

For someone new coming into the markets, what steps would you recommend they use to get started?

I have a list of books on my .net site that I recommend EVERYONE that wants to start investing in the market read. If newbies would read those books on my list BEFORE they make their first investment I guarantee a MUCH HIGHER success rate would occur amongst new traders. Instead most fail because they fail to do the proper DD BEFORE they make their first trade. Most traders start off on the wrong foot because they fail to learn anything before they start. I personally think EVERYONE should read “How to Make Money in Stocks” by William J. O’Neil 10x before you make your first trade. Would you let a Doctor with one year of schooling operate on you? How about a lawyer with a D- average throughout college? Learn what you are about to do before you do it.

What is the biggest stumbling block you see for most beginner traders, i.e. where do you see them making the biggest mistakes?

They don’t read books or even have a time-tested strategy that works in all markets ready to use when they start. I know some people that show up just ready to make “big money.” This isn’t 1998-2000 anymore and easy money is NEVER going to be made again. So you have to read books and learn the strategy you are going to use inside-and-out before you start investing. In today’s tough markets you can’t be uneducated and expect to succeed. Yet I STILL see it all the time. Another HUGE mistake I continue to see is people being bearish when the market is going up (trying to be smarter than the market) and bullish when the market is dropping. If you are going to be one of those guys, you need to really know what you are doing. You can’t come in trying to make money with that losing strategy when you start. Yet I guess the “Cramer-effect” still hits people. NEVER AVERAGE DOWN ON A STOCK. How do all the Enron, Worldcom, Adelphia, Bear Sterns, Citigroup, AIG, and Lehman Brothers investors feel now? Don’t try to be a hero and catch falling knifes. Instead learn that the trend is your friend. I also see new investors play penny stocks. This makes as much sense as having that one-year experienced Doctor operate on you.

In today’s trading environment, where do you see the biggest opportunities for traders?

I don’t think there is any doubt about this one. For now, it is clearly the short side. As long as the big trend is down and all moving averages are pointing down, every rally on low volume is a short at resistance. When will it not be time to short? When the market starts rallying ON STRONG VOLUME off the lows set from a LOW VOLUME DOWNTREND. I suggest EVERYONE study the 2002 downtrend that led to the bottom in 2002. You will see the low volume followed by the heavy volume at the lows. Then you will see after the initial uptrend a low volume pullback to the March 2003 lows that then launched a powerful rally on very strong volume. When that happens, there will be BIG MONEY to be made. But when and if that happens…no one knows as NO ONE can predict the future.

What do you see in store for the markets in 09? If a turnaround, when do you see that happening?

I do not predict the future because anyone that does is just basically showcasing their ego of what THEY WANT to happen. I will tell you what I think will happen. It appears from the start of the year that this year is going to be another bearish year. However, some people are so bearish, I would not doubt a nice bear-market rally some time this year that just leads to more selling. If my charts looked better and I had banks and internet stocks leading I might be bullish on a turnaround. But when I see Gold stocks setting up like they are about to make a major run and see education stocks become the leading sector in this overall bearish market since the top in October 2007 I can’t see how we are going to turn back higher any time soon. I think around 2010 we might be able to see a turn in the trend of the economy only because we will be coming off some poor earnings numbers. However, it ultimately will be up to the charts. If we break down on heavy volume and earnings get worse then shorting the low volume rallies will be the play. If we instead get more and more top quality sound-fundamental companies setting up in proper bases with low volume that then breakout on strong volume, I will definitely be more than happy to turn bullish. However, sadly, I must say it is still ugly right now. In six-months it could be different. But until I get leading stocks in leading sectors setup in beautiful bases while at the same time see the fundamental quality of the market improve with earnings estimates being raised and EPS numbers beating those estimates, I will have to remain a cautious bear with a bullish heart. Whichever way the market goes, I go. I don’t fight the forces of the market. I go with them.

I use technical analysis for every buy and sell decision. Every sell decision is based on technical analysis as it has been proven OVER-AND-OVER that fundamentals LOOK the best at the top. MSFT, CSCO, DELL, YHOO, QCOM, and JDSU had their BEST numbers in 2000. However, they topped that year. RIMM, AAPL, GOOG, BIDU, and FSLR had their best numbers the past year. Sadly for the late-to-the-party bulls, all are down 50% or more since their tops. This is history repeating itself OVER-AND-OVER-AND-OVER. Since fundamentals look the best at the top, I look for climax runs, huge churning or distribution, multiple topping at the same level, head & shoulder formations, and other clear topping signals.

When it comes to going long a stock the stock must be setup above the 50/200 day moving average, in a nice tight sound price pattern base, in the base volume needs to be low, and on the breakout the volume must be huge, have a lot of green BOP or max green BOP, and close near or at the HOD.

Without a great chart setup for a long position or a short position, I will simply skip on “any old” stock trade. I will not trade GE or GS because I know the company real well and “feel” like it should go up. There must always be a technical reason for a long or short. Everything is done very methodically.

My favorite technical indicators are candlestick price bars, the simple 50 and 200 day moving average, volume, the 50 day volume average, the Relative Strength line, and some proprietary indicators made from Worden’s Telechart. This includes TSV (time segment volume), BOP (balance of power), and the MoneyStream line. It makes for a very simple chart. However, all I would need If I could no longer use Telechart would be the previously mentioned normal TA indicators.