The Dow Jones Industrial Average (DJIA) has been considered one of the most important indicators of the overall condition of the stock market since it's creation in the late 19th century. The DJIA is a price-weighted average of 30 companies. These companies are perceived to be the largest and most influential companies (blue chip stocks and primarily industrial) on the US markets. The 30 companies are chosen by the editors of the Wall Street Journal (published by Dow Jones & Company), which has been publishing the Dow Jones Averages since October 7, 1896. The DJIA is calculated by adding the prices of the 30 stocks and dividing by an adjusted denominator.

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Part one: Importance of Exits

Chuck LeBeau
chuck@traderclub.com
http://www.traderclub.com

The outcome of every trade is dependent on the exit. If we enter in a timely fashion and then exit poorly, the trade is likely to be a loss. If our entry happens to be poor but our exit is good we might still salvage a profit. The exits, not the entries, determine the outcome of our trades. This lesson about exits is easily demonstrated. Take any entry strategy and begin combining it with different exit strategies. You will quickly see that we can change the results dramatically by making only minor adjustments to the exits. In fact it becomes nearly impossible to tell if an entry is any good because the results are so exit dependent. Bad exits can make a good entry look bad and good exits can make a bad entry look good.

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Hyperinflation

While there is no universally accepted list of conditions that define hyperinflation, it can be generally summarized as a period where inflation is out of control. This is when prices of goods and services increase quickly because the value of the currency is decreasing at a significant rate.

The simplest definition or condition that would define a period of hyperinflation is when there exists an inflation rate of over 50% per month. If you desire a more complicated definition than you can use the International Accounting Standard 29 which describes four conditions in an economy which must exist for hyperinflation. First, the general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power. Second, the general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that currency. Third, sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short and finally fourth where interest rates, wages and prices are linked to a price index; and the cumulative inflation rate over three years approaches, or exceeds, 100%.

Some (not all) examples of extreme hyperinflation:

• Germany 1920's Inflation was at 3.25 million percent per month (price doubles every 49 hours)
• Russia 1921-1924 Inflation was at 213 percent per month
• Austria 1921-1922 Inflation was at 134 percent per month
• Poland 1922-1924 Inflation was at 275 percent per month
• Occupied Greece 1941-1944 Inflation was at 8.55 billion percent per month (price doubles every 28 hours) 6. Hungary 1945 (at the end of world war II) Inflation was at 41.9 quadrillion percent per month (price doubles every 15 hours)
  

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An American investment banker was at the pier of a small coastal Greek village when a small boat with just one fisherman docked. Inside the small boat were several large yellow fin tuna. The American complimented the Greek on the quality of his fish and asked, "How long does it take to catch them?" The Greek replied: "Only a little while". The American then asked why didn't he stay out longer and catch more fish? The Greek said he had enough to support his family's immediate needs. The American then asked, "But what do you do with the rest of your time?" The Greek fisherman said, "I sleep late, fish a little, play with my children, take siesta with my wife, Maria, stroll into the village each evening where I sip wine and play cards with my friends, I have a full and busy life." The American scoffed, "I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds, buy a bigger boat with the proceeds from the bigger boat you could buy several boats, eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing and distribution. You would need to leave this small coastal fishing village and move to Athens, then London and eventually New York where you will run your expanding enterprise." The Greek fisherman asked, "But, how long will this all take?" To which the American replied, "15-25 years." "But what then?" The American laughed and said that's the best part. "When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions." "Millions ... Then what?" The American said, "Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip wine and play cards with your friends."