Since You Asked
Confused about some aspect of trading? Professional trader Don Bright of Bright Trading (www.stocktrading.com), an equity trading corporation, answers a few of your questions. To submit a question, post it on the Stocks & Commodities website Message-Boards. Answers will be posted there, and selected questions will appear in future issues of S&C.
Recently, I inherited some money and have been deluged with people offering me great advice on how to invest this money. I don’t really understand the markets very well, but I was given your name from a friend in hopes that I could learn more.
I have been reading that the stock market has been growing at rates from 5–12% or even more. Brokers tell me that long-term stocks are the best investments. I realize they make their money from investors who buy and sell stocks, so I have to question their motives.
I was chatting with a group of traders the other day while visiting friends in Chicago. We discussed all sorts of things, and after a couple of beers, the conversations focused on a couple of distinct topics. The first one was something I have not heard of before — seasonality. At first I assumed that they were perhaps referring to the Christmas season for retail stocks, or even the travel season for the leisure industries like hotels and airlines. After a few minutes I was told that seasonality occurs every month in the markets, and many times, twice a month. Can you help me understand what this phenomenon is? Anything you can share will be appreciated.—Jacko6719
I’m glad that you brought this up. There are several aspects to what we call seasonality. I think your buddies were speaking of monthly seasonality (sometimes called turn of the month).
I have followed your articles and posts all around the web, and I actually met you and your brother [Bob Bright] at a trading expo a few years back. I think you and your brother have set a great example for traders who trade with your firm.
I read something you wrote recently that seemed to imply that daytrading has lost its luster, and perhaps you guys are focusing on other methods of trading.
You have written previously about the idea of selling stocks short. I think I understand the concept of profiting when a stock’s price goes down, but I still am unclear on some things. Perhaps you can help me. I remember from years ago something about an uptick rule. A friend told me recently that we don’t need to worry about that rule any longer. To be honest, I’m not even sure what that term means; is it something I need not worry about these days?
Another question is about stocks that cannot be shorted because they are “hard to borrow.” What does this mean?
I have invested in a couple of REITs, primarily because of their dividend yields. My accountant has asked me if these dividends are qualified or nonqualified. I have no idea what that means. How can I find out about this?
Well, I have to admit that I had to do some checking myself in order to respond to your question, since in my firm, all the dividends are treated as ordinary income.