The big news this morning is the conviction of Mr. Rajaratnam on insider trading charges.  As the news reports, the conviction ends one of the largest and widest investigations into the shady side of the market. Good for the SEC and the Justice Department.  Keep up the good work, I say.

Listening to all of this about him and his dealings, one has to ask, how much is enough?  In this question is an important lesson for each of us as traders.  The question should frame every trade we make, as asking it does two important things.  First, it keeps greed in check.  Humbly, I say this is one of the most important lessons any trader or investor can learn – keep greed in check. 

Second, when one asks this question, it provides a frame for one of the most important aspects of trading – setting profit and loss targets.  Before pulling the trigger on a trade, one should know where they intend to get out either with a profit or with a loss.  Thanks Mr. Rajaratnam for reminding all of us we should know how much is enough.

Recently, I suggested that the financial sector deserved a look as a trading or investment opportunity.  The excerpt below suggests one reason why the positive move hasn’t happened yet.

Last month, Bank of America posted an unexpectedly sharp drop in first-quarter profit as higher expenses from delayed home foreclosures weighed on its mortgage business.

Bank of America’s problems in this regard represent the problems of other banking concerns, and as I pointed out last week, this issue (and others) demonstrates the financial sector has not completely healed from the 2008 debacle.  These problems do pose a danger to the U.S economy, but I believe with the breathing space of huge liquidity and a concerted effort to resolve their issues, the banks will get through this and become a contributor to the economic recovery by increasing loans to business and consumers.  It appears the effort is happening …

Bank of America Corp (BAC.N) plans to reduce its $850 billion portfolio of troubled home loans by about half over the next three years, the bank’s new mortgage unit head told the Financial Times.  The bank looks to do this as it seeks to quickly resolve problems related to the housing crisis and the purchase of Countrywide Financial.

On another front, I also suggested recently that the big banks would use some of the huge liquidity they have to “settle” their way out of some of the legal issues they face.  It appears this is happening, as well as the concerted effort to get the bad loans off the books.

Major banks are willing to pay as much as $5 billion to settle claims by federal and state officials of improper mortgage foreclosure practices, the Wall Street Journal reported.

So, again I say, keep your eye on this sector as opportunity is at hand, even if it just out of reach, at the moment.

Trade in the day – Invest in your life …

Trader Ed