Category Archives: Stocks

When is it best for you to invest?

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One of the better on-line resources for investing in stocks is the Tycoon Report … I enjoy seeing it in my In-Box daily (BTW: also check out Tickerhound!).

I was interested to see an article that talked about the three best times to invest; here’s what they said:

To outperform the market, you have to master all the factors that determine when a company’s shares are most likely to rise, not just some of them. It is the combination of indicators, each reinforcing the other, that gives us the most accurate barometer of when and where to invest our money.

One of the topics I cover in detail in the CRISS course is timing or seasonality — the best months and years to make investments in specific markets. Many investors are unaware of facts like these:

  • In the 4-year presidential election cycle, market strength is greatest in the pre-election year: the NASDAQ has posted an average 32% gain since 1971 in pre-election years — and the Dow hasn’t had a losing pre-election year since 1939.
  • Since 1991, October has been the strongest month for the Dow and the S&P 500.
  • For the NASDAQ, the best months are October through January, during which the NASDAQ has averaged 12% four-month returns for over a decade.

 Now, I don’t usually try and time the market according to these (or any other) ‘best time to be in the market’ strategies, because the one time that I do will be THE TIME that the strategy doesn’t work 😉

You know, the papers will say “Market Shock – Dow Jones Plummets in Election Year … first time in over 100 Years … Investor Loses Shirt”.

But, if I am planning to invest AND I have found a stock at a great price in a company that I believe in …

… then it is sure nice to know that the stars are (supposedly) aligned in my favor; but, I’ll probably invest eben if they aren’t.

What are your favorite times to be in the market?

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Making Money 201 – Going for Broke!

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If Making Money 101 could be drastically over-simplified as ‘saving’; then Making Money 201 is equally over-simplified as being about building your income.

If you were serious about getting your financial house in order quickly, then you probably already did some income building to help you pay debt off quickly while you were working your way through Making Money 101.

Unless you’re a CEO of a Fortune 500 company, or a top professional doctor / dentist / attorney / accountant, then you will need to think about starting a business.

And, to accelerate your business or professional income you may also decide to get into the business of active investing (renovating/flipping real estate, trading stocks and options, etc.).

This is the stage that you get to take RISKS (that’s why you need a solid foundation and plenty of runway … you WILL fail at least once, twice, three times …) because that is the only way to get the big financial REWARDS.

This stage is hard work!

But, it is where you actually sow the seeds that will eventually make you rich …

There are plenty of books and a few blogs around, but most of them are specific to just ONE WAY of making money … the author’s way; some are good and some are lousy.

By the end of this stage you will be earning more than 90% of the US population and will be accelerating rapidly down the runway to financial health … but, spending will also increase dramatically and you will struggle to hang on UNLESS you ALWAYS remember your Making Money 101 lessons about saving!

Paradoxically, you will be the ‘richest’ that you will ever be in your life during this stage IF to you, being ‘rich’ means being able to spend lots of money …

… the problem is that your ‘wealth’ is only based upon your income, therefore only lasts as long as your business or job does.

Also, many of the Making Money 101 rules now need to change, as do almost all of the tools ….

For example, dollar cost averaging and index funds are replaced with sensible investment and savings rules and strategies.

You are still far from ‘rich’ …

In fact, you are still Just Over Broke … but, starting to break free!

Dumb Money!

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I take issue with the seemingly interchangeable use of the words ‘saving’ and ‘investing’ …

Let’s not confuse buying Index Funds or typical diversified ordinay stock Mutual Funds with INVESTING …

… when you buy a Fund you are SAVING – consider it a long-term savings vehicle, no different to ordinary bank savings accounts, CD’s, and Bonds.

The difference? Effort.

 Buying a packaged financial product is no different to buying any other product: you send away for some information; if you like what you see you fill in the appropriate sales form; you pay your money and receive your ‘product’.

 Hopefully, when it comes to Funds, you make some money when you eventually cash out.

Contrast that with INVESTING:

 You do your research; you look for an underpriced item (in this case, a stock); you purchase the item; you watch the market carefully … and, when the price goes back up … you sell (this could be sooner = trading; or later = long-term-buy-and-hold).

Of course, you could just keep holding for dividends. In either case, you are aiming to MANAGE your holding to MAXIMIZE your RETURN.

Some people call the former Passive Investing and the latter Active Investing … but, if it walks like a duck …

… it is a duck!

BTW: there’s nothing wrong with SAVING … go ahead and buy some Index Funds if you’re not up to the task of INVESTING, even Warren says it’s OK …

“Another situation requiring wide diversification occurs when an investor who does not understand the economics of specific businesses nevertheless believes it in his interest to be a long-term owner of American industry. That investor should both own a large number of equities and space out his purchases. By periodically investing in an index fund, for example, the know-nothing investor can actually out-perform most investment professionals. Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.”W. E. Buffett – 1993

The stock market pessimist

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I braved the market storm and bought some stocks on Friday (about $700k in Citibank, Coach, Blackberry); for some reason I got bounced out of  Blackberry (RIMM) this morning … I can’t tell, but maybe I accidentally set my trailing stop at 1% instead of 8%?

I must admit, I’m just playing at the moment (see my earlier post: http://7million7years.com/2008/01/27/when-to-bail-out-of-the-market/ ).

Generally, I admit that I am stock market pessimist … always have been … but not any more … maybe!

This is the point in the post where you say: “hang on … when the market was going UP you were a ‘stock market pessimist’ and now that it’s crashing DOWN you’re suddenly a ‘stock market optimist’? Whattup????!!!!”

Let me explain …

Everybody has ways of making (or losing) money that they are most comfortable with … mine happen to include: businesses, property (residential and commercial, buy and hold), and some other stuff that I will tell you about in upcoming posts.

Fortunately, these happen to be the preferred assets of the Very Rich … just dumb luck and good genes on my part … I suspected but didn’t know for certain that they were the preferred asset classes of the very rich (neither did anybody else) until the book that I told you about in a recent post came out (follow the link just under the chart  and read the book exerpt: http://7million7years.com/2008/01/25/how-much-does-it-take-to-be-rich/ ).

So, I was nervous about stocks in general,  until I came across Phil Town’s excellent book on stock market investing called Rule # 1 ( http://philtown.typepad.com/phil_towns_blog/aboutbook.html ). Get it and read it!

The book told me how guys like Warren Buffet find undervalued stocks … I just followed the methodology to find my own favorite stocks (I’ll write a post specifically on this) and played a bit in the market with them.

I only invested $1 mill into 4 or 5 stocks … promptly losing $100k … but, I had the opportunity to learn Phil’s process and put in my ‘tweaks’ (Note to self: delete ‘tweaks’ … sometimes it’s best to just follow the formula).

Some of this was learning, some of this was not following the system exactly, some of this (a lot) was bad timing … subprime just as I was fiddling.

This is not a post that says that you should be in the market now … but SOON (where ‘soon = 1 month => 1 year, see: http://7million7years.com/2008/01/27/when-to-bail-out-of-the-market/ ) … until YOU are sure, there’s nothing wrong with staying in cash (see Phil’s excellent post on this subject  http://www.philtown.com/phil_towns_blog/2008/01/cash-is-good-un.html ).

As Phil says: “Now, go play!” …

When to bail out of the market

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What to make of this?

The stock market went up and up – then CRASHED – then went up – then CRASHED … where to next?

Back up? Down more? Big Recession / Big Crash … hmmm, I don’t know … but, neither does anybody else.

Here’s what I do know:

Smart shoppers wait for the Thanksgiving Day sales to buy up the bargains … dumb shoppers buy with the crowds just before Christmas when the prices are marked up sky high.

Same with the stock market … we were leading up to a Stock Market Christmas and prices were sky high … they eventually had to drop, so I stayed in cash and waited …

 THAT was the time to bail out of the market … NOW, it’s Thanksgiving Day Sale time on the Stock Market ….  hurry, hurry, hurry … prices marked down 15% – 20% … even better bargains in finance stocks (remember the sub-prime write-offs?).

So, I am dipping my toes in again … maybe the market will go down again, maybe it will go up … I’m banking on it doing a bit of both with just a little of my money, to see what happens … when I am sure the recession is over (Hint: that will be BEFORE the newspapers publish the official reports, which can be months out of date!), I will be buying up those discounted, quality stocks like nobody’s business!

Want to know how to find ‘good quality’ stocks? Try this excellent book: http://philtown.typepad.com/phil_towns_blog/aboutbook.html )

Not convinced? Hear it from a professional at Friday’s post on the Wealth Tycoon Report blog (I don’t necessarily agree with everything these guys say, mainly because they are stock and trading experts, and I’m not, but this is a GREAT post): http://tycoonreport.tycoonresearch.com/articles/858884874/the-secret-to-investing-like-a-professional

 So, will I be dancing in the streets or crying? Well, I hate to cry, so I’ll only invest now what I can afford to lose (I’ll absolutely hate just dipping my toes in: if the market goes up, I’ll kick myself for investing so little … if it goes down, I’ll kick myself for investing anything at all … but, $$$-wise it won’t help or hurt greatly either way).

 Then, when I am SURE (maybe 1 month, maybe 6 months, maybe 2 years), I’ll grit my teeth and wheel in the big buckets of cash … by then, I’ll be educated, real-world tested (for better or worse!), and prepared!

 You should do the same …