Riding The Bull
Thursday, January 29th, 2004
By Michael Lombardi, MBA for Profit Confidential
If bull riding were easy, we would all be rodeo stars and retired, pursuing safer endeavors with our prize money. No doubt bull riding is thrilling, but it is also fraught with ups and downs. One minute you’re up… the next you’re down, and so and so on until you’re too tired to go on. Or fall off. Not many riders make it to the bell!
To take the ups and downs without having a nervous breakdown, sleepless nights, or developing a sudden eye tic you have to obey one of the first rules of investing. Don’t (since I can’t seem to get around metaphors today) put all your eggs in one basket.
Sensibly diversifying your portfolio or your investments is the only way to go. Banks and other institutions that manage investments often publish the percentage of each asset class they hold in their funds and products (i.e. 33% bonds, 33% equities and 33% cash).
This asset mixture changes with the amount of risk you’re willing to assume and some so-called experts’ opinion on where the money is going to be made. But it is also important to examine your diversity within one asset class.
Active investors tend to load up on equities. With the recent surge in the NASDAQ and the Dow, driven generally by a recovering Tech market, once again, people are putting a lot of eggs in one basket. It can be very profitable, but equally risky.
Most of us have seen the damage done by investing in one sector of the stock market. Don’t do it! The rule is particularly valid when it comes to bull markets. The nature of any bull market, be it in resource stocks, tech stocks or retail stocks is that it is accompanied by a corresponding level of volatility. For every two steps forwards there is one back, and those pullbacks can scare the daylights out of the most seasoned investors.
The impact of those pullbacks can be mitigated by diversity. Instead of all your equity holdings pulling back only a percentage do and the others remain the same or move forward in response to the pullback.
It has come to our attention at PROFIT CONFIDENTIAL via some reader feed back that some of you are getting a little antsy about the recent pullback in gold stocks. The bull is trying to shake you off. Often the shake off occurs just before a solid rise. In the a.m. of January 27, 2004 gold was down hard in London… down to the lowest price we’ve seen this year. But by noon it had rallied almost $5.00. With conviction.
Someone was selling at $405 in the morning because he/she couldn’t handle the ride. Others saw it as an opportunity to get in. Sellers were crying in their cups that night.
Gold stocks have had a good run. Pullbacks are an inevitable part of the game. If you are well diversified a pullback is no big deal. Don’t forget how far the yellow metal has come.
In January 2002, gold was valued at $279 an ounce. January 2003 saw gold trading at $370 an ounce, and this January, gold is trading $410 an ounce after flirting with a decade long high of $430 an ounce. The economic and geopolitical environment that drove this 24-month surge has not changed. In fact, according to many, it has grown worse.
Central banks, bankers, the Fed and politicians in general do not want to see a golden rodeo. A golden bull is not in their paddock and can’t be controlled. By manipulating interest rates and money supply, markets within their control (read NASDAQ and Dow) can be “coerced” in their favor.
They will do whatever it takes to fight the golden trend, but they cannot fight forever. Most of us know the trend is our friend.
Next Post: Fed Up With GreenspanPrevious Post: No End in Sight
Tags: gold stocks, interest rates, retail stocks, stock market
Sign Up for PROFIT CONFIDENTIAL and
receive a FREE copy of our exclusive report:
"A GOLDEN OPPORTUNITY FOR STOCK MARKET INVESTORS"
We respect your privacy and
will never share your e-mail address.
Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on TwitterTweet
No Comments »
No comments yet.
RSS feed for comments on this post.
