An investment strategy is a protocol and methodology for allocating funds of a portfolio. This strategy is based on an investor’s risk profile. The more risk the investor is willing to take, the greater the potential returns, but also the higher risk of a loss in capital. There is a whole universe of investment strategies, from the least risky of buying treasury bills and government bonds with high credit ratings, to the more risky of buying stocks based on fundamental analysis, technical analysis or simply buying and holding for the long term. Some investors also look to stocks with dividends that return a yield over time, to mitigate some of the risks of the stock market.
Imagine letting a losing trade run, and before you even realize it, the position is down 20%, 30%, or more. Your $10.00 stock declined 30% to $7.00; you decide to hold the position, hoping for a rebound, but deep down you know the stock would need to rally more than 40% just for you to break even. Clearly, it’s not easy when a stock falls to greater depths.
But that’s why you should take the opportunity to dump losers when the stock market rallies, as is the case at this time. Avoiding a loss is just as good as making profits.
As many of you know, I believe the stock market is vulnerable to some selling and a stock market correction, based on my technical analysis of the charts. The S&P 500 is fighting resistance to advance higher, and the Dow Jones Industrial Average, while setting anther record-high on Monday, continues to show the potential of a stock market correction of at least six percent.
Think about how the stock market has moved to these levels. The easy money policy pushed by the Federal Reserve has been a key driving force behind this four-year run-up. But now, with the Fed expected to begin tapering in December or early 2014, the focus will shift to the economy and corporate revenue growth—which aren’t so stellar. In fact, in both cases, they’re flat.
Even the surge in the initial public offering (IPO) market is a red flag in my view. When I see an IPO double on its first day, it reminds me of the euphoria that I witnessed in late 1999, … Read More
If you are a stock market investor, you’ve probably come to the same realization I have: the stock market is behaving irrationally. These days, the fundamentals don’t really matter. What’s even more frustrating is that when you do talk about the fundamentals behind the market’s continued advance missing, you are ridiculed.
Soft revenues at public companies are just one area of concern. As of October 25, 244 companies on the S&P 500 have reported their third-quarter corporate earnings; only 52% of them registered revenues above the expectation, which means companies are selling less than they expected—not a good sign. Third-quarter corporate earnings growth is now expected to be just 2.3%. A month ago, the same number stood at an even three percent. (Source: FactSet, October 25, 2013.)
We are seeing some of the well-known bears of the stock market turning bullish. “Dr. Doom” is suggesting investing in stocks, and others like David Rosenberg, who has been bearish for years, are turning bullish.
Is this the peak optimism?
As it stands, investors believe the stock market is a safe place to be again. The charts of key stock indices only show an upward trajectory.
Chart courtesy of www.StockCharts.com
What will happen once the euphoria comes crashing down again? After all, irrationality cannot go on forever.
The most recent and best example of a stock market crash we have is from the financial crisis of 2008. We saw key stock indices come down like a rock. That stock market crash wiped out consumer confidence. Those who were retiring and saving each dollar for their golden days (by investing in stocks) saw … Read More
I harp on about this over and over again: economic growth is when the average consumer is optimistic about their future; they are spending money, they know they will have a job tomorrow, and they are saving. In the U.S., we are seeing the opposite of all this.
In fact, consumer confidence in the U.S. continues to plummet; the Conference Board Consumer Confidence Index, an indicator of consumer spending, plunged more than 11% in October from September. (Source: Conference Board, October 29, 2013.)
But the misery doesn’t just end there for consumers in the U.S. economy. They are struggling to even buy the most basic of needs—food.
According to a recent study by the United States Department of Agriculture (USDA), in 2012, 17.6 million households in the U.S. economy were “food insecure”—they had difficulty bringing food to the table due to a shortage of resources. (Source: United States Department of Agriculture, September 2013.)
And as a result of so many Americans having trouble putting food on the table, it is costing taxpayers significantly. According to the U.S. Senate Budget Committee, over the last five years, the U.S. government has spent $3.7 trillion on 80 different poverty and welfare programs. The amount of money spent on these programs was five-times greater than combined spending on NASA, education, and all federal transportation projects over the time period. (Source: U.S. Senate Budget Committee, October 23, 2013.)
When I look at all these statistics showing how Americans are suffering, talk of economic growth or economic recovery just doesn’t sit well with me. I tend to focus on facts, rather than the noise. The noise … Read More
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