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.
The buy low/sell high investment strategy requires a ton of resolve.
Going against the stock market that just proved an asset is not attractive is not only risky, but it is counterintuitive to the emotional decision-making that takes place in financial markets.
I always scan the stock market for positions at their 52-week lows.
The reason for doing this is twofold: 1) to identify potentially attractive buy low/sell high assets; and 2) to assess what Wall Street dislikes for the purpose of honing my market view.
What you want to look for isn’t a company that is going broke or whose business plans have failed, but a large-cap, brand-name company—a leader within its industry that is down on the stock market for its own specific set of reasons.
One company that exemplifies the scenario I’m describing is Barrick Gold Corporation (NYSE/ABX).
This blue-chip gold producer has been having a very tough time on the stock market. The position is down another 10 points since April and has been cut in half since last November.
Barrick Gold’s stock chart is below:
Chart courtesy of www.StockCharts.com
Barrick Gold looks like a good buy low/sell high trade candidate. But obviously, there are two immediate explanations as to why the position just bounced off a major low: weaker gold prices and rising production costs.
The company did particularly well on the stock market between the mid-1980s and mid-1990s. Then it took a break for a good 10 years, doing nothing except paying its dividends.
I would now keep a sharp eye on Barrick Gold for a buy low/sell high trade. But here’s the thing: … Read More
If you’ve ever been into horses, you know that you can spend as much money as you’ve got—and plenty more—on their care. Personally, I like draft horses; Clydesdales, in particular. But the thing about a draft horse is that it can eat a lot of food. And during the drought last year, hay costs soared.
Agriculture, as an investment theme, is consistently on my mind, but it is a stock market sector that is limited. The marketplace is dominated by only a handful of companies. There aren’t a lot of publicly traded agriculture stocks that would be considered mid-cap; the same goes for small-cap companies.
On the stock market, E.I. du Pont de Nemours and Company (NYSE/DD), or DuPont, hasn’t been great, though its dividends have. Looking at the company’s agriculture-specific business, which represents approximately one-fifth of total revenues, business conditions are the strongest of all divisions. (See “Why Dividend Increases and Stock Buybacks Will Continue.”)
According to the company, 2012 fourth-quarter agriculture revenues grew to $1.5 billion, for a solid gain of 18%, of which, 11% was due to volume and seven percent was due to higher prices.
For the year, total agriculture revenues were $10.4 billion, representing growth of 14% on an eight-percent gain in volume and a six-percent gain in prices. (Who says there’s no inflation?) The company reported that its “Pioneer” seeds are benefiting strongly from pricing gains in corn and soybeans. Crop protection sales are also growing on “strong demand” for insecticides and herbicides in all regions. (Source: “DuPont & Co. 4Q and 2012 Earnings,” E.I. du Pont de Nemours and Company … Read More
The current market action continues to be headline-driven, according to my stock analysis. Stocks moved lower on the initial banking concerns in Cyprus, but rallied after the Federal Reserve reaffirmed its program of low interest rates and monthly bond buying. Stocks then bounced on the Cyprus resolution.
This headline-driven market makes it difficult, based on my stock analysis. The fear is that the surfacing of major bad news could rock the stock market rally. The situation in Cyprus was relatively insignificant on its own, as the country’s gross domestic product (GDP) was a mere $25.0 billion in 2011, below that of Wyoming. However, the fear was that a banking failure in Cyprus would have created a confidence issue in the eurozone, based on my stock analysis. (Read “Markets Looking Higher, but Eurozone’s Looking More Dangerous: Which Will Win Out.”) My stock analysis suggests the eurozone continues to be in a financial crisis that could take years to resolve.
Over the next month, traders will turn their focus to the upcoming first-quarter earnings season. The weak results from bellwether shipping companyFedEx Corporation (NYSE/FDX) and farm equipment–seller Caterpillar Inc. (NYSE/CAT) will not help,as my stock analysis indicates. Both companies are viewed as barometers for the global economy, so their weakness flashed a red flag. We will see if there was any impact from the sequestration and fiscal cliff concerns in the first quarter, according to my stock analysis.
According to FactSet, first-quarter earnings are expected to contract by 0.7%, but growth is estimated to return to 10.3% in the third quarter and 15.6% for the fourth quarter; … Read More
The market appears to have another bull leg with the DOW and S&P 500 closing higher in seven of the last nine sessions to March 6. The blue chip stocks have been especially strong, with the DOW hitting a record close of 14,296.24 and intraday at 14,320 last Wednesday. The S&P 500 is also approaching its historical high.
With the advance, there are now questions regarding the sustainability, which you can read about in “Why Near-Term Prospects in the Stock Market May Be Limited.”
While the global economy is improving, the catalyst for the upward move in stocks has largely been the easy monetary policy worldwide that has resulted in a low-interest-rate environment and the search for alternative investments other than low-yield bonds.
So while all is fine now, I still sense a correction could be in the works, especially if the S&P 500 stalls.
You need to think about a viable investment strategy as a defensive posture. I firmly believe in having an investment strategy in place and adopting strong risk management to protect your investments.
One investment strategy would be to take some profits off the table, but then you may miss out on a potential stock rally.
A popular investment strategy to protect gains is the use of put options as a defensive hedge against market weakness. This strategy is called a protective hedge.
Under this investment strategy, investors may be somewhat bearish or uncertain and want to protect the current gains against additional downside moves in the stock or the market with the use of index put options.
For those of you not familiar … Read More
In technical analysis, the chart tells a story. On Monday, the S&P 500 closed below 1,500 for the first time since February 4, driving fears of a multi-year topping, which I have discussed in the past. (Read “Alert: Bulls Should Be Careful Despite an Impressive January.”) The Dow Jones failed to hold above 14,000 for the third time over the past several weeks. With the decline, the NASDAQ, Dow Jones, S&P 500, and Russell 2000 are back in negative territory for February, with the final trading session taking place today. The trading is similar to what we saw in 2012 following a positive start, and 2012 turned out to be a year of caution, so you need a prudent investment strategy.
Currently, we have the sequestration budgetary cuts set to take effect tomorrow. The automatic $85.0 billion in annual budget cuts (the planned sequester will total $1.2 trillion over the next decade), could have a widespread impact on the country and the economy, including program cuts, job losses, and chaos. (Source: Cowan, R. and Lawder, D., “U.S. government won’t fall apart on “sequester” day of reckoning,” Reuters, February 20, 2013.)
Face it; the country’s money printing presses are stopping. The Federal Reserve suggested the possibility of needing to reduce or stop its $85.0 billion in monthly bond purchases. The Fed’s bond buying has added further liquidity into the economy to keep it going. This has also been the case with numerous central banks around the world. The problem is that the monetary easing has created an artificial economy that’s supported by the printing of money.
Then there’s the … Read More
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