Investing


Most adults know that they need to invest in order to meet their long time financial goals. Most people enter the investment world with little real live experience, even less investment-applicable education, and a myriad of unrealistic expectations.

Every investor is different, and each has their own set of criteria. Some may base their decisions purely on the facts; others might be more inclined to factor their feel for the people at the helm into the equation. Some may be in the right frame of mind for risk-taking; others might be playing it safe for a while, or waiting to see how out-standing investments play out.

Seven Realistic Expectations – This Is What You Want:

1. I want to lose less market value than my markets do, during cyclical corrections.

2. I want always to be prepared for corrections, and with enough cash to take advantage of lower prices.

3. I want my investment “base income” to be dependable and consistent — even in the midst of financial crises.

4. I want my investment portfolio to make faster moves to new All Time Market Value Highs.

5. I want the productive “Working Capital” in my portfolio to grow constantly and consistently throughout the market cycle.

6. I want my annual “base income” to grow every year, regardless of market conditions.

7. I want never again to experience disappearing profits in excess of a reasonable target %.

Six Steps To A Secure Investment Future – This Is How You Get It:

1. Learn how to use “cost based” asset allocation techniques.

2, Learn how to develop and apply fundamental risk minimization techniques.

3. Learn to understand the investment environment and to use it to your advantage.

4. Learn how to select income investments and how to guage their performance.

5. Learn how to select “safer” stocks, diversify properly, and to establish profit targets.

6. Learn how do protect yourself from the demons of Wall Street and their media cronies.

Author:- Steven Selengut

 “The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.”- Warren Buffet.

The right time to get back in the market may be just around the corner. With global economies sinking, sometimes dramatically, it can be a scary thought to put your hard-earned money on the line. However, a smart investor will realise that golden opportunities are appearing if proper research is done.

It has not dropped dramatically since the financial collapse of 2008-2009, but it is still in familiar territory. It may take another another year or more for a large upswing in the markets, but at least we hope that the Dow will not drop below previous lows. That may bring hope and some peace of mind about starting to invest again.

For investors, the operative question is simple, albeit very broad: In the midst of this crisis, what do we do?

A good rule of thumb: If a stock you are considering for investment depends upon a speedy return to normal, you should be looking elsewhere. Warren Buffett has often said that you should invest in businesses that you wouldn’t mind owning if the stock market were closed for an extended period.

Dollar Cost Averaging

The concept of Dollar Cost Averaging comes to mind in the current market situation. It is the process of buying stocks or similar investments on a regular basis, such as once a month, using a fixed amount of money. When prices are low, you are able to buy more shares. When prices are high, you buy fewer. In this way, you are able to take advantage of temporary low prices. This is especially helpful for long-term investments, such as retirement accounts. It may go against human nature to buy stocks when everything is falling and red but in fact it can lead to a bigger payoff if done correctly.
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Stock prices reflect the trading decisions of many individuals and I have been thinking of starting a stock market prediction business. Clearly, there is a huge market for timely information of this type, and just as clearly, predicting the future is much easier than dealing with the realities of what is actually happening at the moment.

If investors could know what’s going to happen next, they could develop a plan to deal with it NOW; maybe Wall Street will help me get this new business up and running.

What’s that? Wall Street institutions already spend billions predicting future price movements of the stock market, individual issues & indices, commodities, and hemlines. Really? Is that right also? Economists have been analyzing and charting world economies for decades, showing clearly the repetitive cyclical changes and their upward bias.

Funny, or strange would be more accurate, that the advice generated by the oracle of Wall Street always assumes that the current environment, good or bad, will be everlasting. Isn’t it this kind of thinking that prolongs the downturns and “bubbles” the advances– in all markets?

If it were true that our favorite pinstriped product pushers can actually predict the future, why would investors do what they do in response to the predictions? Why would financial professionals holler: “sell” at lower prices, and “buy at any price” when market valuations surge upward?

Here’s some experienced advice that you will not find on the “street of dreams”: Sell into rallies. Buy on bad news. Buy slowly; sell quickly. Always sell too soon. Always buy too soon. And by the way, who do you think is buying and selling the securities you have been told to dump or to hoard?

No self respecting guru would ever refute the basic truth that the market indices, individual issue prices, the economy, and interest rates will always move in both directions… unpredictably and forever.

This is where you need to focus your attention if you want to get through the investment process with your sanity. You must expect and plan for directional change and learn to use it to your advantage. Tranquilizers may be necessary to get you through the first few cycles, but if you have minimized your risk properly, you can thrive on the long-term, and very predictable, volatility of the markets.

The risk of loss cannot be eliminated. A simple change in a security’s market value is not a loss of principal just as certainly as a change in the market value of your home is not evidence of termite damage. Markets are complicated, and emotions about one’s assets are even more so.

Cyclical changes in all markets are predictable conceptually, just as knowing approximately where you are within a cycle is knowable actually. The key is to understand what your securities are expected to do within the cyclical framework.

Predicting individual stock prices is a totally different ball game that requires a more powerful crystal ball and an array of semi legal and illegal relationships that are unavailable to most investors. There are just too many variables.

Prediction is impossible, but probability assessment has enormous potential. Investing in individual issues has to be done differently, and with rules, guidelines, and judgment. It has to be done unemotionally and rationally, monitored regularly, and analyzed with performance evaluation tools that are portfolio specific.

This is not nearly as difficult as it sounds, and if you are a shopper who looks for bargains elsewhere in your life, you should have no trouble understanding the workings of the stock market. There are only three decision-making scenarios that investors need to master if they want to predict long-term success for their portfolios.

The “Buy” decision has two important steps: Step one allocates the available investment assets, by purpose, between equity and income securities, based on the goals of the investment program. It is done best using a “cost” based model. Step two establishes strict selection quality measures and diversifies properly within each security class.

The “Sell” decision involves setting reasonable profit taking targets for every security in the portfolio. Loss taking decisions must not be undertaken out of fear, and must be avoided during severe market downturns. Understanding the forces causing market value shrinkage is important and a highly disciplined hand at the emotion control button is essential.

Market Value is a decision making assistant… buy lower & sell higher than you buy.

The “Hold” decision is most common, and it regulates and moderates the process, keeping it less than frantic. Continue to hold on to fundamentally strong equities and income securities that are providing their normal cash flow. Hold weaker positions until the appropriate cycle (market, interest, economy) changes direction, and then consider whether to sell or to buy more.

Wall Street spins reality in whatever manner it can to make most investors unhappy, thus increasing new product sales. Your confusion, fear, greed, impatience, and need for a quick panacea fuels their profit engines, not yours.

Most people never forget their first love. I’ll never forget my first trading profit — but the 600 1970 dollars I pocketed on Royal Dutch Petroleum was not nearly as significant as the conceptual realization it signaled.

I was amazed that someone would pay me that much more for my stock than the newspaper said it was worth just weeks ago. What had changed? What had happened to make the stock go up, and why had it been down in the first place? Without ever needing to know the answers, I’ve been trading RDSA for over 40 years!

Looking at scores of similarly profitable, high quality companies in this manner, you would find that: 1) most move up and down regularly (if not predictably) with an upward long-term bias, and 2) that there is little if any similarity in the timing of the movements between the stocks themselves.

This is the “volatility” that most people fear and that Wall Street loves them to fear. It can be narrowly confined to certain sectors, or much broader, encompassing practically everything. The broader it becomes, the more likely it is to be categorized as either a rally or a correction.

Most years will feature one or two of each. This is the natural condition of things in the stock market, Mother Nature, Inc. if you will. Don’t take her for granted when she gets high, and never ignore her when she feels low. Embrace her volatile moods, work with them in whatever direction they travel, and she will become your love as well.

Ironically, it is this natural volatility (caused by hundreds of variables human, economic, political, natural, etc.) that is the only real “certainty” existent in the financial markets. And, as absurd as this may sound until you experience the reality of it all, it is this one and only certainty that makes Mutual Funds in general (and Index Funds in particular) totally unsuitable as investment vehicles for anyone within seven to ten years of retirement!

How many Mutual Fund investors have retired recently with more liquid financial assets than they had 12 years ago, way back in 1999? There will always be rallies and corrections. In fact, it is worthwhile to “go back to the future” to establish a realistic long term investment strategy.

In the last forty years, there have been no less than ten 20% or greater corrections followed by rallies that brought the market to significantly higher levels. The DJIA peaked at 2700 before its record 40% crash in 1987. But at 1700, it was still 70% above the 1000 barrier that it danced around with for decades before — always a higher high, rarely a lower low.

The ’87 debacle was followed by several slightly less exciting corrections, but the case was being made for the more flexible, and realistic, Market Cycle Investment Management Methodology. Modern Portfolio Theory was spawned by great minds selling future predicting snake oil; Mother Nature, Inc. is a much too complicated enterprise, even for them.

Call it foresight, or hindsight if you want to be argumentative, but a long-term view of the investment process eliminates the guesswork and points pretty clearly toward a trading mentality that keys on the natural volatility of hundreds of Investment Grade Value Stocks (Google IGVSI).

During corrections, consider these simple truths: 1) although there are more sellers than buyers, the buyers intend to make money on their purchases; 2) so long as everything is down, don’t worry so much about the price of individual holdings; 3) fast and steep corrections are better than the slow attrition variety; 4) always accept even half your normal profit target while buying opportunities are plentiful; 5) don’t be in a rush to fill your portfolio, and if cash dries up before it’s over, you are managing the process correctly.

Most of the problems with Mutual Funds and much of the increased opportunity in individual stock trading are functions of growing non-professional equity ownership. Everyone is in the stock market these days whether they like it or not, and when the media fans the emotions of the masses, the masses create volatility that rarely under-reacts to market conditions.

Rarely will unit owners take profits, particularly if they have to pay withdrawal penalties or taxes. Even more unusual are expert advisors who encourage investors to move into the markets when prices are falling. A volatile market creates opportunities with every gyration, but you have to be willing to transact to reap the benefits.

A necessary first step is to recognize that both “up” and “down” markets are forces of nature with abundant potential. The proper attitude toward the latter, will make you much more appreciative of the former.

Most investment strategies require answers to unanswerable questions, in an effort to be in the right place at the right time. Indecisiveness doesn’t cut it with Mamma — in or out too soon is not an issue with her. But wasting the opportunities she provides really ticks her off.

Successful investment strategies require an understanding of the forces of stock market nature, and disciplined rules of portfolio management. If you can transition back to individual securities, you will do better at moving toward your goals, most of the time, because the opportunities are out there — all of the time.

So let’s adopt some new rules for this investment game and learn to live with them for a few cycles: Let’s buy IGVSI stocks new and old at lower prices during corrections. Let’s take reasonable profits on those that go up in price, whenever they are kind enough to do so.

Let’s examine our performance based on the results of these trading transactions alone and at market cycle examination points for a smiley faced change of pace. And one other thing:

Let’s drink a toast to an uncertain and volatile Mother Nature, and, of course, to our first loves.
Author Steven Selengut

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There are a variety of reasons, both fundamental and technical, to believe that a market crash is almost upon us. This crash will affect virtually all world markets, including and especially the big Western Markets, which have thus far escaped the devastation already afflicting the developing markets.

The precipitation for the current fall in equity markets across the globe has been China’s devaluation of the Yuan which has made the market much more nervous about deflation and competitive devaluation of currencies by countries across the board.

Current market situation is a symptom of problems that have been building since January. Nothing really has changed structurally since the 2008 crisis.

The weeks ahead will give many opportunities, but right now to look for them and put money doesn’t make sense.

The slide in US stock markets is way away from temporary. As of Friday last week, S&P 500 was almost at the same level as was in 1999. This is by no means is a temporary correction for US markets.

I am not just focusing on the US markets, but they will all get taken down – European markets including the UK, and Far Eastern markets such as Hong Kong, Japan and India as well. The Sensex ended over 1,600 points down today, the biggest in over seven years.

The basic and fundamental reasons for a market crash now are big and obvious – the ravages of deflation and depression brought about by extremes of debt which must cut into corporate profits – in Japan the debt situation is now hopeless, the Sovereign debt crisis set to crush Europe and probably destroy the euro, the collapse and implosion of the monstrous debt fuelled bubble in China which is already underway, an accelerating currency crisis in the Far-East exacerbated by the recent Chinese devaluation of the Yuan, and the collapse also already underway in Emerging Markets.

Panic is stalking global markets today, fuelled by fears of a worse-than-expected slowdown in China, which is bound to have a ripple effect in an increasingly interconnected world economy.

Ace investor Warren Buffett once famously said: “Be fearful when others are greedy, and be greedy when others are fearful.” Any takers?

The Stock Markets are clearly gripped by fear, and it looks like it will grow in the days ahead.

So, should investors become greedy at this point in time and look at buying quality stocks now or on further declines? To be honest I personally believe we are entering a risk off period, it will be a good idea to wait for a risk on period.

Things have gone beyond being called a phase of correction. It is not a good situation for markets. There is reasonable pain ahead of us, it is clear that a crash of perhaps unprecedented proportions in on the cards.

The tone and tenor of the stock market changes from time to time – and now may be a good time to stay out until the current choppy climate changes.

therebalacingact-624.jpgIt’s a dangerous time for investors when any and every investment makes money. I do realize that I must be sounding like a lunatic when I say that. How can things be dangerous when money is flowing into investors’ account statements as if it grew on trees? And for mutual fund investors, it does appear to be growing on trees. Of course investors in the best funds made an absolutely humongous amount of money.

Something similar has been happening for stock investors as well. Even though there were some stocks that lost money, an overwhelming number of them went up by huge margins. There isn’t really any stock or mutual fund investor out there who didn’t make a great deal of money. Therefore, what we have here is like an examination which everyone clears because the passing marks have been reduced to zero.

These are abnormal times which are very dangerous precisely because it’s impossible to make mistakes. You can invest in bad companies and bad funds and still make money. And that means that when the going gets even slightly tougher, a lot of people will find that they actually did invest in bad companies and in bad funds.

It’s an old saying that more investment mistakes are made in good times than in bad times and since the times are so good right now, the potential for making mistakes is that much higher. Investment markets change direction very quickly. Nothing prevents what look like good investments today from turning out to be bad ones.

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Beginners who are not aware of current trade investments and who don’t have enough capital to invest may face a lot of setbacks. These factors, however, should not discourage an individual from investing. If you are too scared to take the risk, you lose a lot of opportunities.

Investing gives you the leeway to increase your income. If you just simply put your money in a savings account, a 2-5% interest will not do to secure your future. Since in this set-up you can easily pull out your savings account, it increases the likelihood of you spending the money in unnecessary expenditures. In a short span, your money is gone and that leaves you with nothing.

Lay down the cards. For beginners, the first thing to do when you plan to invest your money is to have a reality check. To start off, do you have a capital to invest on? It is not just capital but do you have a risk-capital?

Add up your assets and check which of these you are willing to bet and let go. This may be hard at first especially if all of which are valuable to you. But if you carefully choose which assets are of lesser value to you, this will make it easier for you to accept loss if your first investment fails. Since investing is also an expense, consider it a loss anyway but with a potential to grow.

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If you are a crook, unethical or a scam artist then there’s easy money to be made investing in the stock market.

When the stock market is strong, it invites the purveyors of schemes designed to make you poor and them rich to push their wares even harder.

People who know nothing of investing get tempted in a strong stock market, but want to get in on the action and there are always crooks willing to help them invest in the latest hot stock.

Unfortunately, the deals sound so great that many unsuspecting novices to investing in the stock market fall prey to the schemes.

Fear and greed are the two most powerful emotional motivators. Both drive investors to make decisions that are foolish.

When the market is in one of its down cycles, fear drives investors out of the market as prices are dropping. When the market rebounds they buy back in at prices often higher than what the got as they exited the market. Thus the famous sell low, buy high strategy – not a winner.

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Stocks rose on Tuesday, with the Dow and the S&P 500 closing at new all-time highs as Federal Reserve officials’ comments eased some concerns that the central bank could start reducing its stimulus program.

Dow component Home Depot gave the market a lift after the world’s largest home improvement chain raised its profit outlook, driving its stock to a record intraday high.

JPMorgan also bolstered the Dow, rising more than 1 percent to a 52-week high after the bank’s chief executive won a vote of confidence from shareholders.

Stocks extended gains in afternoon trade after New York Fed President William Dudley said he cannot be sure whether policymakers will next reduce or increase the amount of purchases, due to the “uncertain” economic outlook.

Earlier, James Bullard, president of the Federal Reserve Bank of St. Louis, had urged the European Central Bank to consider employing a U.S.-style quantitative easing program to counter slowing inflation and recession in the euro zone.

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A rally is a beautiful thing, particularly when the correction preceding it was embraced enthusiastically. This is the time to harvest your profits — pipe dreams of great wealth and inflated ego aside — jump on those profits before they erode before your disbelieving eyes. If you over think the environment or over cook the research, you’ll absolutely miss the party.

Unlike many things in life, stock market realities need to be dealt with quickly, decisively, and with zero hindsight — and this market reality? No rally in financial market history has ever escaped the ensuing correction. In the real world of investing, most unrealized profits eventually hit the tax return as realized losses

Here’s a list of ten things to do and to think about right now to protect yourself better than you did the last time a correction blindsided you:

1. Your present asset allocation should have been tuned in to your goals and objectives. Resist the urge to increase your equity allocation because you expect a further rise in stock prices. That would be an attempt to time the market, which is, rather obviously, impossible.

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