Investment Strategies 02 (Jun 10 - Jun 13)

[winston]

Do NOT Do This with Your Investments By Dr. Steve Sjuggerud

"Steve, since the market is up so much lately, I'm looking for stocks and sectors that have been left behind," a smart friend of mine said last week.

"Oh no," I thought. "That is exactly the wrong thing to do."

I understand what he's hoping to do… I understand that rationally it makes sense.

But investing doesn't work that way.

Think about Apple (AAPL) versus Research in Motion (RIMM) as an example. Since the summer of 2009, shares of Apple, which makes the iPhone, are up 400% and shares of Research in Motion, which makes the BlackBerry, are down 80%.

Any time along the way, you could have said, "Well, Apple is up, and RIMM is down, so I'll buy RIMM." And any time along the way, you would have been wrong.

In my True Wealth newsletter, we're up 42.8% in ROM, a tech stock fund we bought last March. (Apple actually makes up 22% of ROM.)

We rode Apple and the other major tech stocks all the way up. And we're still holding them.

We have not bought RIMM… even though I'm sure there's an argument that it's cheap. So why not sell Apple and buy RIMM?

Legendary investor Warren Buffett has explained it best in the past: "I would prefer to buy an outstanding company at a fair price rather than an ordinary company at a cheap price."

He wasn't saying this about Apple and RIMM specifically… he was speaking in general terms.

Over the last year, Apple has been an outstanding company at a fair price. RIMM was an ordinary company at a cheap price. And look what happened. Buffett was right…

In the September True Wealth, I reiterated my buy on Apple and the other tech giants, making the case that they were "outstanding companies" at "fair prices." I published a list of the tech-stock fund's top holdings and their price-to-earnings (P/E) ratios:

Apple's forward P/E was nine. RIMM's was five. Since then, Apple is up nearly 60%. And RIMM has lost nearly half its value.

The message is simple… Don't make the mistake of buying ordinary companies at cheap prices. Instead, buy outstanding companies at fair prices.

Look… this has been an amazing bull run in stocks. If a stock DIDN'T rise in this bull run, something is wrong with it… It is "cheap" now for a reason.

Most people think that it's safer to buy a "cheap" stock – one that didn't participate in the big run higher. They think that there's some safety there… They think that it can't fall as much as the ones that ran up, simply because it doesn't have as far to fall.

I can see how you can think that… But having been a participant in the markets for two decades, I know this isn't how it works. Buying the previous underperformers doesn't provide you any protection at all from a market bust.

When the bust comes, they all come down… Heck, if anything, people want to keep the "outstanding companies" (as Buffett called them) and quickly dump the "ordinary"companies.

Once the market has run up like it has, the temptation is to look for deals among ordinary companies. Resist that temptation… Trust me, it doesn't work.

Learning this lesson was hard for me. I burned myself a few times looking for bargains after bull runs before I got it.

It doesn't have to be hard to learn. Now you know it. Don't let yourself get burned by it, too…


Source: Daily Wealth

[winston]

Alternatives To Stock Market Investing If You Decide To Stay Away From Markets

You might know Mark Cuban, Tim Ferriss, or someone else in your family or friends that decided to stay away from investing in the markets. There are probably a million different reasons for doing so and as you can imagine, I’m far from convinced myself. However, if you think about it, I’ve said myself that the best investment I ever made was in my online company. In second place would probably be the fees that I incurred to invest in myself (exams, school, etc).

Alternatives To Stock Market Investing

-Biz: Clearly, for someone like me who owns a business, it makes sense to reinvest a lot there. For many types of businesses (including my own), the returns can be much higher than I could possibly expect or even hope to get from the market

-Real Estate: A few years ago, many would have said that real estate prices were much more stable and many believed they did not ever decline. Clearly, that has been proven to be very wrong. Still, owning a real estate is generally much more stable and provides great diversification.

-Commodities: I’ve talked about buying physical gold or metals, and how much traction this has gained in recent years. Clearly, holding commodities is one option that many go for.

-Investing in yourself: Would the 10K that you invest in the markets pay off more if you took a class, decided to learn a particular skill.

-Investing in people you know: Even if you do not have a business, you probably know others who do. Guys like Mark Cuban and Tim Ferriss put a lot of their money in private investments, investing in friends, contacts or even relative unknowns.


Why Would You Stay Away From Markets?

There are of course many different reasons but I would say that in general it would be because you do not believe in the fundamentals of the market, and/or you expect to be able to get higher returns in your own investments.

I read an interesting post about this specific subject last week and he said that as Buffett had recommended, he was staying away from anything that he could not understand.

In a sense, that makes it difficult to buy a share of most companies. How would you know how aggressive they are with their accounting, if any fraud is happening, etc. It is much easier for me to look at my business or real estate that I own and determine the true value.


Not As Easy To Do As You’d Think

Sure, guys that have millions of dollars can find a lot of opportunities to invest in smaller and bigger private companies (god knows I’d love to buy Facebook (FB) shares) but for most of us, it’s much more difficult.

Investing $10,000 or $20,000 in your own business will work fine, but many businesses will see it as too much trouble for such an amount.

It also becomes very difficult to get diversification. If you have your entire savings in one business or one big building, you do have some risk involved.


So No, I’m Not Turning My Back Away From

Obviously, I’m still very much a believer in the markets and do plan to invest much of my savings in the markets but I am already reinvesting part of what I can into other assets such as my own business and I hope that will continue and even accelerate in coming years.


http://yolotraderalerts.com/?p=3735&utm ... 0Debate%20%u2014%20Depends%20on%20the%20Holding%20Period

[winston]

The Secret Sauce Trade is Back by Joshua M Brown

My friend Jake at EconomPic has been keeping tabs on a trade he calls "the Secret Sauce" since July of 2008. It's based on a calendar swap from stocks to bonds each year and the backtest actually continues to get better with each year!

Here's Jake:

An alternative to the "sell in May, go away" strategy, Secret Sauce is sell the S&P 500 in May and then invest in the Long Government / Credit bond index (rather than sit in cash).

The "strategy" takes advantage of data mining that showed the Long Government / Credit index outperformed the equity market for the May through October time frame over the 34 years between 1974 and 2008.

http://www.thereformedbroker.com/2012/0 ... e-is-back/

[winston]

4 Indicators Could Tell You Where the Market Is Heading Next
By StreetAuthority

1. Mutual Fund Inflows

2. Individual Investor Sentiment

3. What About the Banks?

Professional money managers often seek out the direction of banking stocks before making any buy or sell decisions. That's because this group tends to provide a read on broader economic trends.

4. Consumer Sentiment

http://www.thestreet.com/story/11491167 ... -next.html

[Chinaman]

How to Protect my hard-earned capital

Expert said : cut loss quickly and take profit slowly..do u believe it?

Many times i loss money becos of emotional thinking.
Sometimes my money stuck inside the stock market for 3 years, 5 years or even 10 years

You will never get broke taking small profits”, but remember, you will certainly NEVER be
rich this way too........like that, i think better carry on working till 62, sure win money.

[winston]

3 Steps to Investment Success by Kevin Matras

If one of your goals is to become a better trader, then decide to be one.

How does one do that? Just like any decision, it only requires a few simple steps to get the ball rolling.


1) Decide what kind of trader you are or want to be.

Do you prefer upward trending momentum stocks or deeply discounted value stocks? High-flying aggressive growth stocks or more mature income-producing stocks?

There’s no wrong answer.

But this is important because if you find yourself buying stocks that are not in alignment with who you are or want to be as a trader, you’ll find yourself abandoning those stocks the moment they hit a rough patch.

The best style of trade is the one that’s right for you.


2) The next step is to determine what strategies work best for that style of trade.

In other words, what characteristics have proven to work for those types of stocks? The key word being ‘proven’.

For example: some investors incorrectly believe that the best aggressive growth stocks are those with the biggest growth rates. But studies have shown that’s not the case.

In fact, in my testing, I have found that stocks with the absolute highest growth rates oftentimes perform just as poorly as those with the lowest growth rates. How can this be? It’s usually because those growth rates are unsustainable. And the moment those sky-high growth rates, which were priced for perfection, have even the slightest downward revision, the stock price can fall back down to earth as well.

I have found that the best growth rate ranges are those that are above the median for their industry and no higher than 50%. That does not mean stocks with growth rates higher than 50% won’t go up, because they do. And that doesn’t mean that stocks with growth rates in the optimum range won’t go down, because they do too. But sticking with stocks with characteristics that have proven to work more often than not will increase your odds of success.

And each style of trade has a set of characteristics that, if followed, will help you pick more winning stocks than losers.


3) The last step is really the easiest and the most fun. And that’s doing it.

Once you’ve decided what you want and how to go about getting it, then it’s time to do it.

And you’ll find picking winning stocks has never been easier. Because now that you know what you’re looking for, they’ll be easier to find.

Think about the last car you bought. Once you decided on what kind of car you wanted, you probably saw them everywhere. They didn’t just magically appear. They were always there. You just became aware of them.

And it’s the same with stocks. The most profitable stocks that are right for you have always been there. But now you’ll be able to spot them.

And nothing is as exciting as waking up each day and following your proven plan for success.

http://yolotraderalerts.com/?p=4066&utm ... %20Success

[winston]

How Keynes Changed His Investment Philosophy and Died Wealthy by Mark Skousen

According to a study published last month by two U.K. economists, David Chambers and Elroy Dimson, Keynes was a “star investor” who managed to gain 8% annualized returns from 1924 until he died at the age of 63 in 1946. And this was at a time when there was very little inflation and, in fact, much deflation.

What can we learn from this Cambridge wizard of finance? Here are three key lessons:

The Bottom-Up Approach

First, he became a much better investor by switching from being a top-down strategic macro manager and a technical momentum player to being a bottom-up stock picker and fundamentally contrarian value investor.

In the Roaring Twenties, he boasted of his ability to predict the ups and downs of the credit cycle, and was a bullish advocate of a “new era” of permanent prosperity. He once famously told a Swiss banker, “There will be no more crashes in our lifetime!” Two years later, in October 1929, the stock market crashed and Keynes’s portfolio of stocks and commodities was “wiped out.” Keynes recognized that he had no ability to pick tops of markets. (See my chapter, Keynes as a Speculator in Dissent on Keynes.)

After being chastened, he wisely changed his investment philosophy to become a contrarian and fundamentalist. “My central principle of investment is to go contrary to general opinion,” and to buy stocks that are “cheap” relative to “intrinsic” value and to hold these investments through “thick and thin.” He aggressively bought bank, utility and gold mining stocks in the 1930s, using leverage when appropriate. He was better at buying value near the bottom of markets than selling out at the top. He was, in short, a one-armed contrarian.

Investing in High-Yields

Second, Keynes switched out of fixed-income bonds and into on high-dividend paying value stocks rather than growth stocks. He bought utilities, banks and gold mining stocks that paid on average 6.1% annualized yields. He figured dividend-paying shares offered a much better deal with more upside potential than fixed income bonds.

Keynes’ approach was revolutionary at a time when banks and universities invested 90% or more of their portfolios in property and government bonds. He did almost the reverse in the discretionary accounts he managed at King’s College and insurance companies.

Even though he was anti-gold standard, he had the sense to recognize a good deal when Roosevelt went off the gold standard and raised the price of gold to $35 an ounce. Starting in 1934, he bought heavily gold stocks and profited handsomely.

Stick With What You Know

Third, Keynes avoided extreme diversification, but carefully bought a handful of publicly traded companies that he knew well. He was what we call a fundamental analyst who invested in a few companies where he knew management and the true value of the firms. They were primarily small- and mid-cap stocks. Some say he had insider information, at a time when insider information was legal. (Insider trading was not outlawed in the United Kingdom until 1980.)

http://www.investmentu.com/2012/April/j ... estor.html

[winston]

Europe's Toll on US Stocks

The average stock in the S&P 500 is down more than 6.5% since the April 2nd market peak.

We ran our decile analysis on the index focusing on international revenues to see how much Europe and other parts of the world are impacting US stocks.

To run the analysis, we broke the index into deciles (10 groups of 50 stocks each) based on the percentage of revenues that each index member generates outside of the US, and then we calculated the average change since 4/2 of the stocks in each decile.

As shown below, the decile of S&P 500 stocks that generate the largest portion of their revenues from outside the US are down an average of 11.1% since the April 2nd top, while the stocks that generate all of their revenues domestically are down an average of just 3.7%.

If Europe's problems continue, this trend should continue, although we're probably due for some sort of reversion to the mean since the divergence is so wide.

http://www.bespokeinvest.com/thinkbig/2 ... tocks.html

[winston]

Why You Should Invest Like Fergie by Alexander Green

Fergie is clearly an astute investor, one you might be wise to emulate. Now if she would only drop the hip-hop and stick to rock and roll...

You probably don’t make a habit of taking investment advice from a 37-year-old singer and dancer, a former East L.A. gangbanger who has struggled with addictions to ecstasy and crystal meth.

But in the case of Stacy Ann Ferguson, better known by her stage name Fergie, maybe you should make an exception.

Fergie is the female vocalist for the hip-hop group The Black Eyed Peas. She has achieved chart success worldwide and won no less than eight Grammies. I am not a fan of her music, quite frankly.

However, aside from making a boatload in the music industry, Fergie has enjoyed extraordinary success as an investor.

How? By plunking her money in recession-resistant opportunities, especially in luxury industries.


http://www.investmentu.com/2012/May/inv ... ergie.html

[winston]

The Simplest Successful Investment System You Can Imagine By Dr. Steve Sjuggerud

I want to share with you an incredibly simple strategy today… one that has consistently crushed the markets.

The system is simple: Buy what's working.

It turned $10,000 into $573 million over the last nine decades. And it will keep compounding wealth, both in individual stocks and among asset classes, for decades to come.

This simple system will continue to work because most people can't bring themselves to follow it. It's like they have a mental block. This common mental block is a great thing for the rest of us… It will allow this simple system to keep working – and the more that people don't believe it, the longer it will work!

Here's the mental block: Most people are afraid to buy what has gone up. Instead, most people prefer to buy what is down.

If Apple stock is up and hitting new highs, for example, people are afraid to buy more Apple. Instead, they like to bet on the longshot – the maker of Blackberry (RIMM). But as I showed you in April, Apple keeps going up. And RIMM keeps going down.

It's not just with Apple and Blackberry… it works with all stocks.

In his book What Works on Wall Street, James O'Shaughnessy studied the numbers going back to 1925. The results are just incredible…

If you bought the worst-performing 10% of stocks over the previous six months, you would have outperformed the market just once since the end of World War II. After the great bust in 2008, the worst performers briefly turned into the best performers when the market recovered… But that was the only time it happened.

The story is crazy-different when you look at the best performers instead…

Starting in 1925, you would have turned $10,000 into $573 million simply by buying the best-performing 10% of stocks over the previous six months, holding, and rebalancing monthly.

The message from history is painfully obvious… Buy the winners and don't buy the losers. Buy the Apples, not the Blackberrys.

The thing is, most of us can't figure out how to buy the top 10% of best-performing stocks. But this same idea works with whole asset classes, too…

Buy the best-performing asset class over the previous six months. Wait one month, and then buy the new best-performing asset class over the previous six months.

I ran the numbers going back 40 years. I looked at five asset classes (U.S. stocks, foreign stocks, REITs, commodities, and bonds). By simply buying the best-performing asset class over the preceding six months, you'd have outperformed the stock market by nearly 50% a year over the last 40 years. (Specifically, stocks returned 9.9% annualized. This simple system returned 14.6%.)

Over time, the outperformance is enormous… turning $10,000 into over $2 million versus just $400,000 for the S&P 500 alone.

My friend Mebane Faber (www.MebaneFaber.com) has studied this type of thing closely – and he suggests buying the top-TWO-performing asset classes, instead of just the top one. Based on history, that is a GREAT idea…

Over the last 40 years, buying the top two asset classes STILL beats the stock market (12.6% to 9.9%). But importantly, it reduces your risk (the volatility). Only boring Treasury bonds have less volatility than simply buying the top two asset classes over the preceding six months.

This strategy easily beats the market with MUCH less volatility. And I expect the outperformance for decades to come.

To beat the market safely and simply, stick with what's been working in recent months…

This strategy would have turned $10,000 into $572 million in stocks… It works in asset classes as well… And most importantly, there's no reason for that outperformance to go away.

The "system" really is simple. Stick with what's working. Buy what's done well over the last six months. Based on history, chances are great you'll outperform the markets…


Source: www.dailywealth.com