Investment Strategies 02 (Jun 10 - Jun 13)

[winston]

You Are Not as Dumb as You Think

In a bear market, it is easy to forget about buying. Selling is a much easier decision to make. Every time you buy a stock you look dumb because it usually goes down afterward.

I recently bought a couple of incredibly cheap stocks and, of course, they declined. I don’t feel smart about these buys right now.

However, a while back I analyzed these companies, figured out what they were worth, determined an appropriate margin of safety, and got my buy prices. The stocks declined but fundamentals had not changed, so I bought the stocks.

You cannot worry about marking the bottom in every buy. My objective is not to buy at the bottom and sell at the top.

No, my objective is to buy a great company when it is cheap and sell it when it is fairly valued. I suggest you do the same.

Will Rogers’ advice is great, but unfortunately I have yet to meet a human being who has figured out how to apply it in real life. No, you are not as dumb as bear markets make you feel.

http://www.ritholtz.com/blog/2012/07/yo ... you-think/

[winston]

The ONLY 5 Investing Rules You Need to Follow By Jeff Reeves


Focus on Not Losing Money Instead of Making Money

Don’t accept high risk just for high reward, because losing less money is just as powerful in some markets (like this one) as making more money.


Keep Costs Down

Don’t actively trade stocks unless there’s a compelling reason to, since swing trading can cost you more in transaction fees and capital gains taxes.

And most importantly, don’t pay for anything if the performance isn’t there. This goes for investment research tools, subscription newsletters and the like.


Diversify, Don’t Just Pick Stocks

My favorite thought about the need for diversification actually comes from the SEC: “… have you ever noticed that street vendors often sell seemingly unrelated products – such as umbrellas and sunglasses? Initially, that may seem odd. After all, when would a person buy both items at the same time? Probably never – and that’s the point. Street vendors know that when it’s raining, it’s easier to sell umbrellas but harder to sell sunglasses.”


Never Buy High and Sell Low

DALBAR, a financial services market research firm, annually performs a Quantitative Analysis of Investor Behavior study. It’s interesting to see how they dissect the data with a bent towards human emotion, and their report for 2011 includes a very telling line:

“The unprecedented ups and downs of 2011 drove up the aversion to risk and investors succumbed to their fears. They decided to take their losses instead of risking further declines. Unfortunately, as is so often the case, this occurred just before the markets started on a steady trek to recovery.”

There are indeed cases when you need to jump out of a crashing stock and open your parachute just to survive, but a little turbulence is no reason to abandon ship.


Don’t Lie to Yourself

Many people have rules like “do your homework” or “read everything that’s out there before trading.” I won’t take that bait. Because unfortunately there is no clear right or wrong answers and oftentimes investors see what they want to see. So simply doing research is not enough.

After all, story telling is what we do as humans – particularly those of us with a penchant for blogging. It’s easy to talk yourself into a bad stock, to talk yourself out of a good stock and to lie to yourself about your strengths as an investor.

While some of these other tips may be relatively easy to achieve with discipline and strategy, the idea of brutal honesty about your investing goals and track record is challenging for all of us.

But in the long run the only thing that really matters is if we make it to the finish line at retirement with the amount of cash we deserve based on a lifetime of hard work. The rest is just self justification.

http://www.investorplace.com/2012/07/th ... en=3879240

[kennynah]

i fully agree

Focus on Not Losing Money Instead of Making Money

[winston]

At All-Time Highs… and It's Time to Buy By Dr. Steve Sjuggerud

"But Steve… Coke and Wal-Mart are at 12-month highs… I don't want to buy them at new highs!"

Why not?

What is your evidence that says they'll go down once they hit new highs? History actually says the opposite…

Today I'll show you that, in the past, buying these stocks at new highs would have made you a LOT of money. And I'll also show you why buying at a high would have worked back then – and will today…

In yesterday's DailyWealth, Brian Hunt told you how to make money in stocks like Coke and Wal-Mart. But readers don't want to buy these stocks at new highs. Let's take a look at the historical record, based on data from our True Wealth Systems databases…

Shares of Coca-Cola are fast-approaching 14-year highs now. Importantly, Coke shares soared over 1,000% – twice – AFTER hitting new, long-term highs in the past.

The chart here shows what I mean…

Coke peaked in 1946. It took 14 years until it hit a new high in 1960. Then, shares of Coke soared over 1,000%.

The same thing happened again in 1985… After 13 years without a new high, Coke shares hit a new high in 1985, then soared over 1,000% again.

Neither of these 1,000% gains happened overnight, of course. But as the chart shows, the rise was fairly steady.

Now – 14 years later – Coke is knocking on the door of a new high again. Should you sell Coke (like most investors would) if it hits an all-time high? Or should you buy? History says you should buy…

Wal-Mart's shares are in an even better spot than Coke's…

It took the discount retailer 13 years to hit an all-time high. But now, it's happened. So should you sell like most people would? Or should you buy?

Again, it's time to buy.

But why? WHY does this "new high" thing work?

The reason is simple…

It works because the share price has gone nowhere for a long period of time… Meanwhile, the company's sales and earnings have continued to grow. The company's stock price is just starting to catch up to the company's business.

It's simple… When a company's sales and earnings soar but the stock price "goes nowhere," the natural result is the stock gets cheaper relative to its sales and earnings.

And that's exactly what has happened.

Right now, Wal-Mart is as cheap as it's been at any time in the last in 30 years. It's coming off a near-record-cheap valuation from last fall. Take a look…

The last time it was this cheap, its future was uncertain… Wal-Mart was competing with Kmart, Sears, Montgomery Ward, JC Penney, and tens of thousands of "mom and pop" retailers. Now (outside of Target), Wal-Mart is the last man standing.

Yes, Wal-Mart has run up this year. And yes, it is at a new 12-year high. (Heck, it's at an all-time high.) But that does NOT mean it is time to sell. On the contrary… Based on history, you want to OWN it.

And you want to own Coke, too… for the same reasons.

It's not just Coke and Wal-Mart. They just help illustrate the point.

The point is, right now, you have the opportunity to buy into the world's greatest brands at near-record-low valuations. Meanwhile, we're getting them when they're in solid uptrends, busting out to new multi-year highs. Sure, if you buy now, you aren't in as early as some investors… but you're still getting these stocks at great values. Plus, this trend will last for YEARS. There's plenty of room left to run.

These have been good for hundreds of percent returns (even 1,000%-plus over longer periods).

And the situation today is no different (growing sales and earnings coupled with a flat share price for a long time) than it was in the past.

Take advantage of it. Buy the world's greatest brands, at low valuations. Don't be concerned that they're near their highs. You're getting great businesses at great values. Don't miss out…


Source: www.dailywealth.com

[winston]

Some people just like to use plenty of words to explain simple things ...

One Popular Investor Obsession You Should Give Up Right Now By Dan Ferris

Today, I'm going to teach you one of the hardest lessons for investors to learn…

It's worth it to try, though. That most investors will never learn this concept gives those of us who do a huge advantage now and forever.

It may come as a shock, though… You may find it very hard to believe… But it's key to the success of some of the world's most successful investors…

Gross domestic product (GDP) growth and stock market returns have just about nothing to do with one another. In fact, you can achieve great investment results without ever thinking about another "macro" issue again.

Most people base their investing decisions on economic data, forecasts, and what they hear in the media. They obsess over unemployment numbers… the Producer Price Index… housing numbers… interest rates… factory orders… industrial capacity utilization… the Baltic Freight rate…

But the wisest, richest investors in the world say to forget it.

[winston]

continue ...

Business partners and billionaire investors Warren Buffett and Charlie Munger, for example, have been investing their own and other people's money for 47 years.

And in all that time, they claim they've never had a single conversation about the economy. They simply don't waste time on it.

The vice chairman of investment firm Fidelity, Peter Lynch, is one of America's top money managers. He says if you spend 13 minutes thinking about economic and market forecasts, you've wasted 10 minutes. It's just not worth thinking about.

Ben Inker of the money-management firm Grantham, Mayo, and Van Otterloo recently wrote an excellent paper demonstrating there's no meaningful correlation between GDP growth and investment returns.

In other words, stock market investors who think it's important to worry about where the economy is headed are simply dead wrong. Every minute you spend worrying about macro data has zero value to you as an investor.

It's hard to remember this, though.

Everywhere you look, the financial news media are constantly trying to connect the two. They're obsessed with pretending to know what you should buy and sell based on all the economic data pouring out of governments, Wall Street banks, and talking heads every day. But it's all useless noise. Most of that economic news has little value at all for investors.

[winston]

continue ...

Instead of worrying about all that, stick to studying great businesses.

Stocks like Wal-Mart and McDonald's thrive in recessions as consumers pinch pennies. Consumer-products giant Procter & Gamble steals market share from its competitors during tough times because it has enough cash to maintain its advertising.

In 2009, Berkshire Hathaway used its enormous cash hoard to make incredible deals with cash-strapped firms who couldn't access credit anymore.

For every great business like these, there's somebody who thinks a macro wind will crush it. He has failed to learn one of the greatest lessons anyone can learn, if he seeks riches in the stock market: Great businesses are great because they can ride out and even exploit macro problems.

Great businesses aren't cyclical. They don't get better or worse with the economy. They stay profitable and continue to gush free cash flow and pay higher dividends every year.

[winston]

continue ...

If you focus on buying great businesses, you can turn down the volume on cable news' fretting about Europe's debt, Obamacare, and the Fed's latest pronouncement.

You probably don't believe it… I get reader feedback indicating many folks refuse to stop obsessing about economic and political problems. They just don't get it.

What's a fella to do? It's my job to show you the way, to help you become a better investor. But lots of folks don't seem to want to hear it. Instead, they let the market guide their investing decisions time and time again… And they miss out on some great investing opportunities.

I'm not saying you should never read another newspaper. By all means, know what's happening in the world. Understand the backdrop in which you're investing. But don't waste a minute trying to figure out what stock to buy based on economic reports and forecasts.

Don't let macro fears prevent you from buying great businesses and compounding your wealth with great stocks.

Source: Daily Wealth

[winston]

Are You Stuck with Your Investing Style?
Author: Zacks Investment Research

I definitely consider myself to be a value investor. I shun growth stocks and instead zero-in on those with decent yields, low amounts of debt, and reasonable key ratios such as Price-to-Earnings, Price-to-Book, and Price-to-Cash Flow.

My investing screens rarely allow for stocks that have PEs above 20, those with high debt, or upstart firms that aren’t currently profitable. Of course there are some exceptions to this rule with a small portion of my portfolio, far and wide my investment lineup consists of ‘boring’ stocks like EXC and PM to name a few.

Yet, deep down I know that I am certainly missing out on high flyers with this strategy. Although I definitely like Amazon (AMZN) and have thought about Chipotle (CMG) in years past, I simply cannot justify paying for the growth that is supposedly baked into these securities.

As you can tell from the paragraphs above, I am very biased in my investing strategy towards value, but I have also seen a similar trend among more ‘growth’ oriented investors as well. I know of at least a few people who shun any stock that pays a dividend, or those who demand an outsized growth rate in order to even consider investing in a stock, suggesting that the trend goes both ways (see Three Best Performing Small Cap Growth ETFs).

Perhaps, value investors are just hard-wired to avoid growth, and those who dabble in riskier stocks are unable to bring themselves to purchase the more mundane companies?

At first I thought this might be a bad thing as it eliminates a huge chunk of the investing landscape, but now I am wondering if, instead, it allows investors to focus in on whatever they believe works and forgo trying to develop dual strategies, which seems likely to result a subpar mixture of the two distinct styles.

Personally, I cannot think of anyone that has a true ‘blend’ investing style—and does it effectively—but what about you?

Do you also find yourself stuck in a particular investment style or have you developed any effective strategies for opening up your portfolio to growth if you are a value investor (or vice versa if you are growth investor)?

http://www.yolohub.com/trading/are-you- ... ting-style

[winston]

How do You play This Market?
Author: Zacks Investment Research

Third quarter results reported so far are lackluster in most cases and many companies have provided bleak guidance for the fourth quarter.

On the other hand, recent U.S. economic data has been largely positive.

Improving macro picture and the central banks’ support will continue to make the market somewhat resilient.

And while the outlook for the Euro-zone is still very cloudy, China is showing some signs of bottoming out.

However, with the presidential race in a dead heat and the looming fiscal cliff, the investors are hesitant to make any big moves in the market.

The market may thus continue to move sideways (possibly with a downward bias) in the coming weeks.

So, what’s your strategy for this market?

1) Buy the dips since you believe that the long-term direction is still up

2) Use options/ leveraged ETFs for short-term hedging/trading

3) Buy defensive and low-volatility stocks or ETFs to limit downside risk

4) Stay away from the market until there is better visibility


http://www.yolohub.com/trading/how-do-y ... his-market