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Archive for May, 2010

Courage Through Corrections

Wednesday, May 26th, 2010

While it can certainly feel painful, it is important to note that corrections are very healthy and common during a bull market. The current market downtrend has been nothing more than a correction at this point. Only time will tell if it is the start of something bigger to the downside or if it is just a short-term problem.

How can you have more courage through the difficult stock market corrections? The single most important thing to do is to keep a long-term perspective on things. I think it is a good idea to have a long-term chart of the stock market saved on your computer to bring up on a rainy day. It is always encouraging to see the long-term up trend that can be seen in a chart of the broad stock market. Remember that when you got into this you knew there would be bumps and bruises along the way.

It is also important to keep in mind that corrections can provide great opportunities in the stock market. Some of the best investors have made it a habit of finding value when the market throws the baby out with the bath water. On days where the broad market plunges and investors sell anything and everything, there are often some terrific opportunities to get into big name stocks at a cheap price.

Realize that while looking for value is always a good idea, it isn’t a good idea to try to be a hero. Courage in the stock market often means holding put, while others are panicked and making decisions on impulse. As long as you have a solid plan in the stock market, you should be able to ride out the noise in the market through corrections. Stay strong and remember that building wealth in the stock market doesn’t occur overnight.

Investor Game Plan for A Volatile Stock Market

Wednesday, May 19th, 2010

Take a look at the last few trading days and you’ll see that market volatility is back in a big way. Ever since the Eurozone fears started and the market plunged nearly 1,000 points intraday, investors have been quite skittish. As someone who has followed the market for years I can tell you that when this kind of trading gets started, it often takes quite a while before it quits. Plan for volatility over the next few weeks and months in the stock market.

While many investors are simply worried by volatility, it can be used as both a time to learn important lessons in the market and take advantage of opportunities available to you. Let’s take a look at the game plan you should have in volatile markets and how you can profit.

  • Don’t make any split second decisions- Decisions made very quickly often come back to haunt you, especially when the market is moving so quickly. Buys or sells that weren’t thought out well are poisonous in this kind of a market. Plan ahead and be prepared well for what may come next.
  • Make a stock shopping list- This is vitally important if you wish to profit from huge selloffs during market volatility. During volatile times there are bound to be huge down days, where you might find some of your favorite names down 20% or more in the period of just a few days. If there is no valid reason for this stock to perform this way, consider it a sale price on that stock.
  • Pay close attention to trading actions- History often repeats itself in the stock market, so I like to tell people to pay attention to how the market reacts. Knowledge is power at all times, but that knowledge can help you even more in volatile markets where many others simply don’t understand what may be coming next.

Volatility in the stock market can be scary, but if you have a game plan it can help you be a step ahead of the pack!

Should You Own Gold in Your Portfolio?

Wednesday, May 12th, 2010

In the last few weeks gold prices have made a jump to levels never seen before. Today gold prices topped $1,245 an ounce as fears about the Greek debt problem and the subsequent bailout program from the European Union.  If you have followed gold very closely at all you know that gold is the ultimate safe haven play when other assets and currencies are under pressure. The current flight to safety is one that many had predicted for quite some time. Obviously, those who own gold right now are happy. The bigger question is, over the long run, should you own gold in your investment portfolio?

There is no doubt that gold is a safe investment that will help you sleep better at night. It is the kind of asset that always perks up nicely when all of the others are in deep trouble. The fact that it is safe does not mean it always moves higher though, which many investors can sometimes misunderstand. If you take a close look at a historical gold chart showing prices between 1980 and 2000, you’ll see exactly what I am speaking about. In 1980 gold traded most of the year between 650 and 700. In the year 2000, gold prices sat at about 275-300. A 20 year long investment in gold would have hurt the investment portfolio in a big way. At the same time, if you had invested around 300 about ten years ago, the current levels above 1,200 have allowed you to quadruple your money. The point here is that despite the safety of gold, it undergoes huge price swings.

Since gold is currently trading at a historical high, it is hard to recommend putting money into the precious metal at this point. History tells us that the price of gold will go through cycles, which means you are in quite a bit of danger if you invest at a historical high. Should you own gold inside your portfolio of investments? The answer is likely yes, but a wise investor will pick their spots and keep it as a small percentage of their portfolio, primarily for diversification and safety during troubled times.

Tread Carefully After Trading Error Shocks Market

Friday, May 7th, 2010

Yesterday’s stock market plunge of 998 points was the biggest intraday loss in the history of the United States stock market. The rumors are flying around about what caused this, but it appears it was some sort of trader error. Many are calling it a fat finger error that crushed the stock market. It seems someone input b for billion instead of m for million when selling a basket of stocks. The end result was relentless selling from computer trading that knocked the market way back on its heels. Between 2:45 and 2:55 eastern time on May 6, 2010, just about no one had any idea what was going on in the stock market.

The unthinkable happenings of that 998 point plunge rattled the markets and shook investors confidence in a big way. There are definitely going to be more questions in the weeks and months ahead about the safety of almost solely computer trading on the stock exchanges. What happened in this plunge was certainly abnormal, and the sooner investors know what happened and if it can be avoided again, the better things will go in the near future. The VIX has shot higher to almost 40, after sitting at about 16 in the last few weeks.

For now, the stock market is going to be extremely volatile. The confidence of the retail investor had to be hurt by yesterday’s ridiculously fast drop in stocks. Think about all the questions surrounding the market right now and you’ll realize why volatility is the name of the game. The European credit crisis, the oil spill in the Gulf, attacks thwarted in New York City, and the list goes on and on. Even as solid non farm payrolls came out today, the market is still shocked from yesterday. The lesson here is this, the stock market will have to work out the current issues and in the interim stocks will be extremely volatile. I think investors would be wise to make out a list of names they think might be good buys and get ready to get into the market if the panic gets overdone.

Be Aware of “ObamaCare” Scams

Wednesday, May 5th, 2010

With the recent passage of the health care reform overhaul package there has been a lot of passion on both sides of the issue. At the same time, there has been a lot of confusion among consumers about exactly how the plan will work and when it would be implemented. Sadly, confusion is the single best friend of a scammer. Scam artists have now started using the historic health care reform and the confusion among consumers as a way to make big money. States have now been alerting consumersof the fraud that is occurring on a regular basis.

The term “Obamacare” has been used quite often to describe the health care reform package, even though there is no such program. Many of the scam artists have started using “Obamacare” as their keyword to get people to pay attention. Some have started calling consumers and telling them they must sign up for the health care and pay a one-time fee. Others have gone as low as telling consumers they need to purchase a special insurance package to avoid death panels. It really is disgusting the way scam artists work, but it is just the reality of how things are.

As is usually the case, those who are most vulnerable are being targeted first. The senior citizens around the country are being contacted and are falling for these scams in fairly large numbers. Consider this your warning to not listen to anyone who promises to help you with the transition in the health care reform. They are only looking for money from you, and there is absolutely no way they can help you. As the law takes effect in the country, it will be available to everyone at the same time. Alert your loved ones, especially the elderly, that these scam artists are on the run right now and looking to take advantage of them.

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