10 rules for investing in any environment
Develop a mechanical approach that helps remove the emotional burden.
Buy, sell or hold has always been the traditional mantra for Wall Street, but that approach has not worked for over a decade.
The stock market has been strong from the bottoms, but it has also been weak from the tops, and since 2000 the Dow Jones Industrial Average is up a whopping 10%. Since 2007, the Dow is down about 10%.
My longer-term macroeconomic analysis, "The Investment Rate," told us that 2007 would be a longer-term peak in the market, so we started a proactive strategy in December of that year designed to allow investors to stop being traditional and start being proactive.
Between 2002 and 2007, we were arguably buy-and-hold investors, but since 2007 we became 100% proactive. One strategy we began that year is called "the stock of the week." When the general markets have been down, the stock of the week has been up 214% (compound return).
The comparative returns are impressive, but they work only because we follow a strict set of rules, and within those rules risk controls are integral. Ultimately, that is the definition of proactive.
Here are the rules:
1. Start every week in cash.
2. Develop a focus list of about 100 large-cap, highly liquid stocks.
3. Every weekend, evaluate likely conditions in the market for the week ahead (up or down).
4. Using those results, find the stocks in the focus list that will probably correlate to the market.
5. Define a trading plan for that stock to be used in the week ahead (buy, sell, stop loss targets).
6. Use conditional orders through your online brokerage account to manage the trade.
7. Allow the trade to work all week (you do not need to make any manual trades)
8. At the end of the day on Friday, close the trade and revert to cash.
9. End every week in cash.
10. Repeat the process every weekend.
For example, over the past four weeks we have traded these stocks: Bed Bath & Beyond (BBBY), Goldcorp (GG), Honeywell International (HON) and Caterpillar (CAT). Using BBY as an example, the trading plan was: Short near $72.20, target $69.94, stop loss at $72.46.
This mechanical approach is incredibly powerful because it also helps to remove the emotional burden of the market from the shoulders of individual investors. In this case, market direction becomes far less important, because if the market does not move as you expect, often the trade does not fire and the week is spent in cash.
When the analysis is correct, the trade fires and the opportunity to profit comes instead, but the trade occurs automatically using the tools already available from most online brokerages. So the requirement of watching the market does not exist as it might for other persons.
Removing the emotional burdens is very important because the traditional concept of buy and hold has not worked for over a decade and will not likely work for many years. Proactive strategies like this work very well in markets like the one we are in now.
On June 23, we will host a free webinar to explain this in greater detail and answer questions in a live forum. Everyone is welcome. Stock Traders Daily is ranked No. 1 for "Trading Advice" by Google. Our services include the most accurate longer-term stock market and economic indicator ever developed and proactive strategies that help manage risk and realize positive returns in any market environment.
This may be the most INSANE stock market advice I have ever read.
And this is saying something when you consider articles by Jim Cramer, etc.
Read that last paragraph very carefully. This is not financial advice at all, it is
an absurd snake oil sales pitch. The only people who are going to make any money
out of this are the guys who run this "Stock Traders Daily."
Think about it folks: if their wonderful system actually worked, would they be selling it to you?
2. Read and re-read Ben Graham's great book ->The Intelligent Investor.
3. Follow Graham's advice.
I'll stick with my Ben Graham/Peter Lynch inspired trading methods instead!
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.