by: Gary Wollin
One day, while Chicken Little was walking in the woods, an acorn fell and hit him on his head.
"Goodness gracious me!" said Chicken Little, "The sky is falling, the sky is falling. I must go warn everyone."
We see this all the time. The stock market goes straight up for eight or nine months, and if there are 2 or 3 down days in a row, there is hand-wringing and the moaning all over the place.
Who are these people that panic at the first sign of a downturn or with the slightest bit of profit taking?
The first group are people who get in the near the top and are now worried that their small losses will turn into big losses. Also, people who haven't invested in the stock market are in this same box. For many, many years they were wrong to not have invested, but now that the market has declined very slightly for a few days they would like the point out how smart they are and how dumb everyone else is.
Short–sellers are the next group. Short selling is selling a security that the seller does not own but is committed to repurchasing eventually. It is used to take advantage of an expected decline in the security's price.
The press comes next. You have heard this before: "bad news sells newspapers."
The 24–hour television news stations must make every tiny move in a stock or in the stock market seem like a momentous occasion. Imagine hearing such a stupid statement as "this is the largest stock market decline since last week."
The slimiest are the politicians whose party is out of power. They try to make themselves look good by making the other guys look bad. It does not matter which group you belong to or who is in power or out of power at the moment.
An out of power politician must find the cloud in every silver lining.
So, how can you protect yourself? What should you do to keep out of "the sky is falling" trap?
The most important thing that you can do is to be clear about your long-term financial goals and objectives. Yes, in the very short run, many circumstances can affect the value of your portfolio. In a well-diversified portfolio, these declines will be relatively small and short lived.
Twenty years from now, it will not have mattered who was shot during the past twenty years or who was in power or who went to jail or to war. Simply ask yourself, "how will three dollar a gallon gasoline affect my retirement twenty years from now?"
Don't worry about tales of imminent doom and gloom. Don't listen to, and certainly, don't act upon rumors and scare stories. And, most of all, don't spread these stories yourself.
About The Author
Gary Wollin is a Warren Buffet style investment advisor with 45+ years of Wall Street experience. He has been regularly featured in The Wall Street Journal and New York Times. He writes and speaks on sales, customer loyalty, and the stock market. http://www.garywollin.com
Showing posts with label market. Show all posts
Showing posts with label market. Show all posts
Friday, May 29, 2009
Stock Market Wisdom from The Tortoise and the Hare
by: Gary Wollin
Once upon a time, there was a young hare, a hotshot rabbit investor who would always brag to anyone that would listen and that he was the smartest, fastest, best performing investor in the world. He would constantly tease the old tortoise about his slow, solid investment style.
Then, one day, the annoyed tortoise answered back: "There is no denying that you are very aggressive in your investment strategy. You take very high risks and get high returns. But even you can be beaten."
The young hare squealed with laughter. "Beaten? By whom? Surely not by you. I bet there's nobody in the world that can win against me, because I'm so good. If you think that you can beat me, why don't you try?"
Provoked by such bragging, the tortoise accepted the challenge. Each of them put an equal amount of money into a new account and the race was on. The hare yawned sleepily as the meek tortoise trudged slowly off.
As might be expected, the tortoise invested in high quality blue chips, companies with household names.
The hare, as anticipated, invested his money in dotcom stocks and options.
You know the story. The aggressive hare jumped out to a big early lead. In a rising market, the highest risk stocks perform the best. This is called momentum investing. Money flows into the investments that are performing the best.
The hare, having jumped out to such a large early lead, stopped paying attention to the market environment. Basically, he fell asleep. He thought to himself, "I'll have 40 winks and still remain way ahead of that stupid old turtle."
The hare awoke from his sleep and gazed around looking for the tortoise, who was nowhere in sight. Unfortunately, while he was sleeping, dreaming about what he would do with his winnings, the market turned against him.
His very high-risk portfolio had taken a terrible beating and was now practically worthless.
The tortoise, a Warren Buffett style investor, had passed the sleeping rabbit long ago. He had been plodding forward, steadily, since the beginning of the contest. The Tortoise never for a moment stopped, but went on with a slow but steady pace straight to the end of the course.
The hare realized that the tortoise was way ahead of him, and away he dashed. He leaped and bounded while gasping for breath, but it was too late. The tortoise had beaten him.
There are two very important lessons to be learned here.
First – slow and steady wins the race.
Second – never confuse your own intelligence with a bull market.
About The Author
Gary Wollin is a Warren Buffet style investment advisor with 45+ years of Wall Street experience. He has been regularly featured in The Wall Street Journal and New York Times. He writes and speaks on sales, customer loyalty, and the stock market. http://www.garywollin.com
Once upon a time, there was a young hare, a hotshot rabbit investor who would always brag to anyone that would listen and that he was the smartest, fastest, best performing investor in the world. He would constantly tease the old tortoise about his slow, solid investment style.
Then, one day, the annoyed tortoise answered back: "There is no denying that you are very aggressive in your investment strategy. You take very high risks and get high returns. But even you can be beaten."
The young hare squealed with laughter. "Beaten? By whom? Surely not by you. I bet there's nobody in the world that can win against me, because I'm so good. If you think that you can beat me, why don't you try?"
Provoked by such bragging, the tortoise accepted the challenge. Each of them put an equal amount of money into a new account and the race was on. The hare yawned sleepily as the meek tortoise trudged slowly off.
As might be expected, the tortoise invested in high quality blue chips, companies with household names.
The hare, as anticipated, invested his money in dotcom stocks and options.
You know the story. The aggressive hare jumped out to a big early lead. In a rising market, the highest risk stocks perform the best. This is called momentum investing. Money flows into the investments that are performing the best.
The hare, having jumped out to such a large early lead, stopped paying attention to the market environment. Basically, he fell asleep. He thought to himself, "I'll have 40 winks and still remain way ahead of that stupid old turtle."
The hare awoke from his sleep and gazed around looking for the tortoise, who was nowhere in sight. Unfortunately, while he was sleeping, dreaming about what he would do with his winnings, the market turned against him.
His very high-risk portfolio had taken a terrible beating and was now practically worthless.
The tortoise, a Warren Buffett style investor, had passed the sleeping rabbit long ago. He had been plodding forward, steadily, since the beginning of the contest. The Tortoise never for a moment stopped, but went on with a slow but steady pace straight to the end of the course.
The hare realized that the tortoise was way ahead of him, and away he dashed. He leaped and bounded while gasping for breath, but it was too late. The tortoise had beaten him.
There are two very important lessons to be learned here.
First – slow and steady wins the race.
Second – never confuse your own intelligence with a bull market.
About The Author
Gary Wollin is a Warren Buffet style investment advisor with 45+ years of Wall Street experience. He has been regularly featured in The Wall Street Journal and New York Times. He writes and speaks on sales, customer loyalty, and the stock market. http://www.garywollin.com
Let’s Talk Stock Market Fundamentals 1
by: Daniel Kertcher
Technical Analysis has become extremely popular over the past decade. Modern day computers and the Internet have allowed everyone from professional traders to arm-chair investors study the markets live and make their trading decisions instantly.
Despite the technological advancements and the “New found power of Technical Analysis” we must not forget the traditional approach to investing, that is Fundamental Analysis.
Before computers made charting child’s play, professional investors and brokers would study the fundamentals of a company. They would study the balance sheets, the forecasts, and the past performance. They would investigate the board of directors, attend the general meetings and really try to get a “feel” for the company. Because back then, just like today, the market always rewarded Earnings, or Profits. A company’s whole mission in life is to make profits. If the company can continue to make and grow it’s profits, the share price will rise. A company like that may well get stung in times of high market volatility, but those with strong earnings will always fall the least and recover the quickest.
Fundamental analysis is essentially the study of a company’s earnings. Up until recently, however, fundamental analysis was extremely time consuming, and hence, not as popular by private investors.
For most investors these days, time is a precious commodity, and they simply don’t have enough of it to spend investigating the thousands of companies that are out there. Fortunately, there are now a variety of web sites which cater to fundamental information. The best sites are those which provide search engines. These search engines allow you to program the desired fundamental information and parameters you are looking for and then will conduct the search for you, usually within seconds!
The key is to know what to look for!
You may well have heard of a variety of fundamental terms and ratios. They usually get thrown around at dinner parties by those who are trying to sound impressive, or at least semi-intelligent.
Terms such as P/E ratio, PEG ratio, EPS (earnings per share) and Current ratio are usually foreign to most people, yet they tend to knod knowingly when discussing the topic with their friends.
Well, as it is, these particular calculations are extremely useful, especially when used to find shares in the market that represent great value. Now, there are many more calculations to consider, and we will investigate them in future issues of this report. But to begin, let’s look at a few now.
As mentioned, earnings, or profits, are extremely important for a public company (or any company for that matter). Revenue, or income, is sometimes confused with earnings. Many companies have enormous revenues, but fail to make any profit. Even a school child would know that that is an unsustainable situation.
Earnings per share (EPS)
One way to identify potential share investment opportunities is to study the earnings track record of a company. We want to see how profitable have they been over the course of the past two years. Now the past does not always equal the future, but it gives us a good idea as to how well management has performed over the past couple of years, how well have their products or services sold over the past couple of years. So, we want to look 2 years in the past and see how earnings have grown if they’ve grown at all.
We only want to be investing in companies whose earnings are increasing and have grown in excess of 15% per year.
In other words, if their earnings were $1 a share 2 years ago, we want to see last year’s earnings up to $1.15 and this year’s earnings up another 15%.
When you find companies whose earnings are going up at least 15%, you are finding the cream of the crop, because most companies are not able to sustain that level of growth or profit growth over a period of time.
In future issues we’ll continue to outline exactly what to look for when searching for the best share investment opportunities.
About The Author
Daniel Kertcher is a licensed stock market educator. Daniel has trained many people from North America, Australia and Europe in various trading systems. Join his trading mail list http://www.platinumpursuits.com and read more about him at his personal website http://www.danielkertcher.com and http://www.danielkertcherweb.com
Technical Analysis has become extremely popular over the past decade. Modern day computers and the Internet have allowed everyone from professional traders to arm-chair investors study the markets live and make their trading decisions instantly.
Despite the technological advancements and the “New found power of Technical Analysis” we must not forget the traditional approach to investing, that is Fundamental Analysis.
Before computers made charting child’s play, professional investors and brokers would study the fundamentals of a company. They would study the balance sheets, the forecasts, and the past performance. They would investigate the board of directors, attend the general meetings and really try to get a “feel” for the company. Because back then, just like today, the market always rewarded Earnings, or Profits. A company’s whole mission in life is to make profits. If the company can continue to make and grow it’s profits, the share price will rise. A company like that may well get stung in times of high market volatility, but those with strong earnings will always fall the least and recover the quickest.
Fundamental analysis is essentially the study of a company’s earnings. Up until recently, however, fundamental analysis was extremely time consuming, and hence, not as popular by private investors.
For most investors these days, time is a precious commodity, and they simply don’t have enough of it to spend investigating the thousands of companies that are out there. Fortunately, there are now a variety of web sites which cater to fundamental information. The best sites are those which provide search engines. These search engines allow you to program the desired fundamental information and parameters you are looking for and then will conduct the search for you, usually within seconds!
The key is to know what to look for!
You may well have heard of a variety of fundamental terms and ratios. They usually get thrown around at dinner parties by those who are trying to sound impressive, or at least semi-intelligent.
Terms such as P/E ratio, PEG ratio, EPS (earnings per share) and Current ratio are usually foreign to most people, yet they tend to knod knowingly when discussing the topic with their friends.
Well, as it is, these particular calculations are extremely useful, especially when used to find shares in the market that represent great value. Now, there are many more calculations to consider, and we will investigate them in future issues of this report. But to begin, let’s look at a few now.
As mentioned, earnings, or profits, are extremely important for a public company (or any company for that matter). Revenue, or income, is sometimes confused with earnings. Many companies have enormous revenues, but fail to make any profit. Even a school child would know that that is an unsustainable situation.
Earnings per share (EPS)
One way to identify potential share investment opportunities is to study the earnings track record of a company. We want to see how profitable have they been over the course of the past two years. Now the past does not always equal the future, but it gives us a good idea as to how well management has performed over the past couple of years, how well have their products or services sold over the past couple of years. So, we want to look 2 years in the past and see how earnings have grown if they’ve grown at all.
We only want to be investing in companies whose earnings are increasing and have grown in excess of 15% per year.
In other words, if their earnings were $1 a share 2 years ago, we want to see last year’s earnings up to $1.15 and this year’s earnings up another 15%.
When you find companies whose earnings are going up at least 15%, you are finding the cream of the crop, because most companies are not able to sustain that level of growth or profit growth over a period of time.
In future issues we’ll continue to outline exactly what to look for when searching for the best share investment opportunities.
About The Author
Daniel Kertcher is a licensed stock market educator. Daniel has trained many people from North America, Australia and Europe in various trading systems. Join his trading mail list http://www.platinumpursuits.com and read more about him at his personal website http://www.danielkertcher.com and http://www.danielkertcherweb.com
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