Are You Prepared?
Research for Online Investors

by John Dalt

7/01/11

We started out this morning with a bang in the markets.  Mid-morning we were concentrating on the markets and news. As I started MarketToday, we had a bang of another sort.  Two teenage babysitters with three little kids blew out a tire in front of our house.  They were on the way to the swimming pool.  They were helpless, so I went out to change their tire.

Preparedness is something we all talk about, but are seldom comfortable with when confronted with an emergency. When caught in a jam, how many of us don’t think “I wish I would have ________.”  There is always something we know we could have done better.  This is the nature of hindsight.

It is 104 degrees here, and the black asphalt pavement is hot.  We couldn’t find the jack; the car didn’t have an owner’s manual.  The spare tire carrier under the back of the car wouldn’t release the tire.  It was a comedy of un-preparedness!

After a couple of trips to my garage for tools and a jack, we got the tire changed.  We kept the kids out of the traffic lanes of the roadway and out from under the car while it was on the jack.  An hour and a half later, they were on their way to the swimming pool, and I was looking for a fan to cool off at my desk!

I only tell you this as an allegory of our actions in the stock market.  Thinking we are prepared, and being prepared are two different things.  When the market is going up, and everything we buy moves higher it is natural to get lazy.

Maybe lazy isn’t the correct word, but we don’t pay attention to detail.  We don’t do as much research as we should.  We are not as careful.  We have all heard the statement “buy when there is “blood in the streets.”  The implication is that the best time to buy stocks was in 1929 after investors had jumped from windows because they had lost everything.

We all think we are long term investors, until we are down 10%, and the market looks to go lower.  It makes us squirm. If it is best to buy when there is blood in the streets, when is the best time to sell?  We use trailing stops in our long-term portfolio and the SwingTrader service.  Selling on a trailing stop is a defensive measure.  We sell on a trailing stop before we lose anymore.

Wouldn’t it be better to sell when a stock was near its top price and take as much gain as possible?  This is a new discipline we are going to add to our long-term portfolio starting this month.

When I started working on this, my first fear was “How do I know when a stock is at the top?”  The simple answer is...I don’t.  But I know when I have made a fair profit.  I know when the stock is overvalued to its peers.  We should be able to see a sector overheating with wild valuations.

There are a few fundamental truths for investors.

1. You will sell stocks that will go up after you sell.
2. You will buy stocks that go down immediately.
3. You will hold some stocks too long.
4. Opportunities missed will dramatically exceed those you participate in.
5. Accept uncertainty.  You cannot predict headlines and how the market will react to them.
6. In the long term, investing in stocks will make more money than bonds or money markets.

Being prepared as an investor may mean buying when others are not, selling when others are not and sitting tight when everyone is losing their heads.

I hope you have a wonderful and safe Fourth of July Weekend.  We will be back Tuesday.  If you would like to get in on our new and improved Long-Term Portfolio, consider this your invitation.  To be successful as an investor, you need a plan.  Why not let us do the work for you?

I found an interesting chart that should give us some comfort after coming out of a brutal May and June.  This chart shows the Dow's average performance by calendar month since 1950 (blue columns) and 1980 (gray columns). There are a few takeaways from today's chart. For one, whether measuring from 1950 or 1980 -- the average monthly gains are similar. Also, the average year can be divided into both a strong half (November through April) and weak half (May through October). Each one of these semi-annual biases has one calendar month which bucks the trend (February and July). So while the market is currently in the midst of its subpar half of the year, the one calendar month (July) which has tended to buck this trend has arrived.  Thank goodness!

Chart courtesy of http://www.chartoftheday.com

The mailbag:
Thanks for pointing out that TARP was charged against Bush, but paid back under Obama, masking the true size of Obama’s deficits.  I don’t like your defense of Bush though.  He acted as if our streets were paved with gold.---soon to be Gulch member J.R.

John:  J.R., you fought in Vietnam, earning nine battle stars.  You defended our country in other far flung god forsaken places.  You have my respect and appreciation.  Please drink a cool glass of iced tea this weekend and know how much all Americans appreciate your sacrifice.  (Even the pimply kid with a nose ring at McDonalds.  He just doesn’t know it yet!)

Editor’s note:  I will be singing both verses of the Star Spangled Banner in Church on Sunday.  If you don’t know the second verse, look it up.  I will think of J.R., R.A. and other patriots that have answered our country’s call during that song.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

MarketToday Archive

Back to Top