Direction
It is difficult to make money in a bull market, but what do you do when you are in a bear market? In what direction should you go not only to make money but to protect what you have from loss?
Almost immediately investors think what should I buy that will help me reach my financial goals? This answer may not be the one you will like. It is really not important what you buy as long as you know the rules of the game - the stock market game.
Rule One. You must know the general trend of the market. Is it going up or is it going down? You don't know and worse yet you don't know who does. There are many who do and you can be one of them if you wish, but you must also be willing to put aside the conventional wisdom of Wall Street otherwise known as lies. They tell you that you cannot time the market. You can and it is easy. I have been doing it for almost 20 years and so have many of my friends. Unfortunately, brokerage companies do not want you to learn this simple technique to protect your investments.
Once you know the general direction of the market you can act accordingly. If the trend is up you should own stocks and mutual funds. If it is down you should be out of the market in a money market fund or in bonds.
Go on the Internet to the web site www.bigcharts.com. Here you can type in the basic symbol for the S&P500 Index, SP500, and then use the Interactive Section to put in a 200-day Moving Average. If the price of the Index is below this line you should be in a money market and, if above, you should be buying stocks and no-load mutual funds. It is that simple.
Rule Two. Whatever you buy, and I don't care what it is, you must set a price below which if it drops that you will sell out. Period. As your equity moves up so should this stop-loss price so as to protect your profit. You don't want to give that back when the market or this particular equity starts down again.
The market direction changes from up to down in a rather steady cycle of about 14 to 16 years. It has been doing this since 1800. The year 2000 saw the top of the most recent up cycle and it is expected to repeat with another downward direction for the next 11 years. That is not very encouraging to people who have their retirement funds in a 401K or IRA. During this period a money market account will outperform a stock account.
The only alternative is a no-load bond mutual fund. This is better than trying to buy single bonds as there is always the chance a company will go out of business leaving you with nothing. Government bonds are excellent and safe.
Whether or not you agree the direction of the stock market remains down you should plan on a loss limit for the equities in your portfolio.
Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.
Copyright 2005
al@mutualfundstrategy.com; 1-888-345-7870
More Resources
Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exitingMore Stocks & Mutual Funds Information:
Related Articles
Enron Cure
Let's hope you did not have any of the Enron stock. Maybe you know someone who did and lost everything, but you certainly might know several people who owned stock that lost almost everything.
Advisory Service for You?
It depends on your level of understanding of the market and the amount of money you have.If you a sophisticated investor with a substantial amount invested you are probably already receiving more than one.
Gurgle Gurgle
Caught in a whirlpool and being sucked under. No life vest or other device to save you.
The Value of Stocks of a Company
The debate rages all over Eastern and Central Europe, in countries in transition as well as in Western Europe. It raged in Britain during the 80s: Is privatization really the robbery in disguise of state assets by a select few, cronies of the political regime? Margaret Thatcher was accuse of it - and so was the Agency of Transformation in the Republic of Macedonia.
Investing in the Stock Market - When To!
Is really not as important as to how you invest in the stock market. And how you invest in the stock market should take into consideration what goals you are setting for that stock market investment.
Precision Money Management
This article describes the model of a natural relationship between trading system performance, trade position size, stop loss settings and profit goals. The model consists of algebraic equations that specify the trade size and stop loss settings needed to meet profit goals over a specified time period for any consistently used trading system for which historical performance data is available.
Stock Trading - Daddy, Why Arent We Rich?
One Saturday morning, while he was sitting at his computer studying the market, David's 7 year old daughter came up, tugged at his shirt sleeve, and said, "Daddy, why aren't we rich?" He looked his child in the eye, and thought to himself, what a great question - Why aren't we rich?As she stood there expectantly waiting for an answer, he struggled to come to terms with the realization that, although he had focused his complete attention on trying to create wealth for more than 10 years, he had never actually made any real headway.He had bought and sold many Stocks and several properties over those years, but had never made any real money.
Fools Gold
The stock market has been in an up trend for more than a year. Almost everyone is feeling good and many believe we are back in the old bull market with the previous high of the Dow Jones Industrial Average just about to be broken.
Mutual Funds: The Modern Den of Thieves!
Mutual funds were created with the idea that one person can specialize and manage the investments of a large pool of money from multiple investors. Before the great depression mutual funds were called investment pools and mutual fund managers were called pool operators.
Trade Stocks for Real
I read a comment by a forum member on another site earlier today that suggested that every investor should back test their system for at least twenty years. I disagree and will now tell you why.
The I Word is Coming to a Town Near You
Hello Inflation, it has been awhile, I see you on your way back again. Inflation? What inflation? Oh things like; Energy, diesel fuel, Aviation Fuel, Gasoline, Natural Gas, Milk, Wheat, Corn, Beef, Poultry, Hogs, Soy Beans, Building materials, paper, housing, Auto Prices, Health Care, Insurance, etc.
What Are You Waiting For?
Do you own any mutual funds? In an IRA or 401K or wherever. Privately or at work.
High Price/Earnings Ratios and the Stock Market: a Personal Odyssey
After some forty years of banking and investments, I retired in 2001. But since I do not golf, I soon found retirement to be very boring.
Diversification
Wall Street's watchword has always been diversification, but what does it mean and why do they say it?The standard Wall Street definition is flexible because each broker or financial planner will vary the portfolio based on your age and income. They say that the younger you are the more risk you should take and the older you are the less risk.
Planning Your Dive and Diving Your Plan - Trading!
A colleague of mine just returned from a scuba diving trip in Cozumel, which just happens to be one of my favorite places to dive. Anyway, she was telling me about an unexpected difficulty she encountered while swimming around the corral reef down about 85 feet.
Is the Stock Market for You?
Many people would like to diversify their portfolios to expand their holdings. Making it big in the stock market has been a dream for many people who want to strike it rich.
How (NOT) to Buy Mutual Funds
When it comes to mutual funds, there is a lot more to success than just finding a good one. Sad investment stories like the following are all too common.
Market Experience of a Naïve Stock Operator
Sometime in the third quarter of 1997, someone told me that I should play the stock market. Knowing nothing about the stock market, I turned to some colleagues to seem to know a lot about it.
Time Out
Are you paying any attention to your retirement savings? Do you have it in cash or an account with a broker? Maybe you have a professional manager who is investing your money as you add to it every month.Is your account increasing in value every year? If it isn't why are you letting anyone else invest for you? There is no point having a loser in charge of your money.
Investing in Dividend Paying Stocks
I was recently interviewed for a press release through a financial question and answer format. One of the questions asked of me in the interview was:Where do you think the stock market is headed over the next five years?My Answer!Charles M.