Stock Market

Dec

2013

What to Do When the Market is Too Hot

Lately, I’ve been reading quite a bit about how the market is getting overheated. Some even say the market is in or near a bubble and soon will burst. Once that happens, most expect large losses and price drops coming from the stocks in the market.

The S&P 500 is widely accepted as a good measure of overall stock market activity. So far, year to date returns for the S&P 500 are up 24.48% as of December 13, 2013. In 2012, the S&P 500 return was up 13.4%. As you can see, the market has had quite a good run over the past 2 years and investors should have done fairly well with their portfolios.

The higher returns over the past couple years has many investors worried. The stock market goes up and it goes down. We can’t always expect it to go up. Many investors and pundits become worried when the market reaches new highs, expecting that it won’t be long before it comes back down again.

This is irrational thinking. We should not be thinking about the market reaching new highs in the form of prices. The S&P 500 being at it’s all time high price really tells investors nothing. As investors, to really find meaning from the market price, we need to look at it in terms of valuation.

Looking at the market in terms of valuation means comparing the S&P 500′s price to the underlying earnings from the companies making up the index. Most recently, the S&P 500 has a P/E ratio of 18.4 on 12/13/13. A year ago, the P/E was 16.8. Historically, the average has been right around 14. So what this means is that certainly the S&P 500 is currently trading at a higher valuation than it was last year and even based on it’s historical average. However, one thing that should be clear is that a P/E of 18.4 is most definitely not a bubble.

While the market may pull back at some point to align itself closer to historical norms, I don’t think we will see a sharp decrease due to any sort of bubble burst in the stock market.

The stock market is getting heated. Prices are climbing. Valuations are climbing. Investors need to have a plan of action for when the market is starting to become overpriced. There are a few paths of action dividend growth investors may consider in this type of situation.

Continue with your plan. Yes, the market valuation is getting higher and many companies are becoming overpriced (not bubble territory yet but certainly prices that smart investors aren’t as interested in). However, there are still many dividend growth companies that are trading at reasonable or even under valuations! There are still quite a few companies on my list of Top 35 Dividend Growth Stocks that I believe are still at price points worth buying. Later this week, I’ll write an article highlighting some of the companies I believe still worthy of buying at current valuations. Definitely, if the investor is willing to do a little digging, more companies trading at reasonable valuations worth buying can be found. Many dividend growth investors, me included, will want to continue with our buying of more shares of dividend growth stocks. Until I cannot find a single company worth buying at it’s current price, I will continue to be a buyer for the long term.
Sell Put options. This is a method many investors can use to earn a return while waiting for prices to come down to levels where they are willing to buy. Selling put options means that you are giving someone the right to sell 100 shares of stock for each option at a given price. In return for this right or option, the person will pay you a premium at the start of the contract. You keep this premium whether they decide to sell their stock to you or not in the end (when the option expires). For example, I may sell a January 35.50 Put option to someone for Microsoft for a premium of $0.23/share or $23 total. I will receive $23 up front. Then if the price of Microsoft drops from it’s current price of $36.69 down to $35.50 (or lower), the person who bought the put option may exercise it forcing me to buy the 100 shares of MSFT for $35.50 each. My cost basis on each share will be the $35.50 I pay minus the $0.23/share premium I received. My cost basis per share is then $35.27. This means I am buying the shares at a 3.87% discount from where they are currently trading. If you are willing to buy at this discounted level then you may want to do the option. If not then I would advise not doing the option trade. Option trading is an advanced strategy and I would recommend anyone interested to do a little research before jumping into this strategy.
Continue holding current positions, hold off on buying anything new and collect cash for when prices come back down. If you feel prices are getting too high and are not comfortable buying anything with the market so heated, then one option is to put your plan on hold. Collect the cash you normally would use for buying and keep it in a savings account. Accumulate this cash so that you can put it to use when market prices come down to a level you are more comfortable buying at. You may want to hold your current investments rather than selling because you want to own for the long term, you don’t really know what the market is going to do from this point (could continue going up) and you want to collect dividends.
Sell out of current investments, collect cash for new purchases when market prices come down. There are certainly some investors that may feel more comfortable selling their stocks right now and getting out of the market completely. This isn’t what I’d recommend, but certainly if that is what makes you able to sleep at night then that is what you should be doing.

Personally, I feel I am still able to find good valued companies worth buying, even in today’s heated market environment. I have no idea what the future direction of the market will be.

The year 2014 could bring a small slow drop in prices, a large drop in prices, another large gain in prices. We really don’t know. There is nothing stopping the market from continuing it’s climb eventually to reach true bubble territory.

I am a long term investor, I buy my companies for the long run. I won’t sell them unless I believe they are trading at absolutely ridiculous valuations, which they currently are far from.

My personal plan is to continue with my plan. Making purchases of new shares and new companies as I have money available. I am becoming more interested in options strategies and may decide to implement some of those in 2014 but feel I must do a little more research before jumping down that path.

How about you? Do you feel the market is valued to high? Are you afraid of a crash soon? Are you continuing to buy or holding off or trying new strategies? Share your thoughts in the comments below!

Jul

2013

What Do You Do When You Think Markets are Expensive?

Of all the financial commentary that appears online every day/week/month/year, by far the most interesting to me are Howard Marks’ monthly memos. In particular, the last two have been packed with insights, and with the most recent one being released a week ago, I wanted to share some things that could be beneficial to private investors. Specifically, I wanted to talk about a section in the memo entitled “Investing in a Low Return World”.

A time for caution?

Anyone with an appreciation for financial market history will admit that timing the market in any capacity is extremely difficult. This is particularly the case for more passive investors. Howard Marks is most assuredly not a passive investor – in fact, a good argument could be made that he is one of the five all time best investors ever. He has shown an ability to take risks at times when risk-taking has been well paid, and has also shown the ability to lower his risk levels during periods where investors are not demanding adequate compensation for risk-taking.

The crux of Marks’ last two investor letters has been: It’s time for caution. I think it might be wise to heed his insights.

Given the environment, what does Marks suggest?

6 options – some of them not so good.

Invest as you always have and expect your historic returns
Invest as you always have and settle for today’s low returns
Reduce risk to prepare for a correction and accept still-lower returns
Go to cash at a near-zero return and wait for a better environment
Increase risk in pursuit of higher returns
Put more into special niches and special investment managers.

Lets look at these briefly. Option 1 is interesting, but if you believe that valuations ultimately matter (and I do), then I agree with Marks here – this is “sheer folly”. Option 1 is out.

Option 2 is the most sensible, low maintenance option on the list. Continue to invest as you have always done, and be aware that returns may be lower (or higher) than they have been in the past. Again, as Marks says: “sensible, but not highly satisfactory”

Option 3 and 4 are similar, given individual investors rarely have access to some for the tools hedge fund managers use. There are arguments to be made for reducing risk depending on where you are in your lifecycle of investing (those closer to retirement may be more risk adverse for example), but the question remains – are you willing to accept a return of zero on your cash assets to be insulated from a potential correction? Most aren’t.

Number 5, in my opinion, is the worst of the bunch. Firstly, investors are typically bad at identifying their risk tolerance, and are most likely to say they have a high risk tolerance following a sequence of strong returns,. This is a terrible combo. Secondly, any time investors increase risk to compensate for low returns, I start to become concerned. It is very similar to reaching for yield ion dividend stocks – at some point you are ensuring a nasty shock down the road from mispricing risk. Do I want to be part of that crowd? Not at all.

Number 6 is the most interesting for me. This one isn’t easy however. And pursuing this means that you implicitly believe that a) markets are inefficient and b) you can identify people who can take advantage of it. Not everyone believes this, and not everyone can. This is the option I have been pursuing recently however, and I’ll share some of the areas I’m hunting in.

Special Niches and how to find them:

Everyone knows that I’m a fan of listed investment companies. Luckily for me, there are a number of listed investment companies that focus on alternative or special niches. These funds include (but aren’t limited to) companies such as Bailador Technology (BTI), Australian Leaders Fund (ALF), Watermark Market Neutral (WMK), Monash Absolute (MA1), Blue Sky Alternatives (BAF) and Global Value Fund (GVF).

All of these companies focus on niche markets where mispricing can occur. Most of them have reasonable track records. So what’s the kicker?

The fees are high. Most charge higher management fees and performance fees over hurdles, which may or may not be particularly demanding. But since you are paying for specialist investors operating in niche markets, you might argue that the fees are fair.

Now, its important to note that just because these companies operate in more niche investments, this doesn’t mean that they will be unaffected by any sort of turmoil in financial markets. While their portfolio performance is unlikely to be as heavily affected as some of the more vanilla LCIs, its almost certain that the trading price of some of these companies will fall substantially, leading to larger than usual discounts to NTA. This could provide some opportunities for savvy investors.

Conclusion:

Howard Marks, as per usual, has given investors some incredibly useful nuggets of wisdom in his latest newsletter. By considering the uncertain investment market that his firm faces, he has outlined some strategies that investors may use going forward. Importantly, the Australian market may offer some opportunities to put Marks advice into action, at reasonably low costs and low effort to the individual investor. With a number of fund managers providing easy access to niche investment markets, investors should investigate the merits of these particular managers’ offerings.

Sep

2012

Monitoring Your Dividend Growth Stock Portfolio

One of the great advantages of dividend growth stock investing is that you don’t have to be a slave to your portfolio. You aren’t a day trader staring at charts on your computer all day long. You don’t have to check your portfolio daily, weekly or even monthly if you don’t want to. You can travel, work, play and live your life without worrying how your portfolio is doing or if their is something you need to be doing in your portfolio. In dividend growth stock investing we are buying high quality blue chip stocks which are many times the leaders in their industries. These companies have shown a history of growth and consistently growing dividend payments. We can sleep well at night knowing management is doing a good job running these great companies and our stock value will hold up nicely.

Buy and Hold Portfolio

So dividend growth stock investing can be referred to as buy and hold. Yes as a dividend growth stock investor I prefer to buy my stocks and ideally hold them forever as I collect ever growing dividends year after year from the companies I own. However, sometimes things change. The economy changes, consumer behavior changes or management changes. Change can cause what was once a great investment for our portfolio to possibly be not as good. Since things can change it does require us to monitor our portfolio at times. So a benefit is that you don’t have to constantly be watching your portfolio day in and day out but I would not recommend a buy and completely forget approach either.

How Often Should I Monitor My Stock Holdings?

Ask that question to 5 different dividend growth investors and I imagine you will probably get 5 different answers. Some say you need to monitor monthly while others might say review your portfolio once a year. Here at Dividend Growth Stock Investing, I believe you should do a quarterly portfolio review. I plan my reviews for April, July, October and January after the completion of each calendar quarter. Now I’m not going to sit here and say I never look at my portfolio outside my plan reviews. I typically look at my portfolio daily and definitely weekly but this is more because I love stock investing rather than because I must be monitoring. I believe if you monitor once a quarter you will be doing fine.

What Do I Keep Track of When Reviewing My Portfolio?

There are a few things I like to look at when I do my quarterly dividend growth stock portfolio reviews. I monitor income earned by the total portfolio, income paid by the individual companies and do a review of the individual companies I own. You might also want to keep track of portfolio diversification and weighting of individual companies in your portfolio

The first and in my opinion most important metric to keep track of is the total income earned by your portfolio. I keep an Excel spreadsheet where I keep track of each quarter’s income. I want to make sure that my dividend income earned this previous quarter is higher compared to the dividend income earned in the same quarter one year ago. If this amount has gone down then I need to figure out why. Possibly a company decreased their dividend rate which will signal a sell for that stock. Another reason quarterly income could decrease is if I made a sell throughout the year and kept the proceeds in cash or investing in a stock with a lower dividend yield. Either way I want to make sure I understand what is happening with my income since this is my most important part of my portfolio as a dividend growth investor.

Next I review the previous 6 quarterly dividend payments made by each company I own. I want to make sure each company I own is increasing their dividend rates annually. When reviewing their previous dividend payments I should see that the rate has been increased at least once. Otherwise I will possibly want to review the company and think about making a change. As dividend growth investors we want the dividend rate to be growing. Our goal is an income that will be able to meet our financial needs while growing to keep pace or outpace inflation. Companies that aren’t annually increasing their dividends aren’t a good match for a portfolio with this goal.

I also like to review the individual companies I own each quarter. I look for any good or bad news that has come out in the last quarter about the company. I keep a file on each security I own since the day I bought it and will add anything I believe to be significant to that file. I also like to monitor the fundamentals of the company and the current valuation of the company. Is the company continuing to grow earnings? Is the company valued too high where I may want to think about selling or is the company undervalued where I may want to add to my position? On an annual basis I will do a more extensive review of each company to make sure the annual reported earnings numbers are growing, dividends are growing, debt levels are good, etc.

One last thing you may want to monitor with your dividend stock portfolio is the diversification and weighting of individual companies making up the portfolio. To help decrease risk of our investing portfolio it is important to have some diversification and to make sure that one or two stock holdings aren’t making up the majority of your portfolio. I typically review this when making new purchase decisions and try to keep the portfolio in balance with those new purchases. However there could be a big price movement during a quarter causing the portfolio to become significantly unbalanced which you may want to address. Since I don’t like to sell for this reason, I will try to solve the situation through new future purchases.

Conclusion

As a dividend growth stock investor you don’t need to be constantly watching your portfolio. This is one of the big reasons dividend growth stock investing is a perfect strategy for many investors who don’t have the time or interest of constantly watching their investments. I recommend reviewing your portfolio at least quarterly while others believe you can even get away with checking things out once a year.

Sep

2010

Successful Stock Market Timing Depends On Trend

Historically, the stock market is in general in Trends

Trend investors depend on the change to generate their work tactics. Simply put a stock market that simply can’t later be timed. However the market which trends up as well as down can be.

History indicates us the monetary stock market is generally trends. You will go back hundreds of years. You’ll look at the stock markets, commodity markets, Dutch Tulips, you name, & they’re most often in trends that do not trends.

History also shows us that trends might last much longer that anybody expects.

For example, after a huge upward trend during most of 1990s, U.S. stock markets have been in a downward trend (bear market) since 2000 to early 2003. Any chart will easily show you the trends.

For the next several years, in 2007, monetary stock market was in a strong uptrend. And then we suffered an additional declining trend, but members of the Swing Timing Alert make profits, instead of obtain fifty% losses that almost all traders have suffered.

Later a bull market in the 2009, the stock market has now taken sharp decline corrective remains near its low.

Over all, financial markets are in specified trends regarding 80% of time. This was the case for many years.

Sideways Stock market Are In fact excellent news

However what are these sideways occasions? The period that test our patience & our willpower?

The good news is that sideways stock market is always either the base or the top of the fresh trend. Which means the subsequent trend is across the corner when we are lasting sideways markets. We simply own to create certain we are on the board & profiting during it occurs.

This is where buying and sell investing arrives in. We generally determine the set of regulations which may determine when a trend has started. If trend won’t leave us. Even if this remains, we stay at the trend, regardless of how long it ends! Month or maybe years. Sticking on to the trend losses, as per our predefined rules, we quit.

Cut your losses short & let your winners run. Ever listen that saying?

Think about the ability of this type of trading approach is. You not at all fail to take a trend whether up or down. A high as well as less, you’ll get Whipsaw quick as market turns into unstable & lies trends take place in the stock market to merge and define how the subsequent trend can go.

If we discover a Whipsaw, the outcome will be a slight loss or benefit since our little regulations of money management, created in the system doesn’t allow fails to develop. But that is just the Whipsaw precursor to a upper trend. In actual fact, they may be regarded an interesting instance, because we know they are only planning our subsequent big trend & benefit.

80/20 Law

Have you ever hear of the 80/20 law, as well identified as Pareto Strategy? Dr. Joseph Juran invented the Pareto Principle, later learning the work of the Wilfredo Pareto, and financial expert of the 19th century.

The Pareto principle tells that a small amount of your work (usually approximately twenty percent) might develop a overwhelming bulk of consequences (in general about eighty percent).

Expanding Pareto to trading, it follows that just about eighty% of the gains should take place from only twenty% of the trades.

Which implies they likely might be numerous tiny trades that gain minute, however just twenty% of trades you will made about all the gains.

Consider how significant that generates every buy and sell!

After a little loss it is human to feel like giving up. It’s the sentimental battle that market traders have to succeed!

Markets are driven by emotions (concern and greed). But investors usually utilize the changes resulted by these emotions, to make their profits.

If you give into these feelings, you could lose!

Now at Swing Timing Alert, we always discover the latest trend with profits is close.

Members turn into nervous. Economic reports will become overly positive or negative. The number of reasons why the stock market can’t go higher (or lower) increase.

Soon after is when the big trade takes place, and we execute our large returns for the year.

It happened in the year 2008 when everybody was bearish, but our purchase signals in that month place us with fine more than eighty% returns.

At the end of the day

We are now in center of the corrective decline that lots of forecasters were calling the start of a latest bear market. One stock market letter is seeking the Dow at the sub 1000 level.

We have not still observed facts of such long term decline and have recently entered bullish positions in our aggressive approaches. Those bullish positions begin to unwind this week as stock market are strike ferocious selling, even after buying quite similar days last week.

The jury stays out. There is as yet no concluding answer. But understanding that you may be on proper side of every trend means you will be in the subsequent rally or bull market; or out of next steep decline or bear market.

These are a lot more than comforting thoughts. They’re important to beneficial strategies in difficult times.

You can’t expect to make profits on your investment without using a tried & tested system! Here’s the Stock Market Timing system which works effectively even in a crisis situation. Subscribe to Swing Timing Alert & learn the most effective stock market timing system for trading the Stocks.

Jun

2009

Swing Trading Software

Swing trading is a trading methodology using technical investigation in order to establish the predictable trading trend of a particular stock. Profit is earned by buying the stock at the low end and then selling it at the high end of expected trend. It is termed by others as channel trading or channeling and is best described by its famous short period of trading policies. Swing traders seldom hold on a position longer than five days. Most often they get employed and dismissed by a company on the same day. Swing trading is suitable to experienced individual shareholders and day to day dealers.

Swing trading happens very fast, as prices of stocks may rise within minutes. The time frame is very short for swing traders. They quickly identify a trend that has a tendency to have an extensive rise in stock volume. When the stock value reaches its peak then the swing trader quickly sells these stocks as fast as possible. This can only happen if the overall market of stocks has no specific prejudice. In other words, the market in general does not head in one particular direction. If it does, then it is very hard to recognize trending stocks because most of the stock prices just follow the market drift.

Swing trading software is now available to help investors and day traders in determining which stocks to buy and then when to sell these stocks. It is also known as Day trading software and is a great help in computing and predicting suitable stocks that will yield profit when bought during its decline in price and then subsequently sold during the rise in its price. Users of this kind of software will find it easy to swing trade stock for the reason that the software will do all the necessary computation within minutes compared to manual computing that takes hours long.

Swing trading software is currently being used by experienced and newbie investors alike. To be able to maximize the utilization of this kind of software, the user must be able to understand the different stages of stocks in a stock market. The first stage is called flat trading. In this particular period, the stock has recovered from a downward trend but is not yet ready to rise up yet. During this stage, the investors find the base of the stock. The second stage is called the upward swing. This is the tricky stage where the price of stocks constantly fluctuates. If the price goes up, then it goes to the third stage called resistance. In this period, the price of the stocks reaches its peak. After reaching the peak, the prices of the stocks will go downward again. This is the fourth stage commonly termed as downward movement. Once the newbie swing trader understands these stages, then he or she is ready to gain experience in swing trading.

Since the function of swing trading software is to identify the best trend of a particular stock and computer whether or not to swing trade that particular stock or not it is very similar to stock trading software. The difference is that in stock trading software any kind of stock, whether the stock will yield profit or not, can be processed. Swing trading software on the other hand is concerned with only fluctuating prices of stocks that have a low end trend first but will eventually pick up a high trend after a few hours or a couple of days at most.

Most swing trading software available in the market today offer real time results. This is an important feature for the simple reason that swing trading is mainly based on a spike in the price trend of a particular stock. The user of the software must be alerted during the time the rise in the prices happen for the software to be considered as a real-time application. Once the software alerts the user, the latter can now make the suitable decisions based on the data and information that the software has gathered together with the latest news and events that are currently happening in the prices of the stock to be swing traded.

Also similar to swing trading software is the option trading software. The former is used as an independent program or application from Microsoft Excel. It has been programmed using a different programming language by its developers. Most swing trading software boasts of its user-friendly interfaces and easy to understand instructions and step by step guides in the world of swing trading. Option trading software, on the other hand, is a stock trading option application or program that is used with Microsoft Excel. Most kinds of option trading software use Black-Scholes option price model in order to imitate and evaluate different stock option trading stratagems. It is primarily used by experienced and veteran swing traders as it is not as user-friendly as most swing trading software.

Investors and day traders engaged in swing trading stock buys low priced stocks that have a potential trend to have high prices in just a short span of time. They make use of expected market buy and sell algorithms or a scientifically calculable set of trade rules that can predict the future of stocks in the market. As of the year 2000, many banking firms invest time and money in researching these algorithms in order to further expound the theories behind it. These investments and research led to the further development of the swing trading system. This system is now widely used in stock markets all over the world in analyzing the rate of growth of a particular stock in a short period of time.

Today, Forex markets are one of the largest buy and sell markets available in the world and also one of the most accurate. The different rises in international commodities like oil and natural disasters like hurricanes and earthquakes can send the Forex market into a downfall or steep climb. Forex Swing Trading is the application of swing trading into the Forex market by taking advantage of the surges in international commodities, the different financial status of multi-million companies together with calamities and disasters that strike the heart of these companies that may give a rise or fall to their stocks.

Veteran investors and experienced traders take advantage of option trading software together with swing trading strategies and other swing trading applications in order to make huge amounts of profit. Together with the latest news regarding stock market prices usually coupled with a good hunch, these people have matured into making instant decisions about buying and selling of stocks. By employing a good swing trading strategy, they find out what particular type of stock to buy at a particular time and when the price this type of stock will skyrocket. When the prices are at its peak, they will now sell these stocks in order to garner profit.

The most fundamental swing trading approach includes extensive preparation for the upcoming trading week. Most veteran investors prepare during the weekends in order to be ready for the opening of the stock market on the first working day of the week, usually Monday. They spend this time gathering the necessary data and information coupled with the necessary computations and predictions of the stocks that can be potentially swing traded. Swing trading software, option trading software and forex trading software are a great help in gathering accurate computations and predictions. You will necessarily find this kind of software in the possession and use of experienced swing traders.

Although swing trading is a famous way of making profit thru buying and selling of stocks, it is accompanied with huge risks. There are times when the prediction using scientifically based computations will not follow these computations. This is a big risk that swing traders undertake whenever they buy stocks. However, by using swing trading software, option trading software and forex trading software, the risks involved are greatly reduced. Just make it a point to buy the software with the most accurate computations and predictions in order to have more precise data or information in choosing what type of stock to trade at a particular span of time.

To find the right swing trading software, the application must have numerous features that will help the swing trader in gathering the right information and computations in order to justify their predictions. Since a swing trader cannot be present at the stock exchange 24 hours a day, the swing trading software must offer live updates regarding the latest in stock trends. This should compose of stocks that have a huge potential in rise coupled with an accurate prediction of the trend of the stock. Also, the swing trading software must also have compatibility with different mobile form platforms. Given that a swing trader cannot be in front of his or her computer everyday, whenever there are updates in the stock market, an alert in the for of a text message must be sent to the swing trader in order to for him or her to initiate the proper action. The swing trader must also have access to the software thru his or her mobile phone in order to engage in trading the stocks even when not in front of a personal computer terminal.

Stock Market

What to Do When the Market is Too Hot

What Do You Do When You Think Markets are Expensive?

A time for caution?

Special Niches and how to find them:

Conclusion:

Monitoring Your Dividend Growth Stock Portfolio

Successful Stock Market Timing Depends On Trend

Swing Trading Software

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A time for caution?

Special Niches and how to find them:

Conclusion:

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