Investment Philosophies -- By: Bill Kraft
Copyright 2009, Makin' Hay, Inc., All Rights Reserved
Bill Kraft
Editor |
The classic investment philosophy taught to preceding
generations has been "buy and hold." There is little question that
"buy and hold" worked well over long periods of time and those who
bought stocks and held them for 20, 30, or 40 years often had a decent
gain, even after inflation. Today, however, we might be hard pressed
to convince a 60 year old who has just seen his 401(k) or other
portfolio drop by 40% or 50% in the past year that buy and hold is the
way to go. Undoubtedly, someone will say just hang on, it will come
back, but the fact is it won't if the investments were in Washington
Mutual, or Bear Stearns, or Lehman Brothers, or the like. That money
is gone forever and many times with it the quality of a retirement.
I don't mean to say that I am completely against the buy and
hold approach to investing as long as the investor has an answer to
the question: Hold until when? I personally use a technical approach
as the trigger to exit a position, but whatever an investor is going
to use as an exit strategy, I believe anything is better than hold
until I die. Unfortunately those brokers who have sold the public on
the buy and hold strategy rarely include any strategy to get out when
things turn south -- and at some times, the markets always do turn
south.
Among my objections to buy and hold are the possibilities that a
stock can go to zero, that an investor may have an important need for
his money at a time (like now) when stocks are depressed, that a drop
of 50% means a position must move back up 100% just to get back to
even (and that doesn't usually happen very fast), and that the
investor who holds until death may never enjoy the qualities of life
that any gains may help provide (though his heirs probably will).
Having lived long enough to watch a lot of people live their
lives, I am convinced that more folks need additional streams of
income so they can pay their bills each month than need to have buy
and hold positions that may or may not show great gains at some time
in the future when the money is needed. If we just look at someone
today who is about to retire and who had relied upon investments in a
401(k) to get him through his retirement years we can easily see how
he would be better off having created additional streams of income
instead of having been resigned to a buy and hold investment. Social
Security may provide a stream, but we know that at the very best it
can provide only a small portion of the solution for the new retiree
whose investments in both equities and real estate have been devastated.
My personal investment philosophy does have a place for a
modified buy and hold strategy. The modification is that I have an
exit plan when the market begins a move against me. Perhaps even more
importantly, however, I believe that creation of diverse streams of
income from different sources can be a critical element in assuring
financial comfort. My new book, "Smart Investors Money Machine"
(Wiley & Sons 2009), that is scheduled for release shortly addresses
many of the ways almost any of us can create these streams of income
with just a little effort. Most of us need money now, at the end of
the month, so we can pay our bills, but few of us have streams of
income besides our jobs to enable us to pay those bills. The fact is,
as I demonstrate in "Smart Investors Money Machine" , that there are
many ways we can create added streams of income that bring in regular
cash without a great deal of time and effort. Generally the most time
and effort required to add these streams of income is expended in
learning what to do and how to do it. As I explain in the book, the
methods can be relatively easy to learn and can be very rewarding in
terms of enhanced lifestyle and permitting more time for the things we
enjoy.
Bottom line for me is that I'd much prefer enjoying a number of
income streams than agonizing over losses in a 401(k). Who wouldn't?
The fact is, that nearly everyone can add streams of income in their
lives once they have the know-how.
Good Trading!
Bill Kraft
Success Trading Group -- by the Success Trading Group Team
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Here is a play from the Success Trading Group:
General Mills Inc. (GIS)
Our Success Trading Group members scored another winning trade this week
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Have a great weekend and we'll trade next week.
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Option Trader -- by Bill Kraft
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Here's a look at a trade Bill is currently working on:
Jos. A Bank Clothiers Inc. (JOSB)
In reviewing volatility on Friday, I came across a skew in
JOSB that could lead to a favorable situation in a calendar spread on
JOSB. The implied volatility of the Apr 30 calls was near 79% while
that of the Jul 30s was about 14 points less. Situations like that can
sometimes make be the set-up for a calendar spread selling the Apr
premium while buying the July. I'll need to look at the beginning of
the week to see if the situation remains.
Good Trading!
Bill Kraft
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Trend Trader -- by Bill Kraft
Trend trading as we try to practice it is a form of momentum trading. We prefer to try to capture profit out of the middle of the trend rather than try to catch reversal at bottoms and tops.
Here's a look at a trade Bill is currently working on:
PowerShares DB Commodity Idx Trking Fund (DBC)
This ETF that tracks the relatively depressed commodity
index gapped up on Thursday to jump through a resistance. By late
Friday it was still holding just above that level so it could well
represent a potential buy if it can remain above the newly forming
support around the $20.60 level.
Good Trading!
Bill Kraft
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$10 Trader -- by Bill Kraft
We really enjoy trading stocks that are $10 and under. Often they provide the chance to enjoy high percentage gains and, of course, at worst, the risk is limited to what we paid for the stock.
Here's a look at a trade Bill is currently working on:
F.N.B. Corporation (FNB)
In spite of the recent issues concerning banks and the
banking industry, FNB has been able to maintain an uptrend since early
this month. As of late Friday, the 10 day moving average was above the
20 as the stock traded just above the $7 mark. While this one could
stall for a while or even retrace, I have it on my radar as a possible
entry if it can stay above the 20 day MA and get off the $7 mark.
Good Trading!
Bill Kraft
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