Good From Bad

Sometimes good things come out of bad situations. I know you know this is true and that at some point in your life, you have experienced just such a result. Likewise, there are good things that can come out of the horrible year we had financially in 2008.

First of all, Americans have been notorious for a lack of focus regarding savings. Most of us have been indoctrinated by advertisements from credit card companies to believe that that credit is good; you can charge your way to happiness and pay back the money owed at your leisure.

As a result, few people have taken the time to set aside substantial savings out of their earnings – studies show most people have no savings at all. Now, Economics and Investing 101 tell us to always start out with debt reduction before you save or invest. Then, when the credit cards are paid off, start a savings account equal to at least six months’ of your expenses just in case your work goes out from under you (which is much more likely in this economy than in that of last 75 years).

Then, and only then, can (and should) you begin to put aside money for an investment portfolio made up of equities, real estate, bonds or various other implements to make your future more secure.

So forgetting what 2008 did to your stock portfolio or your retirement account, press on in 2009 to make lemonade out of the lemons. Sit down and take that deep breath we all need to clear the cobwebs and give us an objective view of our situation today.

List your assets in terms of what you own, and what do you still have in your brokerage accounts or banks? Do you have any savings at all to speak of? Then make another column to list your liabilities: what do you owe on your home, your car, your credit cards?

The first, absolutely the most essential, goal is to pay down those nasty credit cards. You probably won’t be able to pay off your home if you have a mortgage, but that’s okay. If you can pay down the credit debt, you’ll be amazed by both the financial and psychological benefits you’ll experience.

How are you going to do this? Work out a plan. Can you work more hours at your job, put in some overtime so that you can apply that additional paycheck amount directly to your debt? Is there something else you can do on Saturdays for a few months to give you some additional money? Now, I know in this economy people are more worried about keeping the jobs they already have than adding new ones, but it never hurts to think about this.

The other way you can generate more money is to cut back. And here’s where the good also comes from the bad:

Americans are also notorious for indulging their every whim, pampering themselves beyond measure compared to most of the world. What if you spent a year not buying cosmetics at the department store but chose to buy drugstore versions instead? What if you went to the library to borrow books rather than hurrying down to Barnes and Noble or going online to Amazon whenever you wanted something to read?

What if you didn’t eat out three times a week, but cut it down to twice, or even once? What if you split meals at restaurants and banked the difference in savings? In other words, look at your life and figure out where-for one year -you can make cuts that will engender a sizeable amount of cash into your wallet.

Make it a challenge, or even a game; put together a contest with your friends to see who can save the most money by making these kinds of cuts for a year. You’re not going to die if you walk a few blocks rather than take the subway or drive your car, right? You might even wind up with additional benefits such as better health, weight loss, or just the general feeling of having done something you set out to do that would benefit yourself and others.

Go for it. Be in control of your finances in a way you haven’t been for many years, and you will most likely experience a joy and a self-confidence that’s worth its weight in gold. Listen, there are enough things in life that we have no control over, so why not look at those things we can exercise a little control about, and use them to our advantage? Lemonade that you’ve squeezed yourself from your own lemons is even sweeter than store-bought!

Rita is a successful private investor and leads four investment clubs where she has taught hundreds of women about stocks and finances. She is the chairperson of the board of an international non-profit organization and devotes much of her time to a variety of charity work.

Year End Resolve

I’m writing this at the tail end of 2008, but you won’t be reading it until 2009. That’s a bit strange, isn’t it? But it allows me to make a point at the end of one year that hopefully will carry you into the next.

This has been the most disastrous year in memory financially and investment-wise for most of us. I’m assuming you are included in this, unless you just happened to put your money somewhere in 2008 that didn’t lose its value. If you did, you should be writing these articles, not me. Because my husband and I lost a bundle.

Oh, we’re not going to the poorhouse or begging for food scraps at the back door of California Pizza Kitchen, but our net value has certainly been reduced. And we’re retired, so we don’t have an opportunity to recoup those losses. We just have to “count it as a vegetable and move on,” as my Weight Watchers friend says, “You made a mistake, accept it, get over it and get going with the rest of your life.”

So at the end of this frustrating and disappointing year, I’d like to recommend a few tips for 2009, tips I hope you will take to heart and employ in your future, no matter what your financial situation is.

First, do some research to find two or three good stocks that should do well in the coming year. If President Obama, for example, is going to be able to push through an infrastructure program for the U.S. to spruce up roads and bridges and such and to give jobs to people, which companies (and stocks) would stand to profit from such a venture? Caterpillar?

John Deere? Cement companies? Now, you’ve learned a great lesson in 2008: there’s really no way to pick with certainty stocks that will go up, because the economy is subject to so many outside forces that can topple it. But it never hurts to make intelligent assessment and decisions based on good, solid research. But don’t overdo it; a few stocks in 2009 will do fine. Don’t overload.

Second, keep some cash back. Who knows what’s going to happen in the coming months? So it would be prudent to hold back some cash just in case there are some good buys out there in March or April. Instead of spending your entire cash amount at the beginning of January just nibble. Buy half the amount of shares you would like to wind up with. Then wait a while, and buy more.

Third, watch the portfolio you build more carefully than you have in the past, especially while the world sorts itself out, we install a new President, and world affairs reveal themselves. In the past, it was enough to check your stocks perhaps once a month; in fact, there were many professionals who advocated a hands-off stance. Not now. You have to monitor someone who is recovering from a terrible disease a lot more closely than someone who has been healthy. Your portfolio – and mine – has been sick. It’s imperative that we be careful and observant with what we own now more than ever.

Fourth, set perameters. If you buy a stock, what percentage of loss of the value of that stock would you be comfortable with? Ten percent? Twenty percent? Whatever you decide, set this as a mental sell so if it hits that percentage of loss, you have already made your decision about selling it. Unemotional: this is the word for the way you are going to relate to your new stock portfolio in 2009. You’re going to make decisions based on facts and cool-headed logic, and you’re not going to let losses get the better of you in the coming year.

Fifth, and finally, enjoy life. The stock market is not going out of business, you need to stop fretting about your losses and get on with your life. It does you no good at all to dwell on what happened to your assets in 2008. Don’t be telling horror stories to people into September of 2009 of how awful 2008 was to your portfolio. No one wants to hear it. They have their own horror stories to tell. Instead, be thankful for the good aspects of your life that are still intact, and wake up each morning looking forward to what that day has to offer. Your mental health is far more important than your assets any day of the year.

And Happy New Year!

Rita is a successful private investor and leads four investment clubs where she has taught hundreds of women about stocks and finances. She is the chairperson of the board of an international non-profit organization and devotes much of her time to a variety of charity work.

Wolves at the Door

There’s a dark underbelly to the investing scene that is becoming more and more exposed as things deteriorate around the world: Mankind as a whole may be getting better (doubtful), but certain individuals are still greedy, avaricious, and deceitful.

All you need to hear to know what I’m talking about is Bernard Madoff, the latest guy to scam and cheat his way to the top, taking $50 billion (that’s billion, folks! Billions!!) with him and his investment strategies, bankrupting nonprofits and celebrities alike, no prejudice toward either one.

It’s an equal opportunity scam, but you feel sorrier for the nonprofits and elderly retired folk who lost everything than the moguls who can afford the loss with less radical change to their lifestyles. Steven Spielberg, Mort Zuckerman (editor-in-chief of “US News and World Report” magazine), and many other Palm Beach millionaires are suffering great losses, as well as “average” people who poured their entire life savings into Madoff’s investment schemes, thinking that they were set for the rest of their lives and now finding out that at 70 or 75, they might have to go work at WalMart for some extra support money.

We are just beginning to be able to assess the damage, as this news is so current that all the victims haven’t risen to the surface yet. Stay tuned. There is certainly more bad news to come about the Madoff scandal and those individuals and organizations financially affected.

And Madoff? Is he repentant? About as repentant as the Governor of the state of Illinois, Rod Blagojevich, who refuses to admit any wrongdoing or felonious activity concerning his desire to sell for top dollar the senate seat vacated by President-Elect Obama.

Which is to say: no repentance at all. No word of “sorry” or “oopsie.” “The twinkies made me do it.” “Greed got the best of me.” Nothing. Silence. Sure, their legal advice is probably “Keep your mouth shut; say nothing.” I wonder if they will ever — even if after convicted, God willing — say anything that tells us that they feel the slightest remorse for their behavior.

Madoff’s actions took place over a long time. There are interviews on television with investors in his company who said that back in the ’60′s and ’70′s and even into the ’80′s, Madoff was an upright guy. Nothing tricky. At least that they knew of, obviously.

But if you begin to put the pieces together about this man’s business policies, you start seeing that there was something woefully suspicious years and years ago. The fact that government and financial agencies didn’t investigate or have the power to stop him is a subject for another time. I’m focused today on the guy himself, and what kind of person can casually bankrupt nonprofits trying to do good around the world without batting an eye or missing a night of sleep.

Don’t tell me mankind is getting better. I don’t believe it. And I think you see the worst in us when it comes to money and bank accounts. It brings out every greedy, selfish, nasty attitude a human can have.

And somewhere along the way, those investors who were enticed by the promise of double digit earnings year after year with Madoff’s firm need to stand back and look in the mirror, take stock of their own culpability for being greedy enough to believe those promises. What ever happened to the “high returns, high risk” mantra that has been the foundation of Wall Street investing for decades? Did those people — Spielberg and Zuckerman included — just turn their investments over to others or did they actually believe that they would be immune to the high risk of losing everything because it was too good to be true? Which it almost always is.

I don’t know the answers to the questions I’m asking. It’s painful enough just asking the questions. But asking them is what we all need to do of ourselves: what is my own greed level in my investments? How gullible am I to fall for the scams and schemes of those who are promising me that if I am allowed to be a part of the special inner circle of investors, I can make a lot more money than the average Joe? Pride there? A bit of arrogance? You bet.

Doing your due diligence is good, but it’s not enough. The way things are going in the stock market, the investment environment and the political landscape around the world, we need to keep taking our moral and spiritual temperatures as well. They are, obviously and eternally, intertwined. And there are surely more Bernard Madoffs and Rod Blagojeviches out there lurking, waiting for guileless victims to fall into their traps.

Puts a whole new spin on the phrase “sound investing,” doesn’t it?

Rita is a successful private investor and leads four investment clubs where she has taught hundreds of women about stocks and finances. She is the chairperson of the board of an international non-profit organization and devotes much of her time to a variety of charity work.

Nibble, Nibble

Nibble. I’m on a diet where you are required to eat six small meals a day instead of what we’re used to consuming in this country: three squares daily. Nibble, nibble.

It’s something that we as Americans have to retrain ourselves to do in our eating habits … and something we should learn to do in our investing situations as well.

A long time ago the phrase for this was called “dollar cost averaging.” We’ve discussed it in these columns of TheSavvyGal.com during the last few years. But at no time in the last few decades has it become more important to understand and utilize than now then when the economy seems to be collapsing around us and every day brings news of impending doom and gloom, followed by euphoria because someone somewhere happened to “get it right” for a change.

This morning as I write this, for example, Hewlett Packard, the computer maker, announced better than expected earnings for their quarter. Now, this doesn’t sound like much, but in this economic climate, it’s a miracle, it’s worthy of a ticker tape parade, trumpets sounding, loud applause. As a result, the share price of HPQ is up around 9 percent as I write this. If you were a shareholder of HPQ before the market opened this morning, you’d be out dancing in the streets to celebrate. A stock that is actually going up!! Who can remember such a thing?

But wait … there may be more! Stand by. Watch and listen. The market has another five hours remaining in the day today before it shuts down for a brief sleep overnight. It’s entirely possible that by the end of the trading day today, HPQ could be DOWN!! So before you put on your dancing shoes, come back to reality. Nibble, nibble. Baby bites. Not big gulps but little mincing tastes.

Let’s continue with HPQ as an illustration. Let’s say that a few months ago you wanted to buy a computer stock, and this was the one you felt would be the winner. You had enough money in cash on hand to be able to buy 1,000 shares at the current stock price. So you make your purchase; you’ve now used up all the money you had available to buy HPQ. It’s not the end of the world if you decide to do it this way, but let me suggest an alternative that in this kind of volatile market might work even better for you.

Let’s say you want to eventually spend the entire $1,000 you have on HPQ stock. (The amounts can change but the principal is the same, obviously.) But you want to do it in a nibbling manner. So on a day when the stock is down a bit (not hard to find in this market, which is the bright side of your quest), you buy $250 worth. Now, if you’re with a deep discount online brokerage firm, the commission you’ll pay will not be substantial. You buy your shares at the going rate. Two weeks later, the stock takes another hit, so you buy another $250 worth. You keep doing this until you have spent the entire $1,000 on HPQ stock, but you have managed to get it at an average price that is considerably lower than it would have been had you bought it all at once. You’re averaging the cost of the shares lower because you’re buying when the stock takes a hit downward.

Now the only way to go is UP! Right? Well, not always, but dollar cost averaging or buying in nibbles instead of all at once enables you to stack the odds in your favor more when the market is volatile and sliding downward than when the stock market is on a bull run and always moving upward. It’s one of the few advantages to investing when the market is in bear mode, and one which you should participate in when and if you can.

Nibble, nibble. This might be one way to prevent stock indigestion: that phenomenon of buying high and then having to sell lower. Here’s some homework for you: Pick a stock you are interested in and pretend to buy a certain dollar amount worth when you see it is down. Then do the same thing two or three other times and see what the average cost of each share would be compared to buying all your shares on that first purchase date. You’ll be surprised at the results and it will make you a confirmed stock nibbler.

Rita is a successful private investor and leads four investment clubs where she has taught hundreds of women about stocks and finances. She is the chairperson of the board of an international non-profit organization and devotes much of her time to a variety of charity work.

Big Change

You’ve heard this before: We are on the brink of major change for the United States of America. We have elected the first African-American president, and, significantly, put into power a party and a platform suggesting that the old ways of doing things are just that: old and outmoded.

In a few months the new regime takes over, but you can be sure that from this day forward, new ideas and new people will be in the forefront of the planning and the transition. We’re going to be hearing a lot about the economic policies and plans of the new administration, as everyone scurries to at least look like they’re solving the problems of the previous administration. After all, when you build a political platform on change (for the better), you’d better make sure you’re not sitting still. There are people watching your every move to see what you will put into practice.

Now, as an investor, and as someone who perhaps has had a downturn in your fortunes in the stock market, you’re going to be watching the new administration pretty closely. You’re going to want to know when it’s safe to start buying stocks again, which means your confidence is going to have to come back in leaps and bounds.

After the Great Depression of the late 1920s and early 1930s, of course it’s common knowledge that many people in our country lost everything: homes, businesses, and stock fortunes. Most of those people eventually re-bought homes and settled into new jobs or businesses. But statistically many of them never invested in the stock market again. And although it took quite a few years before the stock market had regained its Pre-Depression values, eventually it did. And those people who refused to go back into equity investments missed out on profit for their portfolio for years to come.

There is much truth to the adage that when you fall off a horse, the smartest thing you can do is to get right back up in the saddle again as quickly as possible. Why? Because the longer you delay doing so, the more your fears take over and prevent you from overcoming them. It’s not just that the horse’s feelings will be hurt. It’s not to prove something to the watching world … because the world may not be watching. It’s to assure yourself that the fear you experience is not rational and, therefore, needs to be mastered.

The same applies to the current stock market. While what has been happening in the last weeks and months has been absolutely startling and shocking, with wild upturns and more downturns than a roller coaster, things appear to be settling down. A new president – and the election finally being decided – goes a long way toward giving stability to a market that desperately needs it.

Although there is much to be done to correct the problems that have caused the economic and market downturns in the first place, we can assume the government will focus its attention in the months to come on doing just this: solving the problems. After all, it’s what we elect officials for: to make things better.

So what does this mean for you? Perhaps you have lost 30 or 40 or 50 percent of the value of your portfolio. You have vowed to yourself that you will never let this happen to you again. So you have vowed to find somewhere else to invest your money. Well, where exactly would that be? Real estate? I don’t think so! It’s as scary as the stock market, with much less liquidity and ease of access, and more worries built in. Gold or silver? Not so much anymore; they are higher, certainly, in value, but not the great investment one might think in these times. CDs and money markets pay very small interest rates and look to be doing the same for a while.

So the best thing you can do in this economy and with a new administration is to do your homework now more than ever, find sectors that will stand up well in the next few years for whatever reason, and then find good companies within those sectors with good balance sheets, good prospects for the future, and buy them. Buy them a bit at a time, nibble instead of gulp, and then stop worrying. Watch them once a week or once a month, not daily. The daily fluctuations of this market will cause you to run to the PeptoBismol frequently.

And take a deep breath. Watch a movie. Chat with a friend. Keep on living. Life truly does go on, even past Election Day, for the losers as well as the winners, and for the stock market as well.

Which could make us all winners.

Rita is a successful private investor and leads four investment clubs where she has taught hundreds of women about stocks and finances. She is the chairperson of the board of an international non-profit organization and devotes much of her time to a variety of charity work.

How Are Things?

Well, how are you doing? I mean, how are you doing financially? How are your nerves? Are you sleeping at night … or are you worrying about trying to find a second job? Or perhaps, you’re just trying to keep your primary job?

We’re hearing a lot lately about the state of the economy, the inherent dangers of the bailout by the government for banks and other institutions. To top it all off, we’re in the midst of an election year, never a time of certainty to begin with.

You may be sitting down with fear and trembling to see how your 401k plan is doing, or you may be looking at your brokerage statement a bit closer this month to see if the value of your portfolio has gone down so much that you are going to cry.

I know some people who refuse to do either of these things, choosing instead to disregard their portfolio balances, much as an ostrich would bury its head in the sand to avoid the harsh realities around it. Never before has the coping behavior of an ostrich been so duplicated as in the last few weeks and months. “What’s the point of looking?” I’ve heard people say. “It will only depress me, and there’s nothing I can do about it anyway.”

This coping mechanism rears its head in other arenas of life too. The woman who finds a lump on her breast refuses to go to the doctor to have it analyzed. Instead, she figures it will go away. The relationship going south is not attended to because everyone knows relationships get better when they are ignored.

I’m obviously being sarcastic. The truth is: facing your demons and your obstacles is the surest way to begin to overcome them.

And in the stock market and investing world, a reality check can be the healthiest thing you can do. Why? Because it is better to know where you stand, so that you can first weep and wail and bemoan your existence, and then move forward to plan and adjust and get on with the cure. As painful as the exposure to your losses may be, refusing to see what’s what can be even worse.

So … suck it up! Take a deep breath, a cleansing breath, and then pick up that bank statement, check out that brokerage accounting of your portfolio. If you’re like most of the people around you, you will have suffered some losses. Depending on the kinds of stocks or other investments that you’re in, the losses can be single digit or even double.

Once you assess the damages, perhaps write it down. Seeing it on paper right before your eyes can help clarify your situation: “I am down 12% on my stocks.” There, you’ve said it. (Say it out loud.) Don’t start by trying to assess blame: a broker, your boyfriend, a magazine article that led you astray. Instead, be prepared to move forward starting today with a new plan.

If you are in good, solid equities, companies that are the staple of the United States economy, you might want to sit tight and do nothing. Statistics prove that these companies — and their stock prices — will most likely come back. So if your losses are only on paper and you can live with this reality, just file your documents away and get on with your life, making a mental note to check back from time to time on how those stocks are doing.

If you can’t do this because it’s making you crazy, then think about selling at a loss and going to cash. You will have a nice tax write off (always look at the glass as half full rather than half empty), no capital gains to pay, and now you’ve got cash, which, unless the world does collapse, is safe. Find a safe haven for your cash: a money market, a short-term CD, and make a mental note to check up on the market regularly so that when it does start to go back up, you can buy some good stocks at a lower price. Think of it as waiting for Macy’s to have a storewide sale and you’ve got cash to buy a few outfits and some new shoes because you have money in the bank.

And remember, when all else fails, the old adage that “things could be worse.” If you still have a roof over your head, food on the table, friends and family to support and love you, you’re way ahead of most of the rest of the world. So just consider it a sea change in your life that you need to adjust to … and get going on making plans for the future.

Greed is Not Good

In the classic 1987 movie, “Wall Street,” starring Michael Douglas, his character, Gordon Gekko, tells his listeners in a now-famous speech: “Greed is good.”

Gordon Gekko lied to you. Greed is NOT good. If you need or want proof, just ask the vast numbers of people who bought homes they couldn’t afford because greedy loan officers promised them the moon and delivered cheese instead.

Our entire real estate economy has collapsed on the basis of the greed of both homeowners and home lenders. The homeowners are losing their homes, going into foreclosure, and often declaring bankruptcy. The mortgage lenders are going out of business and turning innocent employees who had nothing to do with the greedy aspect of the business out to search for new jobs. It’s a mess … and it can all be laid back on the footsteps of greed.

We are all guilty of greed to some extent, if we were to be honest with ourselves. I have noticed children — my own and other people’s — do not need to be taught to be greedy and selfish; it comes quite naturally to them. They want what they want when they want it. I have seen this in teenagers, who have established a sense of entitlement, determining that their parents and the world owe them something for just existing, whether it is a car or a huge allowance or the latest technology toy or gadget.

And it has carried over into adulthood for many. A feeling that Madison Avenue and the advertising business plays upon: you deserve that fill-in-the-blank. You can’t live without it. Go get it, even if you can’t afford it. Use your credit card if need be, and you can pay it off slowly but surely. Don’t worry about the rising interest rate on your debt. After all, at least you’ll have the thing you wanted, the thing you needed to exist, the thing they tell you to buy. Greed.

Now, let’s see how this type of greed can affect your investments in the stock market. Is it possible that an investor can become so greedy it affects your relationship to a stock and ultimately harms you rather than does you good? Unfortunately, the answer is a resounding yes. Here’s how:

You buy a stock, after doing some good, resourceful research. This one is a winner. This company has the documentation to prove their growth and income are soaring. They are selling or offering a product most people will easily go out and buy or use. This is a sure thing. And, sure enough, the stock goes up after you buy it. (I’ve often discovered in my own investing that I can move the stock market down by buying a stock and up by selling. Of course, this is not what I intended to do, but it happens more often than I’d like to admit.)

And it keeps going up. Within six months of owning this stock, you’re up 30 percent in profit. You’re patting yourself on the back (if you can reach it), congratulating yourself for your wisdom, your sagacity, your acumen. You may write a book about your Wall Street chops! You sure can pick ‘em!

Now, a person who has wrestled with greed in his or her life and defeated the ugly beast would think: “Well, I’ve made a nice profit, so now I’ll sell. After all, 30 percent profit is nothing to shake a stick at.” This kind of person would sell and smile, then begin to do the same kind of intelligent research that put him or her into the winning stock to begin with.
But a person who is greedy would think: “Well, it’s up 30 percent, but what’s to prevent it from going to 40 percent? I’m going to hang in there and let this stock go up, up, and up!” Greed has once again found a victim.

And before you know it, the stock that topped out at 30 percent begins to lose momentum. It goes to 25 percent, and still no sale. It drops to 20 percent profit. Now you’re sure — with the greed element kicking in — it will take off again and soar back into the stratosphere where it was before. But no, it doesn’t do this: it continues to drop like a stone. And by the time you sell, humbled as you have been, the stock is now up only 10 percent, and your greed has gotten the best of you.

As I said, Gordon Gekko was wrong. Greed is not your friend. Not when it comes to investments, be they real estate or stocks. Sensibility should always win out, and greed is to be avoided at all costs.

Investing: Savings vs. Stocks

If you have just begun to nibble in the stock market but have gotten hurt in the recent downturn in your investments, perhaps regrouping is important at this point.

Sometimes discretion is the better part of valor, and you need to take stock (no pun intended) of your portfolio and decide if you wouldn’t be wiser just selling off your equities and waiting out the stormy weather of a bear market.
If the market really does turn against you, remember that it is very difficult to recoup the money you’ve lost when your stocks go down, down, down in value.

Sometimes it can take months and months or even years to get back to break even. So, the best advice if you are uncomfortable investing in stocks right now – whether or not you have already done so or are anticipating doing so in the near future – is to hold off.

Of course, you cannot time the market perfectly to buy just when everything has hit rock bottom and then starts to go up. This would be great if you could do so! It would be like knowing exactly when the bottom of the housing market has been attained, buying a house at the very lowest price possible, and then patting yourself on the back as a genius as you watch the house appreciate in value.

But, market timing is almost impossible, even for expert. Market timing means buying at the lowest possible point and riding a stock portfolio up, up, up. It is nothing less than buying low and selling high, the mantra of every good and proficient investor.

Many advisers would tell you it is best to buy good stocks no matter what the economy or stock market are doing and just sit tight. But when things get really bad, when the economy doesn’t look to improve during the next year or so, you might be better off just parking your money into a CD or money market, admitting that your return is going to be low but at least it’s not going to be a minus return, and just sitting tight until things improve.

Things always improve. As a matter of fact, if the economy doesn’t eventually improve, your investment portfolio is going to be the least of your worries. Jobs will fall away, gasoline and food prices will continue to rise, and things will get tougher and tougher. This is a scenario in which you survive as best you can, and your investment portfolio will probably help you get through the tough times.

But for the most part, if the past is any indication, economies cycle up and down, jobs fall away and then return in force, prices come down for the necessities of life. It’s just the nature of things, and unless something occurs to disrupt this cyclical balance (like a major terrorist attack comparable to September 11 or a natural disaster that devastates a specific part of the country), you can expect that eventually equilibrium is achieved once more and life goes on.

So the secret, then, is not to panic when the cycle is working against you. Find your comfort level in terms of what kind of losses you’re willing to sustain and know you can make back any money lost in the future. This will largely depend on your age and financial situation, your career and job, and whether or not you suspect Aunt Tillie is really going to leave you that valuable art collection when she kicks the bucket, as she promised.

But above all, don’t panic. Let me emphasize this: Don’t panic! If I keep repeating it, it’s because it is such an important concept. Panic and financial savvy have no connection to one another. In fact, the more you panic, the more dangerous your actions might be, actions that could penalize you for years to come.

Think clearly. Be logical. Ask the advice of people who aren’t as emotionally attached to your portfolio and investments as you are … which is just about everyone but you! If all else fails, do nothing. It’s far better to do nothing, actually, than to make bad decisions based on panic and emotion and wind up regretting later what you did.

So spend a bit of time looking over your portfolio and the assets that comprise it. If the market continues to go downward, think about which stocks you own would do better as cash instead of equities. Find the best interest rates for your money, but make sure it’s short term. You don’t want to tie up your money in a 5 year CD only to discover that in a year, equities are soaring again.

Just be savvy and patient and logical, don’t panic, and no matter what the market or economy look like, you’ll do fine.

You and Your Stock, Pt. 2

Last time we talked about the reasons you shouldn’t stay married to any one stock in your portfolio. In the “olden days,” 30 years ago, people would buy a stock and “put it away,” literally not thinking about it or even considering selling for years and years. “Buy and hold” was the philosophy of the day. Not any more.

Therefore, you now need to think about the “why and how” of selling.

Most professional investors, and those who have done well in the stock market, will tell you that selling is much harder than buying. So a good “sell strategy” is essential if you’re going to do well in the market.

The first thing to do is put away your emotions. I know, easier said than done. But when it comes to the stock market, you really must be detached and follow the plan, rather than wildly doing what seems or feels right at the time. Too many investors have lost money because their emotions got in the way of a stock sale.

When you sell, there are only two situations: the stock has gone up or the stock has gone down. (I didn’t get my college degree for nothing, ladies!!) If the stock has gone up, your decision — before you even buy the stock — should be: what percentage of profit am I willing to take without getting greedy?

I have a friend who bought a Brazilian phone stock (sold as an ADR — American Depository Receipt — on the New York Stock Exchange), which soared after her purchase. She was up more than 46 percent in profit with this particular stock, not to mention a nice dividend payout that enhanced her earnings even more on the stock.

She thought the stock would continue to go up and up. She was wrong. It started a slippery slide south, losing almost 15 percent of its profit before she had made the decision to sell. Although she still made a hefty profit in the stock, she deprived herself of 15 percent more, by getting greedy and by emotionally deciding not to sell. She was hoping the stock was going to correct itself and move upward again.

Here’s the rub: if she had assigned a percentage of profit that she wanted to get in this stock initially, she would have lost a great deal of profit. Let’s say when she bought the stock she put a limit order in to sell when the stock went up 20 percent. Since she actually sold it for 31 percent profit, she would have deprived herself of 11 percent worth of profit. This is the downside of setting limit orders higher and lower when you buy the stock: you might miss out on some profit.

Now, let’s say she — or you — buy the stock at $50/share and are willing to lose 10 percent of the value and no more. You would put in a stop order (good ’til canceled, meaning not just for the trading day that you put in the order) at $45/share, 10 percent below the price at which you purchased it.

This way, if the stock really starts to sink like an anchor, you will only lose approximately 10 percent of your initial purchase. (I say “approximately” because a stop order becomes a market order on the way down, once it hits the stop price, and you might wind up selling it for a bit less than your stop order of $45/share.)

With limit and stop orders, you protect yourself upward and downward in any particular stock, locking in your pre-determined price at which you sell for profit or cut your losses if the stock goes down. If you predetermine a price or percentage of profit, you protect yourself by selling at the right time when the stock has reached that goal.

The work entailed is that you must constantly monitor the current price of the stock and adjust your stops and limits up or down. You move your stops because the price of the stock moves up or down, and your percentage of profit or loss therefore changes. It is not emotional, simply a mathematical way to manage your stocks.

For example, you bought the stock at $50 and your limit order to sell is at 20 percent or $60. Now, after two weeks, the stock is trading at $55/share. You must now adjust your limit price to $66/share because the stock price itself has gone up. Same principle on the downside: if you bought the stock for $50/share and put a 10 percent stop order in, then the stock moves down to $47/share, your stop order needs to be adjusted accordingly. You can do this once a week by modifying your sell orders up and down.

What does this give you? A certain peace of mind because you know your losses are limited on the downside and you won’t wind up looking at a stock that went down so violently that you lose 30 or 40 percent of its value, something which depletes a portfolio very easily and quickly. And it gives you a goal to reach for on the upside: a 20 percent profit, for example, in everything you invest in, which would make you a genius investor!

No need to get greedy or break out in hives with worry when you invest in stocks. Instead, get a fixed plan and execute it to ensure you sleep-filled nights and pleasant days.

Investing: You and Your Stock

You now own shares in the company, which you have researched and investigated in as much as possible.

You’ve asked all the right questions: What is the company’s projected growth for the next few years? What are the liabilities of the company? How secure is the management team? How needed and vital are the products or services offered? Would I want to own this company in five years, assuming there are no huge surprises on the horizon?

All of these are the kinds of questions that need answers, to understand your relationship to a particular company.

Similar to a marriage, you are going into a relationship that will hopefully be beneficial to you.

But unlike a marriage, the relationship doesn’t have to last forever. (I guess people feel the same way about their marriages in our current culture!) In “the olden days,” 20 or 30 years ago, when you bought stock in a company, the expectation was that you would hold onto it for a long, long time, sometimes decades.

There are people who bought General Electric in the ’80s who still own it. I have a friend who was bequeathed Procter & Gamble stock — lots of it — from her mother. She still holds on to it, because there is an emotional and financial attachment.

One of the first things I’d like for you to repeat is this: “I do not have to stay married to any of my stocks.” Say it again: “I do not have to stay married to any of my stocks.” Why not? What has changed in the investing world to allow you to sell a stock sooner rather than holding onto it for decades?

First of all, we live in a much more rapidly changing economy and environment. Decades ago, change happened much slower, or at least our awareness of that change happened in a slower manner. Today, with media coverage from all over the world, what happens across the globe can affect you and your stocks in literally minutes.

So what was good for your stock and its product today may not be good for it in a month. This fast-paced world also means more work for you. You must have diligence and keep track of what’s happening in the world in which your stock lives and moves.

For example, let’s say you own a stock that deals in lumber. All of a sudden another product (say, steel) is discovered to be a better framer for homes. The market will go down for raw lumber, and your stock will plummet, and if you are not watching carefully, you might lose much of the value of your stock. But if you continuously check to see what is going on in relationship to that company and product, you can anticipate this possible downturn in the lumber market and get out before the damage is too great to your portfolio.

Another reason why it’s best not to stay married to a stock in your portfolio is that it may reach its full value sooner than expected, in which case you should take your profits and move the money into another up-and-coming stock instead. Greed is not good, despite what Gordon Gecko told us in the movie “Wall Street.” It can obscure your goal of making a nice, steady return on your investments because greed can convince you that a little bit more profit is what you need; hang in there and wait until it goes up another 5 or 10%.

Meanwhile, something happens that turns your stock south, and the anticipated profit turns into a loss. Better a 10 or 15% profit than an anticipated 20 to 25% profit that fails to materialize.

A good rule to live by in the investing world is not to sell one stock until you have identified another stock, then move the money. This means that you are constantly looking for the next big winner in your portfolio, scanning the news, watching business channels on TV, listening to friends’ recommendations, generally staying tuned into the world around you.

Or, as I like to do, what negatives in the world around me can I turn into positives in my portfolio? If gasoline is rapidly approaching $4 per gallon, how can I make money in this sector to compensate for the extra expense of filling up my car? If the oil companies are making a killing because of gas pump prices, as they are accused of doing, why not own one or two of them and make some money on the appreciation of the stock price?

Next time, learn about a strategy to lock in profit in your stock so that you can sleep at night. It’s an easy yet efficient selling plan. So buy your stock(s) and then come back next time to see how you can fairly and effortlessly sell when the time is right.