The Money, Honey: Stock Market Counterintuitiveness

By Rita Warren ~

There is something called counterintuitiveness when it comes to investing in the stock market.  Here’s how it goes:  when something that seems bad or negative happens in the world of economics or politics, or when the government makes a decision or votes on something one way or another, there is usually a backlash in the stock market that you can count on and make money on if you know how to pick stocks accordingly.

For example, this morning the big news is that Congress and the President seem to be in agreement that the Bush tax cuts will stay in effect for two more years.  Now, without going into the politics of all of this, and without parsing through why the stock market seems to like it, the reality is that the stock market as I write this is up 62 points.  Go figure.  This may put us more into deficit mode for the future, and our children and grandchildren may wind up spending their lives bailing themselves out of the mess we have dug for them, but for the present, the stock market likes what it is hearing.  So could you make money today in the market?  Yes, you could.

So even though the deficit in the U.S. government is increased by what is happening today, and even though that sounds like it should be a bad thing, for the stock market, there is something else at work: the uncertainty about the tax situation seems to be alleviated for the present, and we know that there will be no new taxes, which always comforts investors (both the lack of uncertainty and no new taxes).  So investors feel better about buying stocks, and buying stocks they are.  How long will this last?  No one knows.  But for today, or for the hour that I’m writing this, the market seems to be in an up mood.

Another counterintuitive acknowledgement: good companies can be lousy stock picks.  If you look at the field of well-known brands of buyable companies, like General Electric, the Gap, McDonalds, Coca Cola, Starbucks, you could make the assumption that because these names are so familiar they are also great stocks to buy.  Not so fast.  There often is no correlation between how good a company is doing with how well its stock is doing.  Sometimes, a stock sinks while a company soars, and sometimes vice versa.  Of course, most stock analysts will tell you to do your homework before you invest in a company’s stock: check their quarterly reports, make sure their profits are showing, their earnings are what they should be, and so on.  But keep in mind that, ultimately, this is no guarantee that the stock will continue to go up.  It helps beat the odds that the stock will appreciate if its numbers are good rather than bad, of course, but don’t let that fool you.  It’s no guarantee.  And walking into a  Starbucks that is crowded (aren’t they all?) does also not prove that the stock is going to be a winner by the end of the year.  It just means, well, that the stores are doing business.  Not bad, certainly, but not a solid indication that you’re going to double your money in the stock market by buying Starbucks stock.

So counterintuitiveness in the stock market can often pay off if you know how to play it.  Or if you know how to spell it.

The Money, Honey: How Often Should I Check my Stock Portfolio?

By Rita Warren ~

A question I’m often asked is this: how regularly should I check my stock portfolio?  Here’s what I tell that person: as often as you are comfortable doing so.

I know this is kind of a nebulous, vague answer, but it has to be that way, because there are as many answers as there are portfolio owners.  Some stock owners don’t want to know anything about their stocks, even preferring that the management of that portfolio rests in the hands of a “professional” who gives them an update once a year, sending them the necessary statement telling them whether or not they can afford to live past 50.  These are the “bottom line” people: just tell them the bottom line – will they have enough money to survive?  They don’t want to know the details, don’t care which stocks they own, what the price-to-earnings ratio might be, don’t give a hoot whether their stocks are part of the Fortune 500 or not.  Are they going up rather than going down?  As I said, bottom line people.

The next group of watchers are those who manage their own portfolios but also don’t care to check more often than once or twice a year.  Let’s say that one of their New Year’s Day tasks – along with weight loss promises – is to look at the stock portfolio they own to see if these are the stocks they want to carry into the coming year.  If the answer is yes, then they’re fine; they put them away for another year and go about their business.  Perhaps in June they might take them out and look at them again, just to be sure.  Or they might not look at them again until the next New Year’s Day.  Their feeling is that one year is about the time it takes for a stock to prove itself worthy or a failure.  They are content to watch and wait.  If they feel that a stock needs replacing, they are willing to do the research to find that replacement.  They don’t trust the professionals to do the job for them.  That being the case, they might spend some part of December doing the online work or reading that it takes to be prepared should they need a new stock in their portfolio.

Next group might be the monthly watchers.  Every month, let’s say the first of the month, they check their statements or go online to see how their portfolio is doing.  Again, they’re willing to do some work to replace whatever they feel isn’t measuring up to the standards they set for themselves when they put their portfolio in place.  Were they looking for a certain percentage growth in the portfolio overall?  Which stocks, then, are not cutting it?  Those would be eliminated, and replacements would be put in.  But they are not going to spend a lot of extra time other than a monthly check-up to do this.

Then there are the weekly overseers.  Every weekend they look at how they’re doing, seeing how the stock market has treated them the previous week.  Because they are on the go and don’t have time to monitor during the week, they look forward to a “check-up” on the weekend.  In this way they can make adjustments on Monday mornings to set them up for the next week.

The last category of stock watchers are the daily lookers.  These are people who for whatever reason have access to their computers or televisions on a daily basis and therefore can monitor their stock portfolios constantly while the stock market is open.  They can tell you at any given moment what the market is doing and how their particular portfolio is faring.  You have to have a certain stamina to survive this kind of intense scrutiny, but many people wouldn’t have it any other way.  “If I can’t watch my stocks every hour of the day when the market is open,” one investor told me, “then I don’t want to be in the market.  I need that kind of control.”  And yes, it is a control issue.  These are the people who need to be able to sell a stock in an instant…and often do so.

Which kind of stock investor are you?  There’s a pretty broad spectrum represented here.  Take your pick.  The good news is that there isn’t a right or wrong way to oversee your stock portfolio; there’s just a way that makes you comfortable and assures you a good night’s sleep.

The Money, Honey: How To Stop Wasting Money

Does it seem as though you always spend more than you make? Check out these simple ways to help you hang on to your hard-earned cash!

The Money, Honey: Investing ~ You need a Plan!

By: Rita Warren ~

Everyone would agree that when it comes to investing in the stock market, just randomly dumping money into a stock without a plan is not a good idea.  You might hit it on the nail once in a while, but for the most part, that won’t get you to retirement or a good college for your kids or any of the things you’re saving for for your future.

Last time we talked about doing a bit of research, buying at least one stock that pays a dividend, going into your portfolio and re-balancing your stocks at least once or perhaps twice a year, and gambling with a small percentage of your portfolio so that you feel you’re taking a little bit of a risk for that electric feeling you might not get with more conservative investing.

What else?

Well, here’s another part of your financial plan: make sure you decide on a percentage of your income that you are comfortable setting aside for investing and then stick to that.  Let’s say, for example, that you feel you can invest 10% of your paycheck each week or month (depending on how often you are paid).  Now, give this some serious thought, because I’m going to ask you to make a commitment to this and stick to it, no matter what.  Don’t decide that that vacation to Hawaii takes precedent over your investment plan.  Instead, set aside a percentage of your income for vacations and luxury expenditures (say, 5%) so that you can save toward those costs, and then you should be able to stick to the plan for any and every budgeted item.  In this economic climate, it makes good sense to adhere to a plan and not go renegade financially.  That way, if anything does go askew with your job, you will be more prepared than if you just fly by the seat of your pants.

Another part of the plan is to reward yourself for good behavior.  Build it into your budget plan.  That way you won’t be tempted to cheat.  Put a certain amount of money out of each paycheck aside for just plain fun.  Let’s say that you set aside $25-$50 that you give to yourself to do as you please: go out to dinner, go to a movie, save for that iPad, whatever strikes your fancy.  Now obviously this won’t get you to that chateau in France next summer.  This is not what this amount of money is for.  In order to have money for that kind of expense, you’ll have to do an actual budget item that puts aside more money that $25-$50 per paycheck.  No, this is just fun money, meant to make life more joyous for you.  And whatever you do, don’t frown when you’re spending it.  Put on a big grin and ENJOY!

The last thing I would encourage you to do as you’re parceling out these budget items is to set aside some money for giving.  You can never give enough of your money away; I am convinced of that.  There is something rewarding about the act of giving that comes back to you many times over, not always monetarily but definitely emotionally and spiritually.

In Jacques Ellul’s classic book “Money and Power,” he tells us that money has a firm hold on many people, and the way to “demagnetize” it is to give it away.  In our culture, money takes on more meaning than it often deserves.  So don’t let your investments or your money rule you; they belong to you, not vice versa.

And that’s a plan you can easily live with.

The Money, Honey: Taking Stock of Your Stocks

By: Rita Warren ~

In my last article I talked about fearmongering among the book writers and how if the end of the world is coming, there’s no point in worrying about your investments anyway, because your investments will probably be the least of your worries.  Survival mode kicking in, you’ll be worrying about how to…survive.  Pension plans and retirement villas will not be what you’re thinking of.

But let’s assume the end of the economic world as we know it is not after all approaching, or at least is not imminent.  Which means you have to have a plan in place that assumes long-term investment.  Let’s look at some key points to that kind of investing that will carry you far into the future, assuming there is a future to be carried into.

1. Do some basic research on stocks that should do well long-term.  Be it technology, cyclicals (stocks of companies that cycle in and out of favor), or specific products like gold or copper or steel, once you’ve settled on companies that look like they will be successful over the long haul, start buying in whatever increments you can afford, and, like a squirrel, sock away shares of those companies little by little.  In fact, it’s better to buy smaller amounts than to buy one large amount of one stock at a time.
2. Make sure that at least one of the stocks you research and buy is a dividend paying stock.  Why?  Because, with banks yielding such low CD rates right now, why not capture a nice yield from a few of your stocks while you’re hoping also for price appreciation in those same stock shares.  It’s another way to insure that your portfolio increases little by little over time.
3. Don’t be afraid to reposition your stocks occasionally, perhaps every six months or once a year.  It used to be that the thinking was that you bought a stock for the long haul and kept it for years or even decades.  No more.  Nowadays it’s okay to sell a stock within a year if it isn’t working for you, without the guilt of the “divorce.”
4. It’s also okay to keep a little money aside for “gambling” investing.  Every once in a while you’re likely to hear from someone about a stock that is going to split, getting FDA drug approval, coming out with a new product or technology that is going to take off and be the new hit wonder.  If you have a little of the gambler in you, it might be exciting and fun to be able to put a little money into this kind of investment, not enough, of course, to matter to the course of your future, so that if the gamble doesn’t pay off, you won’t wind up a bag lady on the streets, but if it does double in value, you feel pretty good about your stock investing for a while, at least.  Nothing wrong with that.  If this doesn’t appeal to you at all, pass it up and put all your money into sound investments as noted in items 1 and 2.  This is only for those who want a little more thrill in their investing, like those who like the roller coasters at amusement parks.  You know who you are.

It’s always good to have a master plan when investing in the stock market.  This is just the beginning, and next time we’ll keep exploring how to keep this plan working for you.

The Money, Honey: Investments as Good as Gold

By: Rita Warren ~

I recently read a book called “Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown” by brothers David and Robert Wiedemer, in which we the readers are given a rundown of what is going to happen in the next few years in our economy in the United States and around the world.  It is not a pretty picture, I warn you, and as you read, you can feel your stomach turning to mush, as mine did.

One of the reasons you become more and more nervous and frightened as you read this kind of book is that you begin to realize that there is absolutely nothing you can do about the situation the author(s) are describing.  In “Aftershock,” for example, they talk about the global economic slowdown, the failure of banks worldwide, the housing market downturn, the mortgage failures which create a real estate collapse of epic proportions not seen before and which will never be seen again because we will never recover from it, the national debt of our government becoming so unbearable that eventually there will be a total collapse.

In the face of such horrendous events, what is the individual investor like you and me to do?  That’s what you keep asking.  At least that’s what I kept asking as I read further and further into the book.  If, as the authors kept saying, stocks and bonds were going to totally collapse, which was understandable given the scenario they were painting, if real estate was going to be like throwing your money down a black hole, where then could you hope to invest that might give you some safety, some assurance that every dollar you were putting away might at least be worth $1.02 in a year or so?  It wasn’t asking much, was it, since you had paid a goodly amount of money most likely for the book in the hopes that it would help you financially to make your future more secure.

Finally… finally, toward the end of the book, they offered a rather limp suggestion: gold.  Gold always seems to be where die-hard economic fatalists take us when they cry, “the sky is falling in” about any other aspect of the worldwide economic scene.  They can usually give you a few substantial reasons as to why gold will hold up when everything else is failing, and they don’t much care what that gold investment looks like: mutual funds, ETFs, gold bullion, mining stocks, coins, whatever.  Just buy gold in some form and hold onto it for the coming world cataclysm.

So if you’re worried that the world is coming to an economic end, you might want to save the cost of this book and follow the advice of the authors that I’m abbreviating for you here: buy some form of gold.  It probably can’t hurt, and it somehow always feels good to own gold, in the same way it feels good to own diamonds, especially if it’s in the form of a ring on your finger or earrings in your ears.

My theory, however, is that if the world economy is going to get as bad as these fellows and others indicate, there’s really not going to be much in the way of salvation for any of us.  On the other hand, maybe their shocking titles and pronouncements are merely devices that sell books better.  Do you think?

As for me, I’m going to continue on a sensible investing course, assuming that the world is not going to end in the near future, because if it is ending, none of this will probably matter anyway.

The Money, Honey: How to Know Where to Invest

By: Rita Warren ~

How do you find “experts” to rely on in the investment world who don’t have a vested interest to sell you a particular product? How can you be sure you are getting a fair representation of what’s out there to invest in?

For example, if I worked for a particular brokerage firm and you came in to see me, I would probably want to sell you my firm’s mutual funds, because I would make more of a commission selling you our own product than the mutual funds belonging to another company.  So rather than selecting a mutual fund that was best suited to your financial and situational needs, I would select one according to my financial needs…one that would produce the most financial benefit to me as your broker.  Not very beneficial to you, but you might never know unless you asked.

Or, if you were buying stocks and I were an investment advisor who had a hefty investment in XYZ stock already, it would be to my benefit to promote XYZ stock so that its shares would go up.  So I would encourage you to buy shares of that same company rather than another company that might be a better fit for your portfolio.

Even reading books by so-called experts can be misleading, because you might never know where hidden agendas lie.  Watching television programs with guest hosts can lead you down the wrong path into investing nightmares also.  If a television show host wants to stay on the good side of a CEO, he will never criticize the company even if the financial quarterly reports are horrible; instead, he will put a good spin on it and allow the CEOs he interviews to do the same.  After all, he doesn’t want to wind up with no interviews on his programs, because day in and day out he has time slots to fill.  And he has ratings to achieve.  He’s not really out for your investing profit; he’s out for his television career success.

If all of this sounds cynical, that’s because it’s worthwhile to approach “experts” with more than a grain of salt.  Check on them to be sure they are not affiliated with the companies that they are discussing.  Make sure they have no personal investments in the stocks they are promoting.  If they are touting their own mutual funds, find a neutral, objective mutual fund analyzer and see where their mutual funds rank and what the ratings are from those sources, and don’t let their sales pitch sway you.  Be your own advocate in all of these instances; don’t let any experts tell you where to put your money, as if they care more about your money and your financial future and success than you do.

Because they don’t.

You care more about your finances than anyone else.  You are more concerned with where you invest your money and what your future looks like than any brokerage firm or television show host or newsletter editor.  And no one should be as thorough as you when it comes to checking out the expert opinions about your investments.