| Most people never forget their first love. | | | | argumentative, but a long-term view of the |
| I'll never forget my first trading profit! | | | | Investment Process eliminates the guesswork |
| But the $600 (1970 dollars) I pocketed on | | | | and points pretty clearly toward a trading |
| Royal Dutch Petroleum was not nearly as | | | | mentality that keys on the natural volatility |
| significant as the conceptual realization it | | | | of hundreds of Investment Grade Equities. |
| signaled! I was amazed that someone would pay | | | | During corrections, consider these simple |
| me that much more for my stock than the | | | | truths: 1) although there are more sellers |
| newspaper said it was worth just a few weeks | | | | than buyers, the buyers intend to make money |
| earlier! What had changed? What had happened | | | | on their purchases, 2) so long as everything |
| to make the stock go up, and why had it been | | | | is down, don't worry so much about the price |
| down in the first place? Without ever needing | | | | of individual holdings, 3) fast and steep |
| to know the answers, I've been trading RD for | | | | corrections are better than the slow |
| thirty-six years!Looking at scores of | | | | attrition variety, 4) always accept even half |
| similarly profitable, high quality companies | | | | your normal profit target while buying |
| in this manner, you would find that: (1) most | | | | opportunities are plentiful, 5) don't be in a |
| move up and down regularly (if not | | | | rush to fill your portfolio, but if cash |
| predictably) with an upward long-term bias, | | | | dries up before it's over, you are doing it |
| and (2) that there is little if any | | | | "correctly".Most of the problems with Mutual |
| similarity in the timing of the movements | | | | Funds and much of the increased opportunity |
| between the stocks themselves. This is the | | | | in Individual Stock trading are functions of |
| "Volatility" that most people fear and that | | | | growing non-professional Equity ownership. |
| Wall Street loves them to fear. It can be | | | | Everyone is in the stock market these days |
| narrowly confined to certain sectors, or much | | | | whether they like it or not, and when the |
| broader, encompassing practically everything. | | | | media fans the emotions of the masses, the |
| The broader it becomes, the more likely it is | | | | masses create volatility that rarely |
| to be categorized as either a rally or a | | | | under-reacts to market conditions! Rarely |
| correction. Most years will feature one or | | | | will unit owners take profits, particularly |
| two of each. This is the natural condition of | | | | if they have to pay withdrawal penalties or |
| things in the stock market, Mother Nature, | | | | taxes. Even more unusual are expert advisors |
| Inc. if you will. Don't take her for granted | | | | who encourage investors to move into the |
| when she gets high, and never ignore her when | | | | markets when prices are falling.A volatile |
| she feels low. Embrace her volatile moods, | | | | market creates opportunities with every |
| work with them in whatever direction they | | | | gyration, but you have to be willing to |
| travel, and she will become your love as | | | | transact to reap the benefits. A necessary |
| well!Ironically, it is this natural | | | | first step is to recognize that both "up" and |
| volatility (caused by hundreds of variables | | | | "down" markets are forces of nature with |
| human, economic, political, natural, etc.) | | | | abundant potential. The proper attitude |
| that is the only real "certainty" existent in | | | | toward the latter, will make you much more |
| the financial markets. And, as absurd as this | | | | appreciative of the former. Most investment |
| may sound until you experience the reality of | | | | strategies require answers to unanswerable |
| it all, it is this one and only certainty | | | | questions, in an effort to be in the right |
| that makes Mutual Funds in general (and Index | | | | place at the right time. Indecisiveness |
| Funds in particular) totally unsuitable as | | | | doesn't cut it with Mamma... in or out too |
| investment vehicles for anyone within seven | | | | soon is not an issue with her. But wasting |
| to ten years of retirement! How many Mutual | | | | the opportunities she provides really ticks |
| Fund investors have retired recently with | | | | her off! Successful investment strategies |
| more liquid financial assets than they had | | | | require an understanding of the forces of |
| seven years ago, way back in 1999?There will | | | | nature, and disciplined rules of portfolio |
| always be rallies and corrections. In fact, | | | | management. If you can transition back to |
| it is worthwhile to "go back to the future" | | | | individual securities, you will do better at |
| to establish a realistic Investment Strategy. | | | | moving toward your goals, most of the time, |
| In the last forty years, there have been no | | | | because the opportunities are out there... |
| less than ten 20% or greater corrections | | | | all of the time.So let's adopt some new rules |
| followed by rallies that brought the market | | | | for this investment game and learn to live |
| to significantly higher levels. The DJIA | | | | with them for a few cycles: Let's buy good |
| peaked at 2700 before its record 40% crash in | | | | stocks new and old at lower prices during |
| 1987. But at 1700, it was still 70% above the | | | | corrections. Let's take reasonable profits on |
| 1000 barrier that it danced around with for | | | | those that go up in price, whenever they are |
| decades before... always a higher high, | | | | kind enough to do so. Let's examine our |
| rarely a lower low. The '87 debacle was | | | | performance based on the results of these |
| followed by several slightly less exciting | | | | trading transactions alone and at market |
| corrections, but the case was being made for | | | | cycle examination points for a smiley faced |
| a more flexible, and realistic, Investment | | | | change of pace. And one other thing...Let's |
| Strategy. Mutual Funds were spawned by a Buy | | | | drink a toast to Mother Nature, her |
| and Hold Mentality; Mother Nature, Inc is a | | | | uncertainty, her volatility, and, of course, |
| much more complicated enterprise.Call it | | | | to our first loves. |
| foresight, or hindsight if you want to be | | | | |