Buy low and sell high.
It is simple but most retail investors just do the opposite. It turns out to be a reliable contrarian indicator when the flow to/from money market fund.
2003, 2009 and the later part of 2012 (not confirmed yet) could be the best time to buy.
Sell when every one including your silly mother-in-law is making good money and all think they're market geniuses. It could be the riskiest time. The high interest rate could give you some hint as folks falsely expect better return even they pay more to borrow money.
Do not buy the stocks that were the bubble stocks like technology stocks in 2002 and bank stocks in 2009 as some 'optimists' think it is time to return and usually they're wrong. You buy them only when the root problem has been fixed. Many bubble stocks never recover.
Do not buy dividend stocks for big returns as they do not swing much. They may lose less value in a recession, but they will not make a lot when the recession is over. In addition, consider new tax changes and it may not be favorable for dividends.
Buy value stocks that seem to be bottomed out. It is hard to identify the bottom (read investment articles for hints), but usually they give best profit returns.
As of 7/2012, coal stocks may have been bottomed out. Oil and other resource stocks could have been bottomed out before the coal stocks. Health care should be bottomed out judging from their low P/Es unless ObamaCare screws it up.
Buy the stocks that have been losing some money but their burn rates can last for over two more years. They're risky but the potential profits are great. We can find many in 2003. Today many corporations are making good money at historical low P/Es even the economy is lousy with high unemployment.
Buy against the experts who have unfavorable predictions in extremely lousy market. They usually exaggerate to sell their stuffs. This is one of the few times you should bet against them.
You cannot predict when the market is bottom unless you borrow my time machine. :) However, use your better judgement with educated guesses.
Do not gamble your money you cannot afford to lose. Past performance is a guideline and does not guarantee future performance.
(c) TonyP4 2011. Written in 11/16/11. Updated 7/16/12.
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Disclaimer: All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
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2011 turns out a good example. Buy when the market is 5% less than the start of the year and sell when it is 5% higher than the start of the year.
ReplyDeleteYou do a lot of sell at the first half of the year and buy a lot at the second half.