SuperiorInvestor Blog

A new year is upon us and it’s time to expect a large rush of new investors coming to our stock market forum in an attempt to learn how to make money in the stock market. As usual, this task will be tougher than it seems. 2008 poses special challenges for new investors, that haven’t been seen in other years. Some of what will make it tough for people to learn on the job this year are:

* The violent swings that happen as the market lurches back and forth based primarily on news.

* The potential to lose a lot of money investing in stocks that are still hurting from the sub-prime crisis just because they look “cheap”.

* The danger of following advice from online and TV personalities who are suggesting “momentum stocks” that are moving primarily because people are talking about them.

* The total ruin of investing in the wrong type of “penny stock” which goes “Kaboom” in a not-so nice day.

With that all said, the year 2008 should be like any other. New investors who take the time to learn the basics will succeed. Those who ignore the fundamentals will be slaughtered like so much factory cattle.

Good luck to all in the new year.

The dollar has been battered for quite some time. The dollar has had a slight rebound, but the same issues that have been plaguing it haven’t left yet. The credit crisis is the main concern keeping the dollar near its’ all time low.

“The mood is still nervous and the dollar is effectively tracking developments in credit markets,” said Neil Mackinnon, chief economist at ECU Group.

The dollar was close to a 26-year low against the British pound and a record trough against the Canadian dollar amid concern that major US banks may be sitting on bigger losses than previously believed from the subprime loan crisis.

The head of the world’s biggest bank, Citigroup, stepped down over the weekend as the group said it expected losses of up to 11 billion dollars (7.6 billion euros) related to problems in the subprime mortgage sector.

Credit worries overshadowed Friday’s better-than-expected employment data as markets speculated about the chances of further interest rate cuts by the US Federal Reserve.

“A strong payrolls report for October didn’t help the dollar as heightened fears of further major credit-related losses by US banks saw traders price in more Fed easing,” wrote NAB Capital strategist John Kyriakopoulos in a note.

It looks like the dollar will remain weak as long as the credit markets remain in a funk.

Many people search for a stock investing system that will help them beat the market. They figure such a system would be better than using their own good judgment. Now, there’s no question that people can use stock screening systems to help them choose stocks. But the idea of a fully automated trading system is a whole different animal.

Continue reading “Stock Investing System” »

Lot’s of people ask the question: “What is the best penny stock?”, and it’s not an easy one to answer. Considering how bad some of the companies that trade in the sub-penny range, it’s almost akin to asking “What’s the best disease I can get?” But if you do decide to find the best penny stock, there are a number of actions you can take to ensure your investment is at least relatively safe.

Continue reading “Best Penny Stock” »

Actually, it’s a bad time to sell any house. The real estate market has been in sharp decline, and that sharp decline appears to be heading into a freefall now. And the culprit, as always, is the credit market.

The National Association of Realtors reported Wednesday that sales of existing homes fell 8 percent in September, the largest decline to show up in records dating to 1999. The seasonally adjusted annual sales rate of 5.04 million existing homes was also the slowest pace on record.

The weakness in sales translated into further pressure on prices. The median price — the point at which half the homes sold for more and half for less — fell to $211,700 in September, down by 4.2 percent from the sales price a year ago. It marked the 13th time out of the past 14 months that the year-over-year sales price has decreased.

The 8 percent decline in sales was bigger than the 4.5 percent decline that had been expected.

The numbers get worst, depending on where you live. For folks in the Northeast, sales are down 10%. These are particularly unfortunate times for 1) realtors and 2) people who are forced to sell for whatever reason.

No telling what next month’s numbers will look like.

If you find yourself posing that question, I’d like you to look at things in a different way. For example, I’d pose the question: “What can’t go wrong with an investment?” When you invest your money you need to make sure you understand the downside, because it can be enormous. It’s great to have a positive attitude in life, but when it comes to investing, some sheer skepticism can come in handy.

Continue reading “What Can Go Wrong With An Investment?” »

If you are interested in investing, there’s one area you don’t want to neglect a study of. Pay particular attention to the transaction costs of your investments, because your very return depends on it. If you aren’t careful, you’ll be drilled nearly into oblivion by costs. These transactions costs are like warthogs, eating at your wealth garden. And they are fat and happy warthogs indeed.

Don’t let the transaction cost warthog loose in your wealth garden

If you let the transaction cost warthog lose in your garden, there won’t be enough money left at retirement to eat at McDonald’s 3 times a year. So do yourself a favor and

Things to keep in mind about investment accounts and transaction costs

• When companies are selling you a product, it’s rare they’ll tell you how much you’ll need to pay for every small transaction. Don’t assume anything is included in your account, and ask any specific questions you have about what costs what before you open your account.
• Costs like margin interest add up because they’re computed constantly. Investing on margin is like borrowing on credit cards, only worse. You don’t get any physical goods for the money, and the interest you pay monthly is hurting your return. Make sure you understand the ramifications of investing on margin.

So don’t say you haven’t been warned. Watch out for the transaction costs or the Warthog will have your ass.

So many people rush into investing in the stock market, many of them never even do basic research. Even if you have done a ton of research, it’s still no guarantee you’ll earn a big return. So what’s the best way to make sure you don’t get burned too badly? The key is to never invest more money than you can comfortably afford to lose.

Continue reading “Never Invest More Than You Can Afford To Lose” »

A frequent lament from stock investors is that they sold out too early. With hindsight being 20/20, it’s easy to sit back and analyze your trade and say that you ended up prematurely exiting the trade. But if it happens too often, it can be cause for concern. One of the keys to Warren Buffett’s great investing record is he always believed in “letting his winner’s run.”

You can avoid selling out too early by using a trailing stop loss

One not very complicated way to make sure you don’t exit too early is to use a trailing stop loss. This way you can protect your gains, and make sure you get the heck out of there in the case of a severe reversal.

So, your advantages are two fold:

1) You protect your capital in the event of a reversal
2) You end up selling somewhere around the peak.

This second point won’t always be the case, but it may end up happening. If you set your stop at 8-10% and the stock turns downwards that much, you’re probably better off being back in cash anyways.

What other ways can you think of to avoid selling a stock too early?

Investing and speculation are two distinct disciplines, that are sometimes used interchangeably by the uninitiated. The terms describe two very distinct acts, and should be kept separate in our minds for that reason alone.

Speculation is most often done for the sole interest of guessing at price fluctuations. The speculator rarely cares about the underlying investment, but is rather most concerned with whether the price will go up or down. Speculators are almost always chartists, looking for a quick hit on their short term plays.

Investors are looking for returns on their investment dollars. They are not usually only concerned with short term price fluctuations, although some might be.

Investors tend to want to understand the financial property they’re investing in, and usually have a longer time horizon in mind than a speculator.

Speculators can be investors, and vice versa, but generally the disciplines tend to be exclusive, because they involved a distinct mindset.