Bonds for Breakfast

With today's unprecedented interest rate cut, the Fed is screaming "panic". U.S. economic recession is not an if statement, but rather reality. Jim Melcher, a respected wall street guru has been calling for this since November. He noticed the head and shoulder pattern forming in the market, and now we are feeling the effects.

What to do? There are two trains of thought. Bonds are going to be very popular for the near term and there are several to choose from, so make sure your investing game plan match what the bond is offering. We will start a bond series soon to avoid the doom and gloom discussions we've had on the market.

The alternative investing strategy is, if you have credit, use it to get a line for alternative investments. You could do quite well with a private loan at prime for $100,000.00. This is what the Fed is hoping will happen out of this recession, new money investments.

What is your investment strategy during a recession? We would like to hear it.

Can it Get any Worse?!?!?

I hope your getting comfortable with the idea of a recession and are not planning any new security purchases anytime soon. I know I have been harping on this market as a recession but I want to make sure your money stays on the sideline through this.

Interested in Short Selling for a market like this?
Charles Caes wrote an informative and useful guide for playing that side of the market. "Tools of the Bear: How any Investor can make money when stocks go Down"

I am not by any means an expert on this side of the market so I would rather turn you to an expert.

Buck the Trend

As Wall Street continues to slide and you see profits disappear, are you paying attention to the real winners in this downturn? Obviously smart short sellers are making profits, but you have to be careful with short selling. It is an action we take less often. We are conditioned to be buyers of stock, not sellers, so short of short selling (no pun intended) what are you to do?

Find stocks that are bucking the market trend. On Monday we had a bunch of stocks make solid gain on solid volume in an otherwise weak market. Smart investors were looking at which stocks maintained their run yesterday in a dismal market. Who was bucking the trend?

Humana (HUM) was. Remember when I told you defense sectors like Alcohol and Medical stocks were most likely to buck Wall street? Humana could be just one of those stocks. For now, I recommend putting it on your watch list, as I will not recommend buying anything in the middle of a storm like this, but your best preparation for the next market swing is to find stocks like HUM and keep an eye on them.

Do you have a stock on your watch list that you want to share? Post a comment on here and lets build a watch list for the next market turn!!

The Patience to Wait it out!

Yesterday might have been exciting to some investors. After a dismal start to 2008 the market showed its strongest percentage gains of the year. But, look a little deeper. The heavy volume of institutional investors was missing. The market volume was weak, even though strong leaders like MON MOS and TNH lead the way with considerable gains in strong volume. Keep track of things like that, as stocks that buck the market trend in strong volume tend to be the leaders of a new rally. I am not that optimistic that things are going to turn around for some time.

Breakoutwatch.com, a great free resource of stock picks published this graphic this week:

The H&S Top signifies a Head and Shoulders Top in the Nasdaq market. A Head and Shoulders top is a reversal in the market. It is a shift in direction, and we currently see the market has taken a downward turn. What will change the market? There are a number of factors, but the most important at this moment is TIME. The market has been running up for over 5 years now, we were due for a correction. This time, I say we are in a full blown recession. This is only one man's opinion, but I believe we are there right now, and it might not be for a couple of years when economists come out and say, we were in a recession in 2008, but we are there.

Going to Cash

It's probably advice you have heard from investment gurus or friends. When the market "corrects" you go to cash. What that really means and what people do are entirely different. Here's an example, take Rico, a 37-year old man who has $170,000 in 401k assets, $35,000 in Roth IRA assets and $40,000 in stock, $10,000 in CD's and cash. When the market corrects itself taking the term, going to cash would mean he would transition his $245,000 in assets and converting them to cash. If Rico did this he would have failed as an investor.

But why?

Rico might have correctly predicted a market correction but for investments like Roth IRA's and 401k's he is pulling out at exactly the wrong time. These are long term investments we are talking about, Rico should fully expect wild corrections throughout his savings career. A better option for Rico would be to lower contributions for the down period of the market and find better ways to make money for the short term.

There still is that $40,000 in stocks that we haven't talked about. That is your cash convertible asset. Take that money and convert it to cash. You always looked at that investment as a nearer term investment and to mitigate your risk Rico would take that money and invest it elsewhere.

So as you can see, going cash doesn't mean hording your money under the bed and waiting for the market, but rather understanding the term of your investment and making critical decisions on your risk and return.

Please be sure to keep an eye on MOS and MON, they both should be on your watch list. I also liked what TTM introduced yesterday. It may not be something you would drive, but I think its something that can get India growing further than it already is.

Rate Cut Not Enough

In the good ole days of 2004, the market would have rallied favorably with news that the Fed was lowering rates again. While this sounds like strong move again, it is more telling of what the reaction of the market has been today. Mixed at best! We are seeing further indications that we are in the midst of a full blown market correction. Down days are outperforming the market 6-1 thus far in 2008.

In the midst of all this, there is a company I would like for you to consider for your watch list for the next rally. Mosaic Fertilizer Company. MOS crushed earnings yesterday and they follow in line with other fertilizer giants such as POT that have benefited from the new reliance on ethanol consumption.

Market Got you Down? Have a Beer

Sounds like a funny title at first glance, but when you think about it, it really makes sense. As we are going through a rough patch in our economic history certain trends in human actions take place. We drink more alcohol, to forget about the rough economic times we personally are facing. Some people smoke more often, or start smoking in the process of a recession. Worse off are those that allow stress to get to them to the point where their health deteriorates and medical attention is required.

Why am I telling you these things?

In the face of a large market correction, beer/alcohol and tobacco stocks tend to outperform others. Medical stocks see growth as well. Unfortunately there is a bull market everywhere, and in a correction its those cancerous stocks that do well.

That is why if you are itching for a stock to buy and just don't want to sit on the sidelines, then I suggest a stock like Boston Beer Company SAM or other top notch alcoholic beverage stocks. If you compare the sector chart to the broad market you will see the sector has been outperforming the market in our current 2008 downtrend.

Day 1 of the Correction

Well most would have thought that last week was the beginning of the correction in the market. Unfortunately the market has some steam going into the first week of the new year and we didn't actually receive the signal that we were in a market downturn until Friday. With that said, the next question is when to get back in?

I would rather you take a breather before you ask that question and ask yourself these questions:

What is the last investment book I have read to get me better prepared to profit the next go around?

How do I feel emotionally and physically when I am active in the market? I am reading a series of books right now by Ari Kiev who is a master of the psychology of traders in the market. In the coming weeks I will do a series of reviews on the concepts found in his books, until then I would recommend reading up on the stuff.

How is my watch list looking for the next bull market? As you know I am a big fan of FSLR (+95% since recommendation) and even though the market is correcting I like this sector and have added SPWR and WFR to my watch list. All this means is I am arming myself with solid fundamental companies that if the market turns I find the strongest of my list and invest in them.

Finally, have I reviewed my last trades to see where I was right and wrong? I might have been really right in FSLR, but I was wrong on SINA, and BCSI. Why? Looking back, I wasn't looking at the latest earnings hard enough and technically they were extended. I only realized this by doing a post mortem.

Market Correction into Effect and #1 Mutual Fund

While I was pondering when I was going to post the top Mutual Fund of 2007, I thought it was ironic that 2008 has already taken a turn to hibernation. This has been a brutal return to the markets for the new year and I truly expect it to get worse and stay down.

If you are in a winning position make sure your stop-loss orders are active and GTC (Good Till Cancelled)

If you are on margin, get off margin NOW!!

If you have a losing position, sell now

If you have a flat position, make sure you have your 7-10% stop-loss order in.

If you are thinking about a new position in a stock. Don't!

Enough of the bad news. Onto Mutual Fund #1
CGMFX

This the big dog of Mutual Funds. I told you Kenneth Heebner's name would pop up on this list again. There are few to none mutual fund managers that have the track record Mr. Heebner has. He is aggressive, goes against the grain, and spots trends early. With a 5-year annualized return of 36.43% all I can say is "Are you Kidding Me!!!"
The fund takes on Large capitalization stocks with value to growth range. The stock did an astounding 65.87% return in 2007, and one of its major holdings is Countrywide Financial, a huge dog in 07. While I am not advocating any position right now, as noted above, if the market turns, this is a gem worth owning.

Mutual Fund #2 and some change

For those just starting off on the investment game in the new year you know it takes capital to make trades matter. The greater the capital the more relevant your gains will be in the long run. I offer a hidden gem to building up that bankroll through the years. Change!!

Each week put all your loose change into a jar and roll it up. When you get to a dollar amount sufficient ( I like $200) you take it to the bank deposit to your account and transfer the money right away to your brokerage house. Do this once a quarter and you are sitting on an extra $800/yr. to invest with. Compound that with a 10% return over 10 years and you come back with $16,099. Now compare that with the average percentage Americans save -0.2% and you are already ahead of the curve. So take a moment and pay attention to your change. It could help build your capital for financial wealth.


Fund #2 SLCGX


Yesterday we talked about a great Mid-Cap fund. Today, its the Saratoga Large Capitalization Growth I that makes our #2 fund.




This fund works because it is 100% invested in stocks as the market is in an uptrend. You live by the sword, die by the sword with this one. As you can see from the chart, both times the market corrected, the fund corrected as swiftly as the market. When the market was trending upward, the fund outperformed the markets. That does make this fund a tough play for the uncertainty of 2008, but for 07, it was a big winner.

Happy New Year and Mutual Fund #3

You will have to forgive the lateness of my latest blog. My body and mind are still poolside in Florida right now.





Happy New Year to All!!





Let's hope this year will be a solid investing year. The market I believe will be sub-par in its performance this year. With rising oil prices, a slumping sub-prime market that has yet to top, falling corporate profits, and an election coming up this could shake out to be a turbulant year. Which makes blogs like this all the more important for the new year.





We continue our look back at the top 5 mutual funds on 2007:





#3 CGM Capital Development


Once again we like the no load factor of this fund, and its lower expense ratio of 1.11%. That is considerably low when you consider the turnover of the fund. Diversity in my top 5 is required and this fund is part of Mid-Cap growth which was decent for 2007 with all things considered. Don't forget this name, Kenneth Heebner. He is the portfolio manager and I am sure you will hear me mention his name again on this list. He goes totally against the grain of Wall Street and profits from it!