Starting The Year Off Right
As we start the New Year off I thought I'd talk a bit about the January affect and some things to look forward to. Typically, January is a very important month in the markets.
Statistically speaking the outcome of the first few weeks in January generally predict how the remaining year will turn out. January can be a tricky month though. After about 6 weeks of merrily vacationing, traders and analysts come back to work to start the year off. There tends to be a lot of catch up, revised earnings predictions, revisions and expectations and other miscellaneous factors that drive up market volatility. In addition, we are beginning earnings season which always keeps investors on the edge of their seats. Earnings season is "report card time" and if companies exceed or disappoint then stocks can shift in a big way.
This year we also have the factor of an extended 4-plus month market run so eventually there will be a substantial correction or cooling off phase. We also shouldn’t forget about the market sentiment which is at sky-high levels. We know the market “climbs a wall of worry” and when confidence gets too high we get worried. While I do not try to predict I do believe that the longer this market runs to the top side the harder the correction will be, but it should provide us with a great buying opportunity. I do feel that we are in a long-term bull market recovery but corrections along the way are inevitable. Until then, we will enjoy the ride as long as it continues.
As I've conducted my routine research during the past couple of weeks I've read many reports with titles such as starting the year off right, investing rules for the New Year, tips for investing success, etc. I thought I'd take, what I feel, are the most important and useful and list them out.
1. “The chart is always right” meaning that no matter what the speculation of an investment might be, if the technical chart is giving you bad signals, the chart is trying to tell you that something is wrong. Cut losses short.
2. Whatever system you are using, you want to make sure that no one or two investments ever erodes or does great damage to your portfolio-which means making sure losses don’t get out of control. It also means you won’t put a huge chunk of your portfolio in any one security.
3. Focus on the process not necessarily the results. Every system, no matter how sound, is going to have good periods and bad periods. So when evaluating how you are doing, you need to focus on how well you followed your rules, not necessarily whether you made money in a given week or month. To be a successful investor you have to be disciplined and consistent.
4. Never try to fight the main trend of the market. If the market is giving you a message, listen to it. As Jesse Livermore once said, “Don’t fight the tape.”
5. Find an investing system that works for you, then follow it. The best way to deal with stress from the market is to have a game plan ahead of time. If you wait until things are blowing up in your face, then it’s too late. By then, your emotions are out of control and you’re likely to do the exact opposite of what’s constructive.
6. “Markets are never wrong; opinions are,” is another quote by Jesse Livermore. Livermore was one of the most successful investors of all time. We agree completely with his words and embrace this thinking.
7. With investing we need to remember that time is your friend. You should not expect huge profits overnight. It can take time for our investments to materialize. If you can develop a phlegmatic approach you’d be surprised how much of an advantage you have.
While we’re at it here are a few things worth noting as we move into the New Year.
1. The extended 2003 tax cuts should boost consumer spending and the economy. Consumers will now have a bit more cash in their pockets.
2. We are seeing improving consumer sentiment and spending. Confidence is on the rise.
3. There’s a good chance that jobless claims and payrolls will improve in 2011. Despite what we may read or hear on TV the economy is improving.
4. Balance sheets and corporate fundamentals are looking better than ever. With strong earnings and increasing cash flow, corporations are bringing in tons of cash.
5. Due to potential increase of interest rates, equities should outpace bonds in 2011.
Wishing you a wonderful and prosperous year.
Mark Simmons
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