I seriously doubt that anyone out there does not realize that it's January 2012. The reason I say that is that every television show, every financial blog, and just about anyone you meet these days has an opinion about the stock market and what's going to happen in 2012.
There are so many articles with charts and graphs explaining why XYZ is poised to break out. There are articles with those same charts and graphs that tell you why XYZ is going to crash and burn.
There are people who will tell you that the Fed's monetary policy is a disaster and there are people who tell you debt doesn't matter.
Now, I have to tell you that I really enjoy coming home at night and sitting down at my computer to look for articles that catch my attention. I love reading those articles and making a comment or three. It's a little like going bowling on Thursday nights. I used to look forward to that as well.
For me, I simply enjoy articles that create discussion threads. The more discussion, the better I enjoy it. I love the back and forth, the sharing of ideas, the different points of view, the defense of a position (as long as it doesn't get personal). There have been authors who have presented topics that have resulted in the most amazing commentary that you could ever imagine and as a result of that commentary, I have personally learned a lot about my own beliefs about investing.
January, however, seems to bring out the need to discuss the "Top 10 Picks for 2012," or "20 Stocks to Sell Today!" Other articles are about "How Europe Will Affect Global Markets in 2012." In other words, everyone who has an opinion about financial matters comes out with an article, appears on a financial TV show, or writes a book. The talking heads on the financial news networks are at it every night.
But you know what? Financial markets don't really care if it's January or June. There is no start/finish with financial markets. They go on, indifferent to the calendar. Financial markets don't care about time. They don't care about seasons. They exist in an alternative reality.
FOOD FOR THOUGHT
My question is this. Why is January suddenly a starting point for investing? How can anyone know if 2012 will be any different from 2011? After all, if the premise that the markets don't care about time is true, then 2012 and 2011 don't really exist. Instead, it's just the inevitable marching on of time without any regard for any future other than the cumulative effect of what has taken place in the immediate past.
Success leaves clues in the same way that failure does. If the earnings of companies continue to grow quarter over quarter, then it would seem that the trend is toward recovery. On the other hand if earnings are declining, it would indicate the opposite. If earnings are up and down and up and down, then that's another indication of stagnation.
So where are we? Hell, I don't know. I haven't got a crystal ball and I'm not a psychic. Neither are the guys wearing $5000 suits on TV. Neither is the guy who writes a financial newsletter. Neither is the guy who offers financial planning for a fee. As Peter Lynch pointed out--No one knows the future.
No one knows where interest rates will be in the next year. No one knows where the SP 500 (SPY) will finish in 2012. No one knows if the Congress will enact defense cuts in the coming months. No one knows if the XL Pipeline will be built. No one knows what the price of oil will be in June. No one knows what the price of a particular stock will be this time next year.
HERE'S WHAT I DO KNOW IF YOU WANT INVESTING SUCCESS IN 2012
You need to find your own investment strategy
Make sure that your investment strategy is one that makes sense for you. That investment strategy needs to match your own temperament, your own style, and your specific needs.
My investment strategy might be different from yours. That's fine, because just like we cannot tell the future, we can't tell which investment strategy is the "best one." It's personal. You have to find it for yourself. No one can help you. It's up to you.
But here's the key--once you find it become an expert in that strategy by learning everything you can about it.
The particular strategy that you employ is not as important as your belief in that system. So back test it. Challenge your assumptions. Think outside of the box. Don't dismiss a strategy because you don't understand it. That's intellectual dishonesty at its most obvious.
You need to stick to you strategy through thick and thin
If your strategy is the right one for you, then you have to stick with it in good times and bad. You can't be constantly searching for the next newsletter, or the next financial guru, or the next great thing. You can't keep hopping from one strategy to the other and back again. That is a strategy for failure.
Donald Yacktman is a value investor. He and his son run two mutual funds. Not too many years ago, Yacktman's value investments fell out of favor. The results posted by his funds were terrible. His board of directors wanted to bring in new blood to run the fund. Yacktman stuck firm to his strategy and right now, his funds are among some of the best-performing funds in the value class. He never lost sight of what brought him to the dance.
You need to minimize risk
Most of us will tend to look at an investment with the idea of "How much can I make." To control risk, we might be better off asking, "How much can I lose?"
There were a lot of people just 12 months ago who thought that Bank of America (BAC) was a great buy at $7 a share. When the stock rose to $14, many of these same people thought, "they've turned the corner." The stock retreated to $5 again.
Citi (C) was selling for $4 a share. There were a lot of people touting the stock. After a reverse split (1-10) and a new price at $40, the company now trades at $28 or an equivalent price of $2.80 a share to the pre-reverse split price.
Do you really need to gamble on a company? Do you want to convince yourself that Research In Motion (RIMM) is a value? That Netlix (NFLX) is a bargain? That another company "might" buy Pitney Bowes PBI? It's better to deal in the "what is" rather than the "what might be."
That means you have to look for value in a stock that comes from the underlying financial matrix available to each investor through screens and analyst reports, such as Argus Research, Reuters, etc.
You need to eliminate emotions from investing decisions
It is very tempting to fall in love with a particular stock. For whatever reason, we often seem to refuse to admit that we made a mistake. Love is blind. We don't need to fall in love with a particular stock. Either it works for your particular strategy or it doesn't.
When a company stops being consistent with your investing strategy or it no longer delivers the results that you expected, it's time to cut it loose. Investing is not a hobby. It needs to be treated like a business. Decisions need to be made without emotional influence. The hardest thing for us to admit sometimes is that we made a mistake. We hooked up with a company that just doesn't fit our investment style/strategy.
It's OK. You can let it go and move on. It will be OK. It's nothing personal, it's just business.
The four steps above are individual in nature. Each of you will formulate your own activities within each of the four steps. However, there are some universal themes that each of us, regardless of investing strategy, need to practice.
Build a group of 10-to-15 stock positions that are your core holding. These should be companies that are the "best in class." Some examples:
In Consumer Discretionary: McDonald's (MCD), Driden (DRI)
In Consumer Staples: Coca Cola (KO), Procer and Gamble (PG)
In Energy: Connoco (COP), Exxon (XOM)
In Financials: Aflac (AFL), Chubb (CB)
In Health Care: Becton Dickinson (BDX), Abbott Labs (ABT)
In Industrials: Cummins (CMI), Illinois Tool Works (ITW)
In Information Tech: Harris Corp (HRS), Intel (INTC)
In Materials: Air Products (APD), Bemis (BMS)
In Telecoms: AT&T, (T), Verizon (VZ)
In Utilities: PPL Corp (PPL), Scana (SCN)
Use the 401k at work if you have one, Roth and Traditional IRAs should be used as they pertain to you own individual situation, and taxable accounts. The key is to make it a habit to invest regularly and to do it over long periods of time. Using DRIPs is a good way to start with limited resources.
Learn how to screen stocks for your strategy.
If you are a DG investor, I would recommend David Fish's CCC stocks. If you are a growth investor or a value investor, I would suggest reading as much as you can and learning how to run screens for your own individual selection process.
Once you have established your own core group of stocks, branch out.
Look for opportunities with stocks that have fallen into disfavor. Look for stocks that are undervalued by consensus. Expand your horizons.
Ignore the noise.
There is no doubt in my mind that regardless of where the market is headed, both investors and traders who have developed an investment strategy, consistently practice that strategy, minimize risk and keep their emotions in check, will have a successful 2012, and continue to have success moving into the future.
Trust your own instincts and focus on the end game goal for your portfolio. It may be building wealth, it may be securing a more prosperous living standard, or it may be funding your retirement years. Regardless of your motivation, the best advice I can offer is to have a plan and to work that plan.