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"Life, Liberty, and the Pursuit of the NEXT BIG STOCK!" I work as a licensed broker for an (undisclosed brokerage house) in the Northeast. Stocks are my passion and my role with my company is guidance and sales. I would not publish anything that I would not put my own money down on. In... More
  • My 1st article...don't buy high and sell low!! 2 comments
    Nov 22, 2011 5:23 PM | about stocks: PRMW, LO, DNDN, DMND
    When figuring out how to invest, I tend to think like Mr. Buffett. Be fearful when others are greedy, and be greedy when others are fearful. This DOES NOT necessarily mean following him into an investment! Why? Because many times he gets preferred shares, while the masses run up the common stock (look at BofA, a healthy 35% LOSS if you followed him in the morning he announced it). Like him or not, I tend to watch Jim Cramer, because the masses watch him. I followed him into LO @ $79 and EOG @ $80 for example, and the outcome has been profits. I'm not saying he's perfect, but he has a decent track record.

    But how do you know when people are fearful? Simple. Look at the VIX. When the VIX is over 25 (which it is currently), investors are starting to be fearful, and throwing fundamentals out the window (we are STILL the greatest country in the world)! How do you know when people are greedy? Simple. When anyone can borrow for nothing and get something instantly of value (ahem....mortgage anyone)? How about a 20% minimum again with NO Fannie or Freddie? This is more difficult to solve. There is an entitlement mindset in this country that will take times much worse than what we've been through to solve. Think depression era bread lines and 25% unemployment (which most don't remember except older folks and historians). Government hasn't helped at all, only exacerbating the problem and also kicking it down the road. What is going on in Europe is us, but in 10x speed!

    Anyways, back on track...

    You are the only person that can determine what type of investor YOU are. Are you uneducated about the complexities of the way it all works (and prefer Retirement Target dated funds), are you the middle of the road investor, or are you sophisticated (or at least you think you are). Hate to break it to you, unless you know something the "house" doesn't, most likely you don't know where an individual security is going. You can only place your chips on the table and hope that a seven isn't rolled when the puck goes on. With active traders, over 95% lose more than they gain (which is why all the investment firms have to "recruit" new business constantly, because they all keep running out of traders with cash!!) 

    Remember, there's only 3 directions a security can go- up, down, and sideways.

    If your a younger investor, maybe doing more research on individual growth companies to put away in your Roth may just end up being the next WalMart or Microsoft in 1985, tax free later. And to balance off your investments, just leave the Target Date fund in your 401k. Maybe take a small portion and look at stocks like PRMW (down 80% since Aug, at $2.75 today), LO (juicy 5% yield, good DC lobbying and decent growth relative to the other tobacco co's), DNDN with interesting prospects for their cancer treatments, and DMND (52 week low).

    The key is, to set limit orders and pick your price that your willing to get in at. At some point, the odds are good (if you pick a price 5-10% lower than where it's at) that it will hit that price at some point! Why settle for a market order? Patience is a virtue. Do you absolutely need the stock today?

    If your older, maybe holding companies like WMT and MSFT and writing out the money puts and calls is a good strategy for a little additional income (and to make that dividend look a tiny bit better. These stocks are boring, but have literally gone nowhere in the last 10 years. Write calls when their up, sell puts when their down for a better premium and the likelihood that your stock won't get called away. Use short time frames, preferrably less than a year. NEVER sell LEAPs. EVER. For the most part, it's a winning strategy!

    Hate to break it to you older investors, but interest rates are going nowhere for a long time (or until the U.S. debt implodes). Big Ben won't let it happen. For the meantime, U.S. government debt is the best house in a really rough neighborhood.

    So the key takeaways to my theory is: be greedy when you see massive corrections, on the market or on individual securities to add to your portfolio (especially if your in cash now). You always feel like a sucker getting pulled in when you don't catch the rally until the very end, right before the next drop down. Don't get in all at once, but find a price your willing to settle on-and HOLD it for a while. Sure it'll be a bumpy ride, but your Roth or 401k will thank you later!

    Please remember, you should always consult with your investment advisor before making any decisions.

    Regards,

    DON'T BUY HIGH AND SELL LOW!

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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Comments (2)
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  • Thanks for the note. Quesiton regarding writing calls. So if I understand your blog, you are saying that for stable companies like MSFT and WMT, write "In the money Calls/Puts" or "Out of the money calls/Puts" for short durations. Could you please confirm.

     

    Thanks!
    12 Dec 2011, 04:17 PM Reply Like
  • Author’s reply » When you own the underlying stock, you write (so sell) calls and puts that are just out the money. Remember your stock can always get "called away" if it goes "in the money" before expiration. Hope this helps!
    13 Dec 2011, 10:25 AM Reply Like
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