Retirement: Beginner Blunders (Part 4)

Includes: AAPL, GE, JNJ, MSFT, PG, XOM
by: Regarded Solutions

How was your day today? If you were glued to the stock market ticker, or the news from across the pond, you probably fretted about your investments right? No? Baloney!

Investing Blunders By Beginners (And Old Pro's)

This series on a beginners guide to investing for retirement has taken us on some critical journey's.

When you get a moment please review my previous articles:

If you do not save any money you won't have any to retire on. This is not a "blunder" this is life altering. Savings are the only REAL path to a secure future. Not to mention having enough for what you might need or want throughout your life. If you save as this article outlines, you might NEVER even need to invest!

This article was all about spending more than you make and not reducing or eliminating your debt. Actually it was all about HOW to spend less and eliminate debt, but the "blunder" which is also life altering, is always spending more than you have. You will never be able to retire if you do not heed this advice.

Finally, the most recent chapter was on the beginning steps needed to start building a portfolio that has a higher degree of safety, produces income, and is far less risky than just buying the hot stock pick of the week. By using a step by step approach, and building a foundation of a portfolio with large blue chip mega cap dividend paying stocks, you could secure a much better retirement if that is what you want.

Our beginning portfolio looked like this:

  • General Electric (NYSE:GE)
  • Exxon Mobil (NYSE:XOM)
  • Proctor & Gamble (NYSE:PG)
  • Johnson and Johnson (NYSE:JNJ)
  • Microsoft (NASDAQ:MSFT)

We kept it simple, neat and easy, with the best of the best huge companies, with a long track record of paying shareholders to hold their company stocks. (Big fat dividends over time!)

By using this foundation and building out from there, you will be well on your way to having a more secure retirement or later years.

Unless of course you fall victim to the blunders that plague beginners as well as seasoned veterans.

  • Buying high and selling low

The run of the mill approach is to follow the herd. When the herd is buying then that must be the best time to load up right? Nope, just the opposite folks. When the herd is buying, you want to be a seller, not a buyer. (Of course if you do not want to sell any shares, then just sit back and watch the frenzy.)

  • Chasing the hot momentum stocks

Obviously this approach could lead to buying high and selling low, but so many folks fall victim to this because they feel they will miss out on a huge opportunity. The opportunity is when the momentum STOPS, the sheep begin dumping, and if the company is a great one, YOU can buy at bargain basement prices.

  • Not knowing when to take profits

Every investor I have ever spoken to wants to ride their winners until they become filthy rich quickly. There are folks that will just buy and hold forever and that IS a strategy with the right stocks in my opinion, but the everyday investor-stock-picker hangs on to shares of a strong stock for way too long. All one has to do is look at a chart of Apple (NASDAQ:AAPL) to see what I mean.

This great company rose too far too fast and buyers jumped in at $400, $500, $600 bucks a share right? The share price hit $644 a month ago and then whoops, it tanked. Not because of the company, nor did anything change with the fundamentals, but because when the price finally did slow down, everyone rushed for the exits at the same time. Those that bought shares at $600 or more are underwater and some probably sold out and took some losses.

Here is a simple rule of thumb that I use myself. If the stock rises by 20% sell 20% of your stake. 30% rise sell 30% of your stake. Go up to 50% and keep the rest if the stock is awesome, like Apple. If it drops down later, you can ALWAYS buy those shares back, but at a lower price. In the meantime you have pocketed real money to be deployed into other opportunities or to keep on hand as "dry powder".

  • Dumping shares and positions for no other reason besides panic

I have done this, everyone I know has done it, and you have probably done it. Take a day or a month like we have just had. The market is shaky. It does not no whether to go up or down and when it drops it drops with a thud. Taking all of your investment hopes and dreams along with it right? Balderdash! That is what our small brain is telling us. Our adrenal glands that are on overload that makes us feel uncomfortable.

Our big brain should be looking at our holdings and reviewing the company fundamentals and focusing on what our real goals are. It is not easy to do when a stock drops 5, 10, 20% in a short period of time. After-all, we do not want to live in an empty refrigerator box eating termites when we are 85 right? Well that MIGHT happen if you sell solely out of panic folks.

We need to develop the discipline to ride out the bumps, tune out the background noise (like the Eurozone) and remember why we bought the shares of stock in the first place.

THAT will separate us from the weak investor. When we can see these times as an opportunity to add to our positions, not dump them! We can achieve higher yields, more income, a better shot at capital appreciation. In short, we will be the winners.

Obviously, and this should go without saying, but if a company goes sour and their fundamentals have changed we should seek to exit that position and perhaps replace it with a better opportunity. THAT is smart investing.

My Opinion

What better time to start developing a portfolio of great stocks when they are selling at bargain prices? Today is a good day to plan your personal strategy.

Please read the previous chapters and commit them to memory. Print them out. Bookmark them. Refer back to them until YOU can tell others how you have succeeded.

You will succeed and I know it.

Disclosure: I am long AAPL, GE, JNJ, XOM, PG. I own AAPL LEAP call options