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PSW Does Vegas - Tips for Investing in a Wild Market

Here's another excerpt from the Week Ahead section of Stock World Weekly. (For more SWW, sign up for a free trial here.)

Tips for Investing in a Wild Market

Phil’s Stock World had its first annual members’ meeting in Las Vegas over the Columbus Day weekend. Pharmboy submitted his notes on the adventure, so if you missed all the fun, you can still read about some of the more educational topics, in “PSW Does Vegas” below:

“First a very special thanks to PSW members Savi and LVModa for their time and efforts in making this happen. 

Twenty-four members gathered in Las Vegas to talk about trading strategies, eating, and a bit of poker. We met at Nobu for dinner, and then gathered at the Stratosphere for two friendly tables of Texas Hold ‘em.  

“Sunday started off with the first thing that Phil has preached from the beginning, start small and plant your trees to get the fruit in the future.  Phil typically notes the video, ‘The Man Who Planted Trees.’  

Here are six points to consider when investing in an unpredictable and volatile market. 

Point 1: The best way to make money is to save… If you can save $10/day, every day, and earn 5% per year for 20 years, you will have $170K saved up. As you increase this amount throughout your days, that savings will grow. Plant the trees early, and the fruit will come. Remember, this is a long-term strategy. 

Point 2: One needs to have a plan – when you go to the store, you have a plan on what to buy.  When you trade, have a plan. We always plan the next move in the stocks or options we own.  Study the chart, if it moves to a certain level, have a plan on what you will do next. And if you are called away, and make a profit, be happy. There is nothing wrong with making 5% in a month. That is 60% per year! That blows away the market. 

Point 3: Invest in what you know. Pharmboy is a scientist, and hence he invests in what he knows - biotechs and pharmaceutical companies. Follow a few companies that you know or want to know, and do your homework. Study the charts, scout the competition, and pick a price at which you would want to buy an interest in the company.  Then, for example, when you are ready, sell a put with that strike price, so you are buying the company for a discount!  

Point 4: Whether you have 10K or 100K or 1M, it is very important to have plenty of cash available. Invest 10 or 20% of it. Leave the rest liquid so that you have choices, such as to double down on your investment IF you believe in a company that has dropped in price. By selling puts, if that is part of your strategy, you have an obligation to buy the stock for a second round if the stock falls under the strike price at expiration.

Point 5: When you have your savings, a plan, and have done your homework, remember that in the end that you are sprinkling your seeds around to grow your trees. Don’t expect to make a huge return in the first few years because you are planting your seeds. Think long-term.

Point 6: Day-trading the market is gambling, like poker. You are placing a bet that the stock, option, or future contract, will go up or down. It either works or you fold. As in poker, you may make small bets and use the law of averages to decide whether to stay in or get out. The stock market is no different and most ‘investors’ need to think of an income portfolio to make money (hence the Man Who Planted Trees). The income portfolio is a low maintenance investment portfolio that can earn 5-10%/year. THAT IS A GREAT RETURN! Compound that over 20 years and you may be a millionaire!