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Keep it simple!

I get asked about the economy. what's apparent to me is the lack of confidence the general public has in the markets.

Now, I want to be clear, don't confuse a lack of volume, with a bad economy. In this instance, the lack of volume in equities being transfered is not due to a bad economy, but a lack of confidence. There's money out there, people are just waiting to feel safe again.

When it comes to the jobs numbers, the unemployed are those who were working in the sectors that has experienced the biggest knock. There's jobs out there, and many of these people need to seiously consider starting a new career.

Gold is purely speculative, and that's why I don't touch it. The value of gold is derived from what the next guy will pay for it. Let's fce it, it doesn't pay a dividend when it's out of favour, does it?

The point I'm making is this, whether you're the kind of person who waits to hear that everybody else is making money, before you get in, or if you're the one who buys too late, either way you will lose out. You need to be the investor who will look over the equities, find the value, believe in the company, and buy when it's low. There's no point buying when it's 'all the money' meaning it ain't going anywhere now, and your investment will be dead money.

Stay away from companies that have all these fancy assets of the balance sheet. If it ain't transparent, stay away from it. Another thing, if you don't understand it, stay away from it. Options, futures, all of 'em.

In this market, there's lots of money to be made in good old fashioned equities.

When you're searching for your next investment, pick a sector, look over all of the main players in that sector, and see if there's any stock that seems lower than the others for no reason. Once you find it, look over the last earnings report, and see how it performed, if it shows a trend of missing expectations over a number of reports, then it may well be worth overlooking, if you find one that has just missed expectations, but usually exceeds them, and the stock is well below it's average price over the last five years, and the signs of improvement are there such as, reduced costs, lower impairments, increasing market share, and revenue, then it may well be worth keeping an eye on it.

If you pick one, and the price beta is over 2, it could be quite volatile, so buy in increments. There's nothing worse than jumping in and spending it all on the one stock, and it goes down. It will go down, and it will also go up too.

You have to be prepared to stomach the ups and downs, and see it through. If you truly believe in the stock, then you'll be comfortable when you see it dip, as you believe it will go up. There's a true saying in the equities market - price only matters when you're selling.

I always hedge, meaning that I keep half of what I am willing to invest in a stock as cash. I keep this reserve to hedge against it dipping, so that I have the reserve available when a buying opportunity presents itself when the stock takes a short term dip. That's when I buy more, when it goes back up, I cash in the profit of half of the holding and keep the cash reserve again for the next dip.

You need to have an exit strategy. You need to identify whether the stock is a long or short term investment. So you need to set a price target and wait. you may get lucky, and it may rise quickly, some may take years, but this is one of the most important things when you invest in stocks, what's your time horizon, and you're realistic price target.
 
One point I want to stress is this, there's alot of unhealthy media out there, and most of it is doom and gloom. The truth is this is a time to buy equities. If you do not have a retirement plan in place, then now is the time to start one. This has been the biggest crash since the great depression of the 30's.

What we are going to experience is an 80's style bull market filled will mergers and acquisitions. A steady growth in Asia will assist the rest of the world. Wall street is going to be bigger than ever over the next decade, and we are going to experience a new technology boom.

The housing markets will recover, because they always do. It's a cycle, that's goes round and round, the only difference is when in the cycle you decide to participate.

My view of equities right now, is that I like U.S financials, but I believe they are still vulnerable to default buy backs which will haunt them. The lack of demand for real estate due to the lack of confidence is preventing FRE and FNM from recovering. Without a GSE to buy the mortgages from the banks, there is no growth in that sector. This is why the banks are not lending right now, it's because it's hard to sell the loan so that the bank can continue lending. On top of that, the banks need to reduce their balance sheets, so it's pointless issuing more loans to increase their balance sheets that cannot be sold on.

In the UK, I believe the housing market will recover faster, and I see signs that it is already improving. This is why I favour the UK financials over the US right now. Also, many US RMBS investors are buying the UK investments for this reason.

BAC is good, but it will, in my opinion, be forced to buy back bad loans from FRE and FNM. This goes for C too, which is already is a vulnerable position.

As for LYG (or LLOY in the UK) this is a deposit and lending bank with a very large market share. The housing market will stabilise and there will be less impairments. This UK bank will show profit within 2 years, and there will be further growth from then on. Also, this stock has not experienced the rebound so many other financials have, so it is still at its low. This is one stock I will be investing in heavily. Lloyds Banking Group will see strong steady growth, as it is one of the few financials out there that is undervalued and hasn't had a rally yet. To me this is a strong BUY.

ING is another I like very much. This bank has already turned itself around, and it is trading 75% under it's peak. This is another that I believe will appreciate.

AIB is NOT a BUY yet, but is most definately one to watch. I believe it will appreciate alot once the Irish housing market stabilises. I don't mean wait until the housing market goes up, just until there's a good sign that the impairments are reducing. Then I believe this will be a buy rating. 

Many financial are not going to pay a dividend right now, and many have negative eps. In a market like this, you can't really look back at just eps for guidance. You should look whether the impairments, and debt, are reducing, and if revenue is increasing, or cost are being reduced. An improvement in margin is what to look for.

Good luck