Tag Archives: Stock Market

What types of stocks should you be buying?

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I always warn my friends not to trust funds. When you buy shares of a fund, you don’t know what you are getting. There are too many stocks to get to know any of them. To me it is safer only to have six to eight stocks and know their behavior well. Some stocks crash in a recession while others hold steady like Coca-Cola. If you have a fund with 500 stocks, you might be fooled into thinking you are “safe.” But, when the market crashes and you lose 80% of value, I’ll be holding on to KO (coca-cola) stock which only loses around 25% in a bad crash. Coke holds its value when the market fizzles.

My basic ideas for investing include the concept that whatever you buy should hold its value during the worst of times including war, famine, drought, depression, unstable interest rates, etc. I like stocks that stay steady during a stock market crash. I also like stocks that deal with very basic products that people will always need. Here are some of my basic categories for investing.

Food & Water
Coca-Cola and Pepsi are the two best conglomorates for food and bottled water. In a bad water shortage or war, these two companies will survive well while others will perish. They also do well in stock market crashes.

Basic Products
Proctor & Gamble, Johnson & Johnson and other companies that deal with basic grocery store or drug store products seem pretty stable to me.

Basic Technology & War Technology
IBM, LMT (Lockheed Martin) and RTN (Raytheon) are companies that sell technology or weapons that the government needs in peace or war, but especially in war. You have to plan for war, especially these days when there will be wars and rumors of wars.

Banks sometimes have very low price/earnings ratios which is wonderful, especially if they offer good dividends. The danger is that banks can lose their value in a bad crash while the stocks that sell commodities basic to survival stay steady. Banking stocks also can fluctuate with interest rates which is a great way to make a quick profit if you play the market correctly.

Oil & Transportation
The problem with oil and transportation stocks is that in a crash, people use less oil and have less products to transport. Oil and railroad stocks can make you a nice profit, but owning too much can be a danger when the economy slows down.

Airlines & Auto
These two are very unstable, but have very low P/E ratios. Warren Buffet bought some Delta Airlines a few months ago and has gotten a 37% appreciation in such a short time. Warren pays attention to hundreds of stocks and is always ready to buy when he sees a bargain.

I put most of my money into the top four categories and put less into medical, innovative technology and other types of stocks as they are too unpredictable. I love the prospect of having a gain, but not if it involves too much risk. I put less than 10% of my money into volatile stocks as a safety precaution. But, with stable stocks, you can make good money if you profit from the small ups and downs in the market. If you can make a 4-8% profit on stocks with a short turnaround of a few days, weeks or months, that is a way to make a very nice profit at the end of the year if you play your cards right.

At the current time of December, 2016, I am selling, or have sold most of my bank stocks and bought more food oriented stocks as they went down in price and have become more affordable. The bank stocks went up as the public thinks that Trump being in office will enhance banks ability to make money. The public might just be right!

Value Investing — how much cash to keep around

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For the last few years I have been trying to master the art of value based stock investing. I tried Warren Buffet type stocks, but had limited success. I decided that what you buy is as important as when you sell. I purchased CBI too late. Warren had already sold his shares, but I didn’t even realize it because I have no way to get news of what Warren Buffet owns until after the fact. The stock crashed, and I had to hold on to it for along time with hopes that it would come back up — and it just did.

My main stock strategy consists of assessing values of solid companies and having a mix of banks, food, and tech companies. I do not buy much outside of these sectors. I’m paranoid of a horrible depression where the only companies to survive are the ones that deal in food and bottled water such as Coca-Cola and Pepsi. When one stock goes up and another goes down, I sell a little of the one that went up and buy a little of the one that went down. To implement this strategy successfully you need to like a stock enough to keep buying it when it goes down. That means you don’t lose faith in it. Only really solid companies qualify for this type of investing such as Coca-Cola, IBM, Wells Fargo, etc.

But, what I realized was that I didn’t keep any cash on hand. If some stock went down all of a sudden and I needed to buy it, I had to sell something else at a possibly inopportune moment to get the cash together. I’ve recently decided to try to keep a certain percentage of my assets in my investment account in cash, so that I’m ready to jump on an unexpected opportunity. I keep my eye on the stocks I’m ready to buy. But, instead of buying what I like. I decide upon a threshold price to buy a particular amount. If I have cash on hand, I can put in a buy order for an amount slightly lower than what its trading for and get a really good price.

There might be five stocks I’m interested in trading slightly above the assigned value that I gave them. I might put in a buy order to the particular stock that is closest to the desired price. And then a few days or weeks later, perhaps another stock might be closer. By using this strategy of using assigned values and buy orders I can get a buying price roughly two or three percent lower, as well as a slightly higher selling price using selling orders.

Some people trade stocks with the desire to make a killing. I just am happy to get a good dividend and make between 4-12% on a fast trade. I might buy and sell in a few days, weeks or months and make this percent only to turn around and get another undervalued stock and try to do the same thing. The strategy so far is effective. The only problem is me — I’m not an expert investor. But, I’m sharpening my instincts daily and watching the market every morning tracking forty of my favorite stocks.