myfinancialmarket.com

You may have read about how now is the time to be buying stocks or mutual funds as the Market is nearing it’s lows. This would fall into “The early bird gets the worm” category. The thought is those who are moving cash into equities will be greatly rewarded in future years. This may be the case, yet I can’t help but wonder if the Market has further to go on the downside as we are just beginning to enter into what looks like to many, the potential for a true World Recession. Investors like Warren Buffett can afford to be buying now, as if he loses millions, well he has plenty more to fall back on.

Then there is the investement philosopy that goes along the lines of “The second mouse gets the cheese.”  This mouse avoids the mouse that was trapped trying to get the cheese and is justly rewarded. It is this category that I personally fall in. Sure I have plenty of cash now after months of periodically selling, but I am unwilling to be fully committed on the long side of the Market. Actually I am committed with buys in ETF’s that short the market, DOG (shorts the DOW) and SBB (shorts SP600 small cap stocks). This is part of my trading portfolio and I wouldn’t recommend these to anyone who is not a technical trader. I never thought I would short the market, but times have changed.

For long side stock trading I demand that a stock be within 8% of it’s 90 day high. You may ask why on this, and the answer is that if a stock sells of significantly, there are always those who missed the opportunity to sell and are waiting for a chance to sell after a significant move of gaining, lets say 10% or 20% off the bottom, thus the second mouse approach I take waits for this first sell off as starters.

If a stock later becomes within 8% of its 90 day high and I buy it there, my sell point is 15% off the 90 day high, thus a potential loss of 7%.  I do the same with the ETF’s that I buy. This is a little difficult with general Mutual Funds however, as most funds have minimum hold times without penalties, some 30 days, some 90 days, and some 180 days for example.  This approach is to minimize risk, not necessarily to maximize gain.

Keep an eye on the Markets, they are very close to recent bottoms, a break below may happen, yet a few percent may not be too bad, although a violation of recent lows could mean further downward movements.

Don

You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.