As I write this, the stock market (DOW) is shedding over 300 points, following over 200 points from the day before (All the broader markets such as the S&P 500 and NASDQ etc. are also selling off).
And in a way, it is both laughable and sad because, if you stop and really think about, the main reason the market is going down is because of a comment made by one man; The USA Federal Reserve board chairman–better know as the FED. This is in a world where there are over seven billion people (and growing) where one man’s word can cause people to panic and sell off their investments such as stocks, bonds, etc. In two days, enough money disappeared from the market that they could have cured starvation around the world forever! That is the sad part.
The laughable part is that, anyone with a brain knew this was coming because, we all know that the Fed was basically printing money at an alarming rate to prop up the US economy, via QE3 ( see my older blog) where they go out and buy up bonds to force interest rate down so low that people would get out of the “safe bonds” and cash etc. and go looking for better rate-of-return in the Wall Street stocks.
We knew that as soon as the housing market showed signs of strength, that as soon as unemployment rate was going down and as soon as there were any signs of strong demand for large household goods, such as automobiles, the Fed would stop buying bonds.
Is this a surprise to me? No! Because for one as you can tell by my blogs and tweets, I have been preparing for this by getting out of stocks that have run-up way too fast and, also, by increasing my position in cash (my No Emotion 30/70% Rule) over the past few months.
People do not invest, they gamble: Please try this if you do not believe me by asking your coworkers, friends and even family members these questions:
1) What is the underlying investment in their own 401(k) plans?
2) What is your time frame on the investments in their 401(k) plan, IRAs, etc., that is, how long do they plan to keep such investments?
3) Do investments they picked in their 401(k)s pay regular quarterly dividends?
4) And this is my favorite: Why did you pick such an investment?
Since I mentioned gambling above, I will make a very strong bet that 99 people out of an 100 will have no idea.
*If you buy an investment purely because it is going up, you are gambling–not investing
*If you buy and investment because only because everyone one is buying it, you are gambling–not investing
*If you buy and investment, because your “uncle Louie gave you a tip that he got from friend”, you are gambling–not investing
*If you are selling your investment because everyone is panicking and selling off, you are gambling–not investing
*And back to where I started, if you are selling off your investment because the FED said something, then you are indeed gambling–not investing
Intelligent investing takes time. Do research, evaluate, and most importantly, a very long time to produce outstanding results (work its magic). Here is one sure bet on how to earn good return on your money; whenever your investments have gone up a lot because everyone one is very happy with the stock market, sell off at a minimum 30% and wait for the herd to panic and start to sell off; when the markets are down at least 20% from their high, then put 70% of the cash you have back into the market and wait until they are all happy again then repeat the process. This is called the “sweet spot.”
A sweet spot is where you have most or all of your capital/original investment out and you only have your gains and reinvested dividends at risk and, if it keeps going up, you are earning money and if it goes down, you can buy more stocks, and your dividends will be reinvested at a lower value as a bonus.
For a more about this and many good ways to earn more money safely, please buy copies of my book; http://www.theofficialmoneycoach.com/book-reviews.html
Thanks for your time an attention,