One of my favorite parts of my job is getting to communicate with fellow investors. I enjoy talking shop, whether it’s giving my opinions about specific stocks or discussing economic and market conditions. I enjoy the conversation and hearing the insights and concerns of my readers and fellow investors!
That’s why I’m always glad to receive your questions and comments, in my inbox, on Facebook, on Twitter or in person whenever possible. I know that investing can be riddled with questions and uncertainties, but I’m here to help guide you through the process. Given the current market and the fact that the year is drawing to an end, many of you probably have a lot of investing questions on your mind.
I’ll share with you some of the most common questions that I’ve been receiving lately. We’ll tackle some of the big issues every investor is facing now, as well as take a look at way the future may hold:
Q: It seems that all we ever hear about anymore are the debt problems affecting Greece, Italy and other European countries. Why are our markets so weighed down by that situation, and do you think things will get better now that both Greece and Italy have new prime ministers in place?
A: It’s no secret that the euro zone has taken a hold of the headlines and the markets lately. Undoubtedly, the possibility of Europe going into a recession is a major deal — not only for that region, but for the entire global economy. I’ve said it before: We’re all so connected through trade and business that anytime one major economy is in trouble, the change shifts the global outlook. Relative currency values, foreign interests and many other factors all have an effect on the stock market. So when investors hear that the euro zone is in a debt crisis, they naturally worry about what those problems mean for their investments.
The recent reforms and austerity measures made by both Greece and Italy are good signs, and I’m sure many disgruntled citizens have been somewhat placated by the new appointments of Lucas Papademos in Greece and Mario Monti in Italy. The change in leadership shows that the governments are listening to their people. However, it’s going to take a lot more than passing the torch to new prime ministers to solve this problem. There is a lot of time and creative thinking that’s going to go on before the problem is rectified. That means we’ll be hearing more about the troubled economic situation for the foreseeable future.
But there’s another side to consider. Just because this one topic is dominating the headlines doesn’t mean there aren’t other forces at work. Recent U.S. economic reports have been on the rise, showing a building strength in our own economy. Plus, there are always fundamentally superior stocks out there that will perform well regardless of the news or market activity. By focusing on picks with solid sales and earnings growth and strong momentum, you’ll be able to buck the negative market trend and pull in profits.
Q: This third-quarter earnings season didn’t turn out to be as strong as I, and I’m sure many others, expected. Now that the markets are down, should I be thinking about taking what profits I can and laying low until after New Year’s?
A: I understand the frustration you’re feeling. Thanks to other market concerns, this earnings season didn’t receive the same highlighted acknowledgment of previous seasons. Though it might seem like otherwise, believe it or not, third-quarter earnings were better than expected, and October was the best month for the stock market since 1974!
I don’t want any of you to ever get so discouraged that you run off and bury you head in the sand. It’s a natural inclination to want to take what profits you can and call it a day, but that type of strategy isn’t going to help you in the long run. In fact, right now, exiting the market could be one of the worst mistakes you could make as an investor.
While the third quarter traditionally is a slow time for business, the fourth quarter is absolutely booming. The holiday surge is fast approaching. People are happy, consumers are spending, corporations are reinvesting into their companies and the markets are abuzz with activity. If there is any time you want to be in the market, that time is now. There’s always a push to end the year with a bang, and this year-end rally is shaping up to be pretty incredible. If you’re looking for a way to perhaps recoup some of the losses you’ve experienced this year, the end-of-the-year push is the way to grab profits fast.
My advice to all investors is to hold tight and stay in the market. You’ll be glad you did.
Q: I always seem to miss the mark when it comes to getting in on a stock before all the hype and buying pressure around it fizzles out. I’m tired of investing in positions that everyone can’t speak more highly of, only to lose a lot of money days or weeks later. Can you tell me what types of stocks I should be looking at investing in now, so I don’t have to worry about my money tomorrow?
A: I have to say there is nothing more frustrating than jumping on a stock that seems to be a “sure thing” only to realize you showed up too late to the game.
There are a lot of stocks out there — even big-name companies — that have a short shelf life. This is especially true of small-cap or aggressive stocks that are highly susceptible to market trends. Your friends or family members might tell you about a stock they’re making a ton of money off of, but by the time you get in on the deal, the buying pressure behind the stock has already diminished.
If you’re tired of having to move out of positions and losing money, the best advice I can give you is to focus on stocks with strong fundamentals and a history of positive growth. For long-term investments, large, blue-chip companies are the way to go. These companies have large market caps, which mean they are less likely to be influenced by market fluctuations. These stocks also tend to have stable history of strong earnings and sales growth with positive potential — the key elements of a successful investment.
Another type of stock that I like are dividend stocks. Instead of investing back into their business directly, some companies use excess profits to reward investors. They use the extra funds to issue dividend payments to shareholders. For every share owned, investors are paid a percentage of the extra funds. Basically, dividend stocks offer investors guaranteed extra profits!
But whether you’re looking for long-term or short-term investments, it’s important to remember that a stock is only as good as its foundation. That’s why it’s always important to look at a company’s history and prospects before laying any money down. I suggest you use my special Portfolio Grader tool to help you examine current and potential investments. You can find in-depth analyses on more than 5,000 stocks and learn whether or not they are fundamentally strong buys.
Q: I’m new to investing. Since it’s almost the end of the year, I’m getting ready to sit down and get my finances in order. I was wondering if you had any tips for reviewing my portfolio or ideas on what I can do to make sure it is in a good place to start the new year. Thanks!
Welcome to the exciting world of investing! You’re definitely on the right track in realizing portfolio maintenance is key to being a successful investor — whether you’re dealing with a few hundred dollars or a few million.
The first thing I would suggest to all investors is to make sure you get rid of any duds. If any positions have consistently been performing poorly, you probably don’t want to hold onto them. The point of investing is to make money, not lose it, so you should make sure you are bringing in profits from as many of your holdings as possible. I’d also suggest that you try my Portfolio Grader tool as well. You can enter in the stocks you already have to see if they’re really worth keeping. Remember, a “D”- or “F”-rated stock is an automatic “sell” in my book.
You also should decide what type of investments you are looking for. Are you more of a conservative or aggressive investor? Do you want to make investments for the long term or build up profits in a shorter amount of time? These decisions will influence how you build and maintain your portfolio. Once you decide what type of investments you want to focus on, then you should balance your portfolio accordingly (i.e. include more conservative picks for a conservative portfolio or add in more aggressive picks for an aggressive one). I don’t suggest putting all your eggs in one basket, as they say. Make sure there’s some diversity to your holdings. Don’t hold only conservative picks or only buy technology stocks. The more well-rounded you are in terms of aggressiveness and in different sectors, the better chance you have of expanding your profits.
Lastly, don’t make reviewing your portfolio a once-a-year occasion. It’s important to reassess your portfolio frequently enough that positions don’t become overweighted or obsolete. This is your money — don’t let inattention allow it to dwindle away.
Q: To say 2011 was a tough year for investors seems like a gross understatement. I’d like to know what your thoughts are for 2012. Any significant predictions or trends we should be expecting? Please tell me it will get better!
A: I’ve heard these sentiments echoed many, many times over. Looking back, 2011 gave investors plenty to be concerned about. From horrible natural disasters and civil wars to debt woes and dismal economic outlooks galore, the major headlines this year did not paint a pretty picture. I’m sure many of you are more than ready to say goodbye to 2011.
Before we do, I’d like to point out again that we still have fourth-quarter holiday cheer and end-of-the-year buying pressure to look forward. So, there still is some relief to look forward to before the ball drops and 2012 begins.
The fourth quarter has started strong. In addition to a big year-end rally, I predict a great start to 2012 as investors begin staking their claims for the year, followed by fourth-quarter earnings that will pump up the market in January.
2012 is going to be a pivotal time because it’s an election year. That means we’ll see Washington on its best behavior as the current government tries to evoke confidence and be re-elected and the opposition doles out promises to fix what’s not working. Interest rates will remain low, meaning more money will stay in the stock market as investors keep away from bonds and corporations continue aggressive buybacks.
Overall, the outlook for 2012 looks bright for the markets and investors!
