It’s the oldest question in the stock investment book: are you best off trying to find the best stock, or should you focus on finding the best stock investment strategy? And once again in 2014 and 2015, that’s the question of the day, and it amounts to timing vs. selection.
I recently turned 68 years old, but I remember the year 1973 like it was yesterday… because I was a new stock broker. I spent my spare time trying to find the best stock in the universe. After all, if you can find the best stock investment what does the direction of the market matter? My first pick as a best stock was Igloo Corp. Indeed it was a good pick in a year that turned out to be the beginning of a bad (bear) market… only because a major corporation then bought Igloo and Igloo shareholders profited handsomely.
Now, let’s get down to reality. Few people understand now what I didn’t understand then. Investing is more psychology than science. You will never find the best stock investment on a consistent basis. That leaves you with one best choice: to focus on market timing and the best stock investment strategy. The good news is that this is not rocket science or brain surgery. It’s a people thing, and people vote in the stock market by buying and selling shares.
In considering the best stock investment strategy for 2014 and beyond, ask yourself WHY investors had previously pushed stocks up over 150% in less than 5 years. Then ask, what will investors do when their collective perception changes? Bull (up) markets don’t last indefinitely. They come to an end and are followed by bear (down) markets.
It is a matter of greed vs. fear; and fear creates and feeds bear markets. Investors bought stocks for 5 years because stocks appeared to be the best game in town. Historically low interest rates made safer investment alternatives unattractive, plus the market had previously dropped over 50% in less than 2 years, making stocks look cheap. What happens if and when interest rates threaten to go up significantly? What’s your best stock investment strategy?
Don’t let greed dictate investment strategy. Fear can send stock prices down much faster than greed sends prices up. If you take a 50% loss in a bear market, you’ve then got to double your money in the next bull market just to break even. No one can accurately predict what the market will do in 2014 or 2015, but if interest rates rise beware. Investors are likely to take profits with an eye to the nearest exit. If fear takes over, you don’t want to be the last participant to leave the party.
The best stock investment strategy for the average investor is probably to take some money off the stock table… especially if you are heavily invested. Remember, the market was up over 150% by January of 2014. Sometimes, it’s better to be safe than sorry. If you are more aggressive by nature and want to be proactive, you might want to consider my best stock investment pick for 2014 and beyond. Here it is.
Investing is like the two sides of a coin. You can bet prices will rise, or that prices will fall. The best stock investment when stock prices fall: inverse ETFs (exchange traded funds) that represent a bet on falling prices. For example, stock symbol SDS is designed to go up in price when the S&P 500 Index falls… with financial leverage of 2 to 1. If the market drops by 10% SDS should go up 20%. If you want to cut your overall portfolio risk consider adding inverse ETFs to your portfolio.
In 2014 and beyond, focus on timing vs. selection. There are times when the best stock investment strategy is to be aggressive, especially after the market has taken heavy losses for a year or two. In a bull market that’s 5 years old, it’s time to be careful. Why not take some money off the table, and wait for the next market opportunity?