You don’t need to read tea leaves to know the stock market is overvalued. Just read Barry Ritholtz (hedge fund manager) who writes The Big Picture, Bill Fleckenstein, Warren Buffett, Irwin Yamamoto, economist Joseph Elliott. The only people pitching stocks now are the ones who make money off you buying stocks, whether they go up or down.
Interesting, isn’t it? Wall Street makes money off you, even if the mutual fund goes down. Brokers get paid for your trades, not how profitable they were.
rockclimber makes good points about having debt paid off, but it’s also helpful to have some cash or credit line around in case of job loss. Your 6 month job loss reserve could be held in CD. Again, it’s best to check with an accountant for your personal situation, as I mentioned above. A good rate, a guy with very low overhead, is Michael Gallon in El Cajon.
If you want to get into some trading in this down market, check out Chris J’s site. He’s a disciplined bond futures trader, who takes a position only if all his technical indicators are in his favor. Since I’ve been following his trades, he made one very profitable trade on 5/19, and no trades since. His service tells you to buy the bond the next day, if certain parameters are met. After that mid-May trade, those parameters were not met, so he did not trade. He’s more like a week-trader than a day-trader. His method has worked, and he is up 50% this year. I am going to set up a futures account with some extra money I have, that I could afford to lose, and do these trades. The futures account is in Treasury notes, but you take some of that money to make the trade. There is a stop loss, so you cannot ever lose your entire trade. My husband looked into this also, and told me I could do this.
But again, something like this is for people who have extra money to invest. The only reason I can even think of something like this is from the money I made selling my house. I would not use my emergency fund or borrow against my home or stock accounts for investing in anything, no matter how good it sounds.
You can also check out Zeal. I subscribe to the Newsletter (monthly, for long term investors), and not to the weekly Speculator. The latter is for short-term traders. I purchased shares of a lead mining company recommended in their May newsletter. These people spend all day scouting out the best deals, and in the May newsletter, they had that one mining company, so I put some extra cash, that I could afford to lose, in that.
There is no easy ride in investing. If you want to make money investing, you’ve got to take the time to educate yourself. When you buy a car, a house, you must take time to drive around to look at cars and houses, learn about financing options, how to spot a good deal, do inspections. Unfortunately, many people don’t want to take the same amount of time to figure out their investments.
They find it difficult to understand the markets, so they tune out. They hand their money over to their company’s retirement fund, and trust the right choices were offered. They invest in the mutual fund, believing Wall Street propaganda that this is all too complicated, and only mutual fund managers can figure this out. They convince you to take big risks in the market, and ride out the lulls. Well, ask people in 2000 how well that philosophy served them. If you can think for yourself, you can outdo the crowd, by getting out of stocks when they are overvalued, and getting in when they are undervalued.
Let me give you an example. Back in 2000, when everyone was buying tech stocks, I could see we were in a highly speculative bubble. I loaded up on Vanguard index funds, favoring the small caps and overseas funds. They had been the laggards, and I knew that these things are cyclical. I did not lose money in the tech stock crash. Only because I used common sense and did not follow the crowd, and exited overvalued positions.
When the stock market has fallen off its high (and the corrections have started last week and are continuing, but expect a few dead cat bounces) then get back in.
Anyone investing needs to do at least some research. If you’re not willing to do that, you’re basically gambling, not investing.
There is no such thing as a risk-free ride. I am losing money in my 5% CD, to inflation. Stocks are even riskier. Remember 1987? Remember 2000-2001? Stocks are just now getting back to the prices they were 5 years ago. Not a very good ride, in my opinion.
It’s too bad that most young people have been brainwashed by Wall Street mutual funds to think that stocks are the best investment. It’s only good for the mutual funds, who earn billions each year, managing your money. Not good for you!
