Waiting For That 10% (or more) Market Correction

Its been a long time since we have had a correction in the stock market. I think more than six years have gone by which has made investors spoiled and cocky. Anyone new to the market in that time has no experience with anything much more than the market going down by about 5%. At some point in the future, they are in for a rude awakening. The only thing is, no one knows when that will happen. 

It is generally accepted that a correction of 10% is totally normal and it flushes out a lot of the investors who have no business owning the stocks they do. It also takes some of the fluff out of the high flyer stocks that have escalated to prices that defy any rational valuation.

You can go online now and Google lots of articles that warn about the high probability of an imminent correction (like this one and this one). As each month goes by, there are more and more warnings thrown onto the pile by those who are supposedly in the know. But the problem is, absolutely no one knows when it is going to happen. Just like earthquakes on the West Coast, we all know they will happen but when, well, that is a different story. 

That leaves any investor who has money available to put to work with a problem: should they wait to buy stocks until that correction comes or should they just keep putting money in the market knowing that at some point it will go down. To wait or not to wait for something that will come but could be weeks, months, or even years away?

Unfortunately there is no answer. 

Waiting for a big correction could mean you miss a run up from Dow 18,000 to 20,000. No one wants to miss that and it could happen, despite all the naysayers. After all, I’d say that no one could have predicted that we would have gone this long without any significant downturn in stocks. Absolutely no one saw stocks going up during President Obama’s first 6 years in office and that is what has happened.

So I guess we all scratch our heads and wish we could see into the future. But since we can’t, it is smart to invest carefully, knowing that at some point you will wake up to some ugly red numbers on Wall Street. Don’t be scared, just be prepared. 

It Was Inevitable – Stock Market Trading Is A Game To Gamers

The stock market industry changed drastically in the last 20 years. Few investors today know what full service brokers are and if they did, it is highly unlikely any would use one. It is now a race to the bottom for trading fees as broker after broker try to offer prices that are heavily discounted from what they were years ago.

To make up for the lower prices, the whole industry actively promotes frequent trading. Its cool to trade often and you should, if you want to be a good investor <— that is what they want you to believe. The discount brokers are counting on you making more trades to make up for the lower per trade fees. The TV programs all parade those traders in front of the camera who spout off their picks of the day (or hour) and imply they know more than you do. Everything is geared toward making you feel you need to trade frequently to be a good investor.

Now we have word that stock trading can be approached as a video game and is that really surprising? Look what happened to the poker industry when online poker was invented. The US politicians shut most of it down in the United States but in those boom years, young college age kids flocked to the “new” game and turned it into a calculated math exercise/video game. Many were very successful as they learned how to multi-table on large computer screens as they approached the longtime pastime/game as purely a video game. The same thing might be happening with stocks.

With a buy and hold mentality, the stock market can be very boring. Depending on how much money you have, you are doing absolutely nothing for most of the time. It seems counter intuitive to someone who wants to actively manage their money or feels that they need to be doing something proactive more frequently. That is why day trading popped up many years ago and interested a segment of investors who wanted to try to try something different.

Today’s younger generation has a shorter attention span than any generation before it. They were raised on video games, iPads, iPhones, Facebook, Snapchat, and everything else that the Internet can offer. They demand being entertained every second of the day and can actually be, with all the options available. For them, the stock market might be viewed more as an exciting way to keep that adrenaline going and make money at the same time. Why not, if you can do it?

The Internet has certainly changed our whole world. Life today in the developed countries is much different because of it. Investing is still essentially the same but the way some of us do it is very different. It seems sad that today’s millennials and younger may never get a full understanding of what long term investing is.

I don’t know whether any of them will be more or less successful with their rapid trading mentality than they would be with a traditional buy and hold strategy but they better, in the end, get to a place where they have money to retire on. By the time they are retirement age there is a good chance the Social Security System could be bankrupt or severely crippled and offer them little to live on. Besides, anyone who is counting on just SS to pay their way in the later years has a very spartan lifestyle ahead of them.

Stocks In 2009 To 2014: Too Good To Expect More Of The Same?

Younger investors might be operating under the impression that stocks always go up. Anyone who first started investing money into the market during or after 2009 has seen nothing but gains, with the pullbacks being very minor and short lasting.

Dow Chart

But just because the things have gone so well lately, doesn’t meant that stocks can’t take a serious u-turn for an extended period of time. In the last 15 years we saw the stock market go down for 3 straight years starting in 2000 before moving back up. Then again, starting in the middle of 2007 the market went down for a solid 1 1/2 years before reversing course.

Three years may seem like a long time period for stock to go down and it is. But in reality if the conditions are right, it could go down for much longer. Take the Japanese stock market for example and you have a truly frightening chart that is unheard of over here in America. Try over 25 years of the market either going down or sideways and see how you like it:

Nikkei 225

Most financial planners and advisors would recommend investing in stocks over a long period of time. Your whole life would be a time frame that would be great, especially if you start early. The popularity of day trading and the mentality that you have to be trading to be a real investor is not what most people should do. You’ve got to put money in and let it work over time so that you have the luxury to wait out any market downturns. Of course a market like Japan has had is truly disastrous and we have to hope that nothing like that happens to the US markets.

Whether 2015 will continue the trend upward is anyone’s guess and there are a lot opinions you can read free of charge. It does seem like you can find more cautious and negative views than positive ones at this time but the year has a long way to go. I just hope that new investors take the time to learn more about stocks and how the markets work. Too many of them think that buying stocks is the way to get rich when that is most certainly not the case.

Watch Novice Investors Panic Live On StockTwits

StockTwitsStockTwits is an addicting online platform that models itself after Twitter. The only difference is that it is all about the stock market and users post (Tweet?) exclusively about individual stocks in real time. You sign up, choose what stocks you own or want to follow, and then let the fun begin as you watch all the comments stream by for your chosen stocks. You can also follow other investors which will include their postings as they make them no matter what stock they are talking about.

Predictably, Apple is one of the most talked about stocks on StockTwits and if you include it in your stream, you will get continuous new entries by other investors. However, if you pick stock(s) that are less popular, say Boeing or Novartis, there are fewer investors talking about them and your page feed may be quite boring.

It is a total free-for-all on StockTwits where absolutely anyone can (and does) have an opinion about a stock. There is no way to tell who is Tweeting and what their qualifications are (if any). You can look at their profile but that can be faked and so it is safe to say that 99% of the action on the platform is by individual investors who are bored or just want to be connected to other investors.

You Can Learn Just How Ignorant Many Investors Are

One thing you will have to deal with is all the downright ignorant and silly comments made by investors. When AAPL is going down (and other stocks as well) you can log on to see the frustration and anger displayed buy what has to be novice, short time investors. In this new investing world where short term thinking is so prevalent, any down day brings out the wildness in these stock owners.

On really bad market days when we have heavy losses, the postings can be downright comical. Investors show their true feelings when they are losing money it seems.

StockTwits can be used to quickly see what stocks have the most active Tweets and that in turn often means there is significant news about those stocks. You may also find links to articles posted by users about your stocks that you might otherwise miss. Other than those two uses however, I can’t see any real value in the StockTwits platform. Everything is so social now days that it is understandable that something like this exists. It doesn’t mean though, that it has any real value except as a time waster.

Ford (F): Its All About 2015

F-150Ford stock is down today like it has been everyday for almost 2 months. Today though, it is in reaction to the just released earnings report that actually had a lot in it that was expected. It seems investors, in their constant desire for profits now, are unwilling to give Ford any leeway in its ramp up to what should be a big year for them in 2015.

With Ford you should know that it all hinges on 2015 because of the new aluminum F-150 truck that will go on sale in December. Switching much of the body from steel to aluminum will allow the new trucks to become more fuel efficient with their 700 pound (or so) lighter weight. Retooling the manufacturing process for something as big as this is no small feat and clearly dictated that costs would be up and sales of existing trucks would be down this year.

The publicity around the new truck has been heavy and if you are in the market to buy a truck, chances are you have heard about the new aluminum body F-150. That is why many prospective new truck owners have been waiting for the F-150 and holding off buying this year’s model. Common sense if you think about it. But stock investors are a fickle bunch that often don’t like to wait and that has been much of the reason for the sell off in Ford stock this year.

With a P/E of just over 8 and a dividend of about 3.5%, investors buying the stock today are getting a nice return to wait for what could be a big year in 2015. The stock is cheap by just about any metric you choose but it probably won’t shoot up for awhile (if ever). Nevertheless, today’s pullback of over 4% after decent earnings seems like it might be a good entry point for anyone valuing a decent dividend on a stock that has good potential going forward.

Will Novice Investors Panic Sell Alibaba If It Goes Down More?

BABAI think it is safe to say that the Alibaba IPO brought tens of thousands of new investors to the table. But unlike Facebook (the last stock that was mega over-hyped) that was mainly a United States based IPO, many of these Alibaba first time stock buyers came from overseas which added greatly to the numbers. And clearly, the level of knowledge many of these investors have is at an all time low. To prove this, take a look at the many Alibaba stock comments and questions on this article which led up to the IPO. Some of the questions are breathtakingly ignorant and show that many of the new BABA investors have no idea at all what stocks are.

Back to Facebook for a second: right out of the gate, Facebook stock fell and I’m sure that caused panic selling among many who chose to make it their first stock purchase ever. People don’t like to lose money and it makes them unhappy, especially if they have no idea of what they are doing or what they are investing in.

So far, BABA has done nothing but go down as well and most, if not all of these newbie investors are now underwater. After shooting up to almost a $100 price early in the IPO trading day, the stock has come down, and down steadily. Many of these first timers are in at prices between $92.70 and its high of $99.70 if they bought the stock in the first hour of it trading. But now that the stock is selling for under $88, many of them are probably scratching their heads and wondering what went wrong.

Its a good thing when people get excited about investing for the first time. Far too few people in the world know how to manage their money much less save or invest it. The IPO’s of FB, TWTR, and now BABA all brought in prospective investors who got/are getting a taste of the market for the first time. That is a good thing.

However, knowing human nature and understanding just how little many of these new investors know, it pains me to see Alibaba go down right from the start. I just know that many of these new stock owners are dumping their stock, or thinking hard about it, never to return. With all the false hype about the stock market only being for the rich, it hurts when new people find their way through the door only to leave with the perception of being burned.

Why Should I Listen To Stock Advice From Writers Who Don’t Own The Stocks They Write About?

There are dozens upon dozens of financial news publications and websites. The Internet has spawned a seemingly endless number of ways anyone, from novices to highly qualified analysts, can opine about any stock they choose to “analyze”. It is truly the Wild West where everyone who chooses to can get their stock opinions out there to be read.

A list of the better known websites and publications include Motley Fool, Seeking Alpha, Forbes, Business Insider, CNBC, TheFlyOnTheWall.com, Yahoo Finance, The Street, MarketWatch, Briefing.com and the list could go on and on. Many of the writers on these news sources have questionable resumes at best when it comes to experience in the financial world and the investing arena.

In many/most cases authors of stock opinion articles state whether they own the stocks they write about. And disappointingly, a great majority of the time they DO NOT own any shares of those stocks. I find this extremely disturbing because we now have an army of mostly unqualified writers stating their buy/sell/hold opinions of every stock under the sun and they don’t have any stake in the game.

Talk is cheap and free advice from someone whose qualifications are unknown is worth nothing. Yet most readers never check to see who is writing the article and figure out whether that writer really has knowledge of the stock that is worth listening to. Plastered on the pages of the publications listed above and many others, the continuous barrage of stock analysis by writers who get paid per click cheapens the analysis that is done by professionals who actually know what they are writing about.

It is just too easy now days to read something online about a stock you own or are thinking about buying and take that advice to heart even though the writer doesn’t own the stock and might not care one iota whether he/she is right or wrong. If you don’t own the stock, chances are you haven’t really done the work necessary to be advising others. Analysts that work for brokers, hedge funds, and mutual funds are a different story because they do this for a living and getting a stock wrong can cost their company untold amounts of dollars.

So beware and always click on an author’s profile to read more about them BEFORE you take their advice. If you start reading author’s profiles more often, you may begin to realize that the writers probably don’t know as much about the stock or the industry as you initially thought they did.

And if they don’t own a stock that they are highly recommending, why don’t they? Hmm…..

Investors Like Amazon’s New Fire Phone, For Now

Amazon Fire PhoneAmazon introduced its brand new Fire Phone today and investors responded by bidding the stock up almost $9 to $334.38. The stock is still far below its all time high of $408.06 but the good reception today is a great sign going forward for the stock. Obviously, the mobile phone business is a tough one and any traction the Fire Phone can get will eat into the profits of Samsung and Apple.

To get an up to the minute perspective of what investors are saying about Amazon’s stock, take a look at the feed from StockTwits. Admittedly, the posters can be anybody and may or may not be investors. It is a free for all over there on StockTwits with a lot of silly ideas and junk posts but you can use it to see what stocks are being talked about the most. Today, the Amazon feed is on fire (pun intended) and will probably be quite active for weeks to come.

Whenever there is a major product announcement from any one of the big time tech companies, the stock of that company can be subject to knee jerk reactions from investors. Amazon stock ended up today but overnight investors may become less enthusiastic about the Fire Phone and begin to sell the stock. We shall see. But for right now, Amazon’s new phone is perceived as a winner that might be adopted in great enough numbers to take some market share away from the leaders and increase sales in Amazon’s marketplace. After all, the real purpose of the Fire Phone is to make it easier for people to shop on Amazon and to give them more reasons to do so.

By any metrics, Amazon stock is expensive. Real expensive. With a P/E over 500, investors have continued to give the company a pass on generating profits in exchange for the pursuit of expansion. The stock has gone down for most of 2014 but seems to be on the way back up at the moment. This unexpected release of the Fire Phone has gotten Amazon back in the news in a big way and will probably aid the stock it its attempt to regain all time highs. But again, the mobile phone business is just about the most competitive industry there is and whether this new handset can get any long term traction is something that is unknown at this point.

Microsoft’s Stock Gets No Lift From The Surface Pro 3

Surface Pro 3Microsoft just announced the new Surface Pro 3 which is its attempt to convince people they can have both a laptop and tablet all in one. The hybrid tablet/laptop is their biggest Surface at 12 inches but the stylus and keyboard cost EXTRA. $799 is the starting price for the cheapest model and you can spend more than double that when you buy ones with better speeds and memory. Add the keyboard and stylus on for another $150 to $200.

This new release gives you Microsoft’s Windows 8.1 operating system on a “Pad” which is different from Apple that has one operating system for its Macbook Air and another for its iPad. So, if customers are able and willing to use the new Surface Pro 3 as both a tablet and laptop, they don’t have to learn two operating systems.

MSFT stock did NOT spike on this breaking news and about 3 hours after the announcement, sits down 16 cents. Clearly this is Microsofts attempt to enter a new device into our lives that can serve as a substitute for owning two devices. They repeatedly compared the Surface Pro 3 to the Macbook Air during the unveiling showing that Apple’s popular laptop is their target. But that strategy has been tried before with the Surface 1 and the Surface 2 and it looks like investors are not buying into the hype this morning.

Where Can I Invest My Money If I Don’t Want It In Stocks?

Answer: If you want to make real money and not pennies, the stock market is your only option.

Real People Investing In Stocks

They are called mom and pop investors, retail investors, or individual investors. All those terms mean the same thing: people who buy and sell stocks on their own, usually through an online discount broker. These are the people that take investing into their own hands and actively try to manage their own portfolio in hopes that one day, it will be big enough to help them lead the type of lifestyle they want in retirement.

With interest rates being negligible for many years now, investing in the stock market is pretty much the only game in town. Putting your savings into any bank related vehicle or the government’s Treasury Bills is just spinning your wheels – you aren’t even keeping up with inflation. So stocks are really the only place to put your money if you want to have a chance at making decent returns.

The word “chance” seems to be the problem for most people who have come to distrust and/or ignore the stock market. Take a look at this graphic from BankRate.com:

investors distrust stocks

Many of the under 40 year olds don’t have much to invest (you can’t save if you aren’t working) and if they do, they have come to distrust stocks. Why? Here are several reasons:

1) Occupy Wall Street gave the stock market a lot of negative press for many months. Its too bad that so many young people were watching and absorbing that crap.

2) The market dives of the early 2000’s and 2008 also play a role in the distrust as kids watched their parents lose money and sometimes their homes. It was a stressful time for many stock owners and kids during those years were paying attention. Many don’t want to go through that with their own money.

3) Stocks and Wall Street seem to get constant bad press from Liberals, Democrats, Socialists, and anyone who is anti-capitalism. Heck, even the Pope hates capitalism. Too bad those groups combined make up such a large percentage of reporters and of the country in general. Its the cool thing now to talk about wealth redistribution and complain about the rich getting richer.

Start Young And Invest During Your Whole Life

It confuses me to no end that people waste time being envious of other people or groups when they could be spending time trying to join those groups. In other words, if you think stocks are only for the rich (and you’d like to be rich), the smart thing to do is to start saving money and invest in stocks yourself. If it works for them, it will work for you too.

All you need to do is educate yourself and start buying stocks when you feel confident. Start investing young (preferably in your 20’s), have a long time horizon, don’t panic and sell at the drop of a hat, and chances are that you will make money. It is precisely the people in their 20’s and 30’s who SHOULD be buying stocks and those are the ones who are now afraid and holding back. In the end, they are hurting themselves.

So, if you are asking where you can invest your money if you don’t like stocks, the answer is that there are a lot of places but your return will likely be very little if you don’t want risk. Until interest rates rise, your money won’t be “working” for you. Please reconsider and at least take a look at stocks with your long term money. Put aside an preconceived notions and learn about the market and the way it works. It is your best chance right now to beat inflation and grow that nest egg.