A Brief Examination of the Stock Market Today
Perhaps no other financial area may seem as confusing to new investors as the stock market today. Even experienced traders are walking very carefully in light of the unpredictability of this financial mine-field. Read More
However, there is still money to be made if one proceeds cautiously, even in what is generally considered to be a bear market. History confirms that there have been bullish opportunities for smart investors, even during periodic down swings. Protecting investment capital and risk management is crucial if one is to survive and even thrive in these turbulent times.
According to the Wave Theory, the United States is currently in the unpleasant position of being at the center of a 20 year market correction that started in 2000. While the first and last 5 years of any such time period are fairly predictable, the middle years can experience wild fluctuations that can be financially disastrous, much like walking across cracked ice. Any unforeseen violent, external event can plunge the stock market today into the deep and chilly waters of chaos. Additionally, political and social events within the country can also have a direct effect on the market’s highs and lows. Finally, investor psychology, based on predictions and interpretation of financial data can skew profitability.
The center of this current wave, 2008-2010 or even to 2014 will be extremely difficult to predict and somewhat confusing because of the extreme polarization of investment strategy. Anyone who brags that he has it all figured out, frankly, should be viewed with skepticism.
After the discouragement of 2008, it appeared that investments might perk up for 2009 because of the government intervention through various stimulus packages. By the second half of 2010, the effects of those injections into the economy began to weaken, prices flattened, and the slightly bullish market may have ground to a halt. A predicted 10% correction may be close to accurate, or it may fall far short of a further drop in the remaining months and possibly next 2 years. The truth is that there really is no way to know in advance just how far a particular market can fall.
What does an investor need to know to invest wisely in the stock market today? For starters, this is not a good time to speculate. Since the Fed will not be able to save the market if, in fact, it does fall, protecting one’s assets must be a first priority. A diversified portfolio sounds really good to brag about, but if the majority of investments are in the stock market, how really safe is all that investment capital? If the market collapses or plunges deeply, mutual funds on the stock exchange will also fall. Consider this a warning. That said, this is the best time to keep investment capital rather “short” in anything that has to do with the stock market, including stock options, index futures, mutual funds, and regular stock shares.
Since the current low interest rates are more apt to push investors into the stock market, what trends and companies might be worth considering? Natural resources and beverages that cater to the Chinese interests are probably safe places in which to put some investment capital. As the Asian appetite for Western products increases, companies that have the opportunity to sell overseas seem to be getting stronger financially. Defensive stocks, Telecoms, utilities, pharmaceuticals, and technology are also able to generate cash regardless of the other economic factors in play at this time. Even food retailers are profiting from the simple fact that people still need to eat.
To protect one’s stock market investment today, it is more important than ever to study potential companies. Who’s in charge is more important than the product being offered at this point. Research thoroughly, read financial reports, and look for both trends and opportunities to make profit. By finding undervalued companies or those whose price-earnings are much lower than their peers, one can find some good investment deals. The healthier their balance sheets the better, and if they have a low debt load, and a positive cash flow, they may be worth investing in. Also, absolutely use limit orders rather than market orders in this unpredictable economy.
Finally, choose a brokerage that is trustworthy, with written guarantees and client rights clearly spelled out. What are their best business practices for protecting investors’ capital? How do they execute their trades? What protections are in place for the client who uses their services? Knowing the dangers and pitfalls of today’s stock market does not mean one should freeze all investing. It does indicate that wise investors will walk cautiously and carefully for the next few years.
