I decided to post some strategies which if followed will make you a survivor in the coming 3 years as we try to find our way through the financial mess from 2008 and the ones to come. We are in untested waters as a society. Many of the so called "remedies" that Federal Reserve Chairman Bernake is using, have never been tried before in a situation like this. Neither have the actions of Treasury Secretary Paulson been tried before. So we are in uncharted waters to put it mildly. If the dire predictions being bandied around are even a possibility, then developing strategies to minimize their effect on you would be important.
What have we learned from the past? Well for one thing, "Cash is King", as has been evidenced recently as banks have tightened credit so tight businesses which depend on credit are going under at an alarming rate. In my area alone, a car dealer that was established during the Great Depression has had to close shop this past week. So it survived and flourished during and after the Great Depression but can't make it now. A hotel in Pleasanton, CA had a similar fate last week, also established back in that earlier era. So having cash allows you to have more flexibility in your decision making. So that would be one goal, how to increase your cash position?
What else have we learned? Well another thing I learned back in the year 2000 and 2001, was that the Buy and Hold strategy for investing wasn't working and trading more frequently to make gains seemed a better strategy as it minimized the downside risk. Buying stocks near the lows of their trading range and selling them as they approached the upper bands of their trading range seemed to yield far higher returns on a yearly basis. So another series of goals to take advantage of this knowledge would be in order. Here are some:
Watch your portfolio more frequently than you have in the past. Look back in history of the past year and ask yourself the following, if you had moved in and out of some of your holdings would you have done better than Buy and Hold strategy? If you see you could have done better then it might not be apparent but maybe you don't have the skill to know when to buy and sell. So the next strategy is to start to learn how to tell when to Buy and Sell. You will need to read some books and start to educate yourself how to improve those skills. Many books are available to learn this skill set.
Think about how much time in hours you work each week? Then ask yourself how many hours a week do you actually manage the money you are making? My guess is not even 1 hour per week for most people. And yet it is as important as making the money in the first place. If you have been working hard these past 3 years and saving your money, then you should be able to go back and see it all there, right? Wrong! Most of the people I know put their money into their 401K's, if they had one, or their IRA's if they had one of those, or went to a Broker and asked them to manage it for them. When they are looking at their yearend statements as to the value of their holdings, most are down 30-40%. So what happened? We tell ourselves yes, we lost money but everyone did. Is that an excuse? Is that the best you can come up with? Or is it that you never pay attention to it as you were too busy? Hmmmm, how much did that cost you this year? About 30-40% of all the hours worked over the past 3 plus years. So the lesson to learn here is this, take accountability for what you allowed to happen and be resolved that it won't happen again. Just because you are afraid to look at your statements doesn't mean that the total value of the account is still there. You might be asking yourself this question without really thinking about it, If a tree falls in the woods, does it make noise if no one is there to hear it?
What other lessons and strategies are needed to survive. Well one is have a plan. Think about how you are going to rebuild your assets? How are you going to prevent losing more? My friends, it takes a lot of time and it is better to decide now to devote time to learning and responsibility for managing your own financial situation. Where is the time going to come from? It is going to come from having a clearer purpose about your reasons for doing this as you will make the necessary tradeoffs daily to better manage where you actually spend your time and what you spend it on.
Working hard is important as it allows you to keep your job, when others may lose theirs. Setting up a financial plan for yourself is the first step. Ask yourself this question, if things get really bad in the economy what am I going to do? How much cash do I need? How can I learn to increase my cash no matter how much I have to start with? You see if you have only $500 and can somehow make that $500 become $1000 and then repeat that same process, you can have $2,000 and so forth. To invest doesn't take large amounts of money but it does take some. You can learn the skills to buying and selling your own stocks and seeing a profit. And this profit can lead to more profits. I don't know many places where you can make small amounts of money turn into larger sums except in the stock market. It's better than going to Las Vegas and trying to hit the jackpot or taking out a lottery ticket and hoping your numbers come in.
I believe the strategy that will save you going forward is buying and selling stocks for gains. But most aren't ready to do that yet so let the next 6 months to a year be used to educate yourself. It is a learnable skill if you have a tolerance for learning how to read and analyze stock charts and know how to keep good records of your investments and your trades. I have personally made about 12 full trades in the past 4 months where I bought something and sold it. The profits have ranged from a low of 20% to as high as over 100% for these 12 trades. It is all about percentage, not just dollar amounts. Because your portfolio gains and losses should be measured in percentages as well as dollars. I work hard at trying to make a minimum of a 10% gain on any trade. It doesn't always happen and I have had losses as well. But those losses taught me more about what I was doing than any textbook I had read and I have read about 50, over the years.
Things are going to get volatile again in the markets this January and going forward this full year. Volatility means a chance to make money and save money if you trade rather than just hold on for the ride in either direction. What if you knew a psychic and they had made a prediction and was right in my predictions 80% of the time? Would you believe them when they said we are headed for more troubling times than we have experienced so far in all of 2008? Well a lot of well respected professionals out there are declaring they believe that things are going to get a lot worse in the next few years. So the question is this, knowing there are predictions being made about this by well respected professionals, would you do something differently going forward or stay doing what you did all 2008? I think it is a very relevant question. Hope you do too. I'll post more suggestions from time to time as I think of them. Thanks for stopping by.
Labels: 2008, analysis, Ben Bernanke, Cash is King, charts, Hank Paulson, market, strategies, trades, Volatility Index
