I was about to ask Linda to marry me. My knowledge of diamond rings was one level below my awareness of the cast of Sex in the City (a show I have never watched). How many of us take our hard-earned money into a mall jewelry store and purchase an engagement ring from “some person” . Thousands of dollars on an object so meaningful and yet so few are willing to make an informed decision. Sure that salesperson will guide us but how do we know if that advice is in our best interest or that of the salesperson? Or even correct advice? The only way to truly know is to become an informed consumer. I purchased a book about diamond rings and learned about the 4 Cs of a diamond’s grading criteria. Now it was time to go shopping, intellectually armed. Linda loved the ring and said yes!
Many of my readers assume that I am against hiring a stockbroker or financial planner. That is not necessarily the case. There are many ethical, talented and hard-working professionals who will serve you well in your investment career. For those of you inclined to have a third party do the research and recommendations for you, this may be the path to take. But how do you know if the expert is in fact a top-shelf pro? Just like I became an informed diamond ring consumer, so to do we need to become enlightened about our investment choices.
So your broker tells you to buy 5 stocks worth a total of $50,000. He will generate a commission on these trades. I ask you: How hard did that broker work for the $50k? How many hours did he travel to and from the office? How was the traffic, weather, parking etc.? The point is that we owe it to ourselves to be in a position to say Mr. Broker:
1- Stock #1 is one of the worst performing stocks fundamentally….in the lowest 20%. Why did you recommend it? OR
2- Stock #4 has been in a downtrend for the last 4 months with several negative earnings reports along the way. Why did you recommend it? OR
3- Stocks #2 and #3 are in industries out of favor. Why should I buy those stocks rather than others in better performing industries? OR
4- All the stocks are in the same industry. Why didn’t you advise a more appropriate diversification of my holdings? OR
5- I checked all 5 stocks and they are great both fundamentally and technically. You did a fabulous job. It’s okay to go ahead and purchase them. Keep up the good work.
Now you have earned the respect of your financial representative. He will be cautious and do extensive due-diligence before making any recommendations to you. He may even come to you for a stock pick from time to time! That’s actually happened to me with stockbrokers who I see socially. One thing for sure, you will BOTH know that it is YOU and NOT him who is CEO of your own money.
Industry in the Spotlight:
I am always looking for industries that give us the best chance for the highest stock rate of return. One that has caught my eye is the Coal Industry (Energy -other group, on the IBD website). It ranks #1 over the past 4 months, #1 over the past 6 weeks, and #2 last week. How’s that for consistency?
We, as Blue Collar Investors, are so fussy that many of the stocks within this industry still will not earn its way onto our watchlist. Two that DO meet our system criteria are:
You may also want to keep your eyes on WLT and BTU. These are equities that don’t quite meet our system criteria at this time but have made me lots of Blue Collar Cash in the past.
Please use the “comments” link of this article to share with us any stocks or industries that have caught your attention.
Interesting Fact: Buy and hold and forget about it?
One philosophy of stock investing suggests investing in great blue chip companies and letting it sit for years and years without trading in and out of that equity. One such company that fits that mold is General Motors. When I started my journey of self-education in stock investing there was an expression: As goes General Motors, so goes the stock market.
Today, General Motors was downgraded and closed @ $11.43. This represents a 53 year low! In other words, if you invested your hard-earned money in GM 53 years ago you would have lost money. If you factor in inflation, the amount of that loss would be obscene.
How about this: Buy and hold until the factors that motivated you to purchase that stock to begin with changes, then sell.
I will address this issue of stock investing without selling options in my next book (I’ve been writing it for 9 months and will figure out a title when complete).
My best to all,