With all the negativity surrounding our economy, with the stock market testing its November lows and with consumer confidence on life support, this author is about to write a positive column. Am I insane? The re-incarnation of Crazy Eddie perhaps (remember him?). As I sit here in my home office typing away, I can just envision investors all over the world curled up in a fetal position feeling sorry for themselves, enumerating the myriad of folks and circumstances to blame for their misfortunes.
The truth is that many of these folks are correct in their assumption that if the government did its job, if greed was eliminated from Wall Street, if our financial institutions practiced responsible lending procedures, things in the investment world would be quite different. But as the expression goes: *%#&^%$ happens! The question is how do we respond to these rare but brutal circumstances. Here are our choices:
1- The above-mentioned fetal position approach.
2- Put your money in cash or fixed investments until the market normalizes and the economy rebounds. I-bonds will gurantee that you beat inflation.
3- Invest cautiously, but invest, because there is still money to be made even in this market environment.
Blue Collar Investors all over the world, know that option #1 is never to be considered. Whenever emotion plays a role in our financial decisions, failure is inevitable. So choosing between staying on the sidelines in cash or careful, non-emotional investments is our dilemma. This is a personal decision that only you can make because risk tolerance and market experience and savvy need to be factored into this determination.
I have decided to use a combination of the two. I am selling covered calls, but with a conservative percentage of my total stock portfolio. The February contract period was a good month for this investor as I carefully integrated sound financial principles, common sense and employment of exit strategies to achieve a decent degree of success. Because of the market volatility, I have been selling predominently I-T-M strikes thereby achieving slightly lower returns than if I sold more O-T-M calls. I am, however, getting the downside protection that allows me to sleep better at night.
The purpose of this article is to show you why I don’t subscribe to the doom and gloom philosophy. Even in the stock market crash of 1987, there were industries that flourished and stocks that appreciated significantly. It is the mission statement of The Blue Collar Investor to locate these stocks and their industries. Bottom line: The Blue Collar Stock Market consists of the greatest performing stocks in the greatest performing industries. That’s our stock market. The S&P 500 is everybody else’s stock market.
The S&P 500:
This is an index consisting of 500 stocks chosen for market size, liquidity and industry grouping. It is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/reward characteristics of the large- cap universe. This is what investors look at when they refer to “the market”. Currently, this index is testing its November lows and it is understandable why investors are overwhelmingly negative when referencing this benchmark. Here is the chart:
One glance of this graph will understandably cause most investors to liquidate their stocks and put their assets into fixed investments or cash. However, although this index does tell an important story that we can’t ignore, it is not our stock market, its everybody elses. Just as in the Crash of 1987 there are industries and stocks that are non-conformists. Even Cramer says that there is a bull market somewhere and he’s going to find it for us. Blue Collar Investors can locate these markets as well. Many times, we find them first!
Over the past few months, this site has highlighted several industries and stocks that have fallen in favor with the institutional investors…these are the modern day non-conformists. A few have been located by YOU and I simply passed the information on to our group. So, after having viewed the brutal chart of the S&P 500 above, let’s now look at the charts of these highlighted industries and stocks and then see what conclusions we come to:
For a FREE WEBSITE to access industry charts, use the following link:
Listening to the media, market experts, friends or general public sentiment can be a mistake for Blue Collar Investors. There is only one person who should determine your investment plan and that is YOU! Yes, we should factor in the information put out by others, but consider these comments just one small piece of the puzzle. Only you know your risk tolerance. Only you know your market experience.
If you choose not to invest at this time then that is the correct decision for you. But don’t let this opportunity go by. Paper (practice) trade through this volatile market. Put in the same time and effort as if you were risking your hard-earned money. What a great learning experience. You will have the confidence that if you can navigate your way through the current economic trials and tribulations, your profit potential will be limitless in normal market conditions.
For those of us who do decide to invest in these difficult markets, it is comforting to know that our market is far superior to their market. With all due repect to the S&P 500, it is just not good enough for the world of The Blue Collar Investor.
Last Weeks Economic News:
President Obama signed the economic stimulous bill (The American Recovery and Reinvestment Act) into law. The Feceral Reserve minutes showed that “participants thought the fiscal stimulous was a necessary and important complement to the steps the Federal reserve and other agencies were taking, and that it would help foster economic recovery.” The Fed was concerned, not about inflation, but rather deflation ( A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression. Central banks attempt to stop severe deflation, along with severe inflation, in an attempt to keep the excessive drop in prices to a minimum). This concern was supported by the fact that the year-over-year rise in consumer prices reached its lowest point in over 50 years.
On a positive note, the Conference Board’s Index of Leading Indicators surprised analysts by rising 0.4% for the month of January. This was the index’s second consecutive gain that could mean that the recession is slowly beginning to ease.
For the week, The S&P 500 declined by 6.9% for a year-to-date return of -14.7%.
My best to all,