Here’s something interesting I noticed in most investors; they cannot take pain. Whenever anything looks red, they sell. It’s almost like a hinged instinct wall street has on these so called ‘big players’. So I’ve come up with some simple strategies to try to train and discipline you on how to make money when the market looks ugly. However, you need to learn a concept that has been taught countless of times in the real game secrets: Do not panic sell!!
Say, we have company ABC on board with us today. Company ABC has been in the business for years; perfecting management, continuing growth for the company and for the employees, keeping investors happy (look at the history), has a good SOLID EPS and compares very well to its competitors. Company ABC has announced surprises, they are the leading company in its sector, they’re doing great as a company, however, the market is not rewarding them.
Let’s analyze this closely: Think of Company ABC as a student and Wall Street as a teacher. The teacher sends the child’s report card saying “Your child has been trying to excel and grow and has been doing a great job, keep it up!” The quarter comes around, and the child gets straight A’s as expected; kept up the same strength and worked hard to get those A’s. Shouldn’t we reward him? Think of how odd and wrong it would be for that teacher to say “hey child, why did you only get an A?” wouldn’t that be a horrible teacher? Wouldn’t you expect the teacher to reward the child and congratulate the child on passing and perfecting the class? I would. As I would with any company that has continuously showed me that they are ready to keep they’re report card on a high level. This is the case with Wall Street; sometimes Wall Street turns its head and becomes an unfair teacher. Even though company ABC has continued to show the hard working grades that they have (fundamentals) they are getting punished by Wall Street for being a good company.
What’s my point?
My point is to show you that stocks that have been ‘great students’ are being tortured and punished for what they’ve done. We use this as a buying opportunity. We buy our small chunks at a time and buy again when it’s punished again. When the reward day comes around, when it’s time for the child to get his ice cream or new bike you will be very pleased to see the correction of the real company with strong earnings that you believed in. I have a list of these companies that I’ve seen and I’ll list very few of the many great companies out there. I think in a bear market like this it’s just not wise to bet on only small cap (even though that is the most rewarding in this market at the moment) I believe that you should diversify yourself between large and small cap. That way you will be covered on the small cap’s losses and can continue to buy what you think has the growth potential and earnings in the future. You will be covered by your “hard working child” in the large cap sector and need not to worry. When the corrections come around both your large cap and small cap will flourish.
Take a look at this chart I want you to pay attention to the Dow’s support levels. The punishment is brutal but there is always a reward as you can see. Just look at the bounces that it’s made when it was crushed. Investor’s & Wall Street both realized “Hey I can’t sell that, that’s a great company I’m going to buy” and that’s what happened and that’s what will always happen.
