I’d like to offer a different viewpoint.
I think people, in general, approach stock investing from the wrong angle. Too much emphasis is placed on picking the proper time to enter or exit the market as a whole. Once you make that decision you then must decide on which individual stocks to invest in. After that is done you then must decide entry and exit points for those individual stocks. A mistake made in any one of those areas and you will lose money because you have constructed a position that will only make money if the stock price goes up.
In my opinion it is more important to learn how to make money with what is in front of you today in the market. Invest with the flow of the market rather than trying to pick a point that you think that flow will change. The proper use of options allows you to do just that. Learn to incorporate the use of options in your stock portfolio and you will be able to generate returns when the stock goes up, stay’s the same, or even goes down somewhat. You can even use options to make money when stocks are tanking but that’s another avenue of investing. This allows you to stay in the market all the time. History tells us that the market as a whole will trend up over time. That’s not an opinion, it’s a historical fact. Pick profitable, established, income generating stocks for your portfolio that have survived market and industry downturns such as ADP, EMR, MSFT, MCD, WM ect. Most people fear options and with good reason. They don’t understand how to use them and when they do use them they use them for speculation and lose money more often than not. The proper use of stock options will make a stock portfolio far safer and enhance returns and allow you to stay in the market. Invest with the probabilities not against them.
Here is an actual example of what I’m talking about using Ingersoll Rand (IR). In July of 2008 I purchased IR at a cost of 34.21 per share. This was shortly before the big crash started. During the crash this stock traded below 13.00 per share. By selling put options for income and eventually being assigned on those options I acquired more shares at these lower prices on three occasions. In the end the position was closed in Sep of 2009 when the price of the stock had come back up to 32.08. Wait a minute you say. . . that’s still a loss of over 2.00 per share. No it isn’t. Because of the income I received from writing Call and Put Options and dividend income my cost basis was much lower than 32.08. My annualized return on this position was 19.3%.
Most people would have bailed out on that stock and taken a huge loss. But I understood that the probability was that the market would survive and go back up. Ingersoll Rand was still making money and it was also a probability that it would survive and recover as it has in the past. Invest with the probabilities; don’t try to time the market.
The point I’m trying to make here is timing the market is tough. Timing individual stocks is even tougher. Learn to make money in the market just as it is and you won’t have to time it.
Just my two cents
