Pat McKeough Which way will markets go in 2011? In the past few weeks, I’ve written about what you need to do to succeed as an investor. But it also pays to learn what not to do. You need to avoid making all-too-human errors that seem logical and conservative when you make them, but are sure to cost you money. Here are four mistakes to avoid if you want to make 2011 more profitable. 1. Don’t sell your top-quality stocks just because they’ve gone up. Selling your best stocks too soon is a particularly big risk for 2011. When the market recovers from a black hole like the one it fell into in 2008 and 2009, somebody always says it has gone up “too far and too fast.” Applying this pseudo-conservative advice gives you an excuse to take profits, which appeals to us all. But it hurts your results in the long run. In the course of an investing career, some of your stocks will go up way more than you’d ever guess, some do about as well as you’d expect, and some stagnate or fall. The top performers contribute an over-sized part of your lifetime profit. You need a few “five baggers” (stocks that go up, say, 500 per cent) to make up for the inevitable losses of 20 per cent to 40 per cent or more that strike every portfolio. If you’re too quick to sell stocks that seem to have gone up “too far and too fast,” you’ll never have any five-baggers. 2. Don’t be afraid to sell speculative stocks. My advice in point one above applies mainly to well-established companies. In contrast, you should be ready to take at least partial profits in any low-quality stocks you own that go up substantially. Of course, it takes judgment to spot low-quality stocks. But some of their chief earmarks are a lack of earnings history, a dependence on projects that are still under development, and investor relations material (press releases, websites, emails and so on) that seems promotional rather than informative. You may want to apply the “sell-half rule”: sell half of any speculative stock you own that doubles, so you get back what you initially invested. 3. Don’t settle for profitless security. The marketing directors at financial institutions are just like their counterparts at soap companies. They don’t want to create products that are bad for you or will hurt you. They just want to create products that you’ll buy. Today, investors are huddled on the “fear” end of the fear-greed spectrum. One way to appeal to them is to come up with innovative financial offerings that provide a no-loss guarantee. The problem is that guarantees cost money, and buyers pay for them. That’s one reason why “guaranteed” investment innovations generate far less profit than stocks, plain-vanilla mutual funds, or other forms of ‘un-guaranteed’ investment. For that matter, the guarantee may be far flimsier and loophole-riddled than you’d guess from reading the sales brochure. You only learn about these limitations by reading and understanding the prospectus or offering memo. In general, the closer you look at the fine print, the less likely you are to buy. 4. Don’t close your mind to new information. When shopping for a new car, you may at first feel equally drawn to a Ford and a Toyota. If you buy the Ford, an all-too-human mental process takes hold. You begin to ignore faults that occur in Fords, and disregard anything good about Toyotas. This is your mind’s way of making peace with your decision. In today’s world, it’s a good thing. Most of today’s cars can do what most consumers expect. Besides, replacing a new car soon after you buy is expensive and wasteful, and we all have better things to worry about. Unfortunately, the same process takes hold when you buy a stock, or begin dealing with a new broker. But investments and brokers vary more widely in quality than do cars. You aren’t (or shouldn’t feel) stuck with those that turn out to be bad choices. That’s why you should keep an open mind about your investments. That’s good advice this year and every year. Pat McKeough is a portfolio manager and publisher of investment newsletters.4 mistakes to avoid for a more profitable 2011
Friday, December 10, 2010
4 mistakes to avoid for a more profitable 2011
Thursday, December 9, 2010
Market Nuggets: Current Sell-Off In Gold Is A Chance To Build Positions – SEB
09 December 2010, 9:12 a.m. | |
(Kitco News) --The recent break in gold prices offers a chance to build positions, says SEB. “The gold market currently offers a substantial potential upside with a limited downside risk. When trust in both the dollar and the euro is low, there are few places to go,” the bank says. They have both a bullish strategic and tactical view on gold, noting the “frenetic money printing” in the U.S. and the European situation could turn worse, while Chinese inflation encourages hedging demand. A Chinese interest rate hike could pressure gold prices, but it is viewed as a temporary setback. By Debbie Carlson of Kitco News; Market Nuggets: Copper Pushes To New High, But Higher Interest Rates Could Limit Gains – MF Global (Kitco News) --Tight inventory conditions and talk of looming base metal exchange-traded funds helped push copper prices to a record high on the LME, although profit-taking curbed some of the gains. The strength in copper has helped other base metals such as aluminum, says MF Global. The firm cautions, however, with global interest rates creeping higher it could limit upside. They note a rise in 10-year yields in the U.S. Treasury market, talk of a Chinese rate hike as soon as this weekend, the potential for India’s central bank to raise rates next month and Russia might move to raise rates in the first quarter of 2011. German yields are also at their highest level since May. By Debbie Carlson of Kitco News; Market Nuggets: Gold, Silver Among BMO's 'Preferred Commodities' (Kitco News) -- Analysts with BMO Capital Markets say they have upgraded their outlook for gold and silver and that the metals remain among BMO's “preferred commodities.” BMO Research increased its 2011 average estimate of gold and silver prices to $1,450 and $28 an ounce, respectively. “Gold and silver price assumptions beyond 2011E have been increased on average 8.2% and 18.7% respectively…” BMO says. “Silver and gold are expected to benefit from their quasi-money status, as investors continue to use precious metals to protect against a very uncertain outlook for Western currencies, long-term inflation and systemic risk associated with European and U.S. debt. Risk is to the upside amid a possible more aggressive QE2 implementation. Robust demand growth and supply constraints are projected to tighten the physical market conditions for gold and silver. Silver is expected to be in a deficit position in 2011, making it an outperformer.” By Allen Sykora of Kitco News; Market Nuggets: Rise In U.S. Treasury Yields Takes Away Some Commodities Appeal--Barclays (Kitco News) -- U.S. 10-year Treasury notes are “breaking down” similar to spring 2009, prompting some of the recent pressure on commodities, say technical-chart analysts with Barclays Capital in a research note. Cash yields, which move inversely to the price, have closed through the 200-day moving average and pivotal support in the 3.15%-3.25% area, leaving little on the charts to be bullish about, Barclays says. The rise in 10-year yields is expected to draw some appeal away from the commodities, and this can be seen in the precious-metals complex, with gold and silver posting reversal days on Tuesday, Barclays technicians say. “However, we maintain our underlying bullish view for commodities and rather than looking for any significant setback, we expect this to translate into a choppy move higher.” By Allen Sykora of Kitco News; Market Nuggets: Goldessential: Gold Futures Recover Some As Physical Demand Emerges (Kitco News) -- Comex gold futures, which were under pressure Wednesday, have recovered some on increased risk aversion in equity markets and sound physical demand originating from Asia, say analysts with Goldessential.com. Still, the move has been countered some by a softer euro against the dollar. Matthias Detremmerie, founder of Goldessential, says gold has “nicely bounced off a three-week-old uptrend line. However, a failure to regain past $1,400 still opens for charts to deteriorate further, targeting $1,352 as next target.” Fresh strength in the U.S. dollar could also limit recovery, he says. Goldessential reports that holdings in the 13 exchange-traded funds that it continuously tracks fell by 3.14 metric tons Wednesday in a market weighed down by long liquidation. Total holdings stood at 1,911.88 tons. At 8:01 a.m. EST, February gold was up 90 cents at $1,384.10 an ounce but had traded up as high as $1,393.30. By Allen Sykora of Kitco News; | |
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