Strategies Are Made to Change
Investment Models are about working toward a given life style. Life styles change depending on the conditions that surround you. Investment strategies are about funding the life style that you want to live by. Your investment strategy should be influenced by the economic conditions that surround you. That is why they are a "Work in Progress."
Your aggressive investment broker will tell you that you should trade stocks to get that large percentage of growth. I read a book that said that you can get over 500% growth out of stocks in a year. No one ever seems to make it. Conservative investment brokers tell you that you should have a "Buy and Hold" Strategy. You buy the right stocks a little at a time then when they are as high as you think they will go, you sell them getting a large profit. But no one tells you when you reached that high. Then we have the income stock broker. They have you buy stocks that give large dividends such as 3% to 5%. As the companies grows, so will the price of the stock and its dividend. This does work as long as the stock grows. In this market, good luck!
They are not wrong. But they are only right when the conditions in the economy, the business, the industry, market conditions, and investor psychology dictate that the strategy is correct for you. That is a lot of variables. But it is better than going to the race track and betting on "Stuball" in the fifth race. At least you will not loose all your money.
With bonds, your investment strategy is simple. You pick bonds that will pay you. With Junk bonds or non-investment grade bonds, you pick companies that you believe will pay you and stay in business. With discounted junk bonds, you pick the company that you believe will pay. You pick the company that you believe will stay in business. Plus you will pick a company that will pay principle on the maturity date. These returns can be very large.
As far as strategy, in good economic times, you may buy bonds that may mature 10 to 20 years out, giving you 8% to 25% per year. In bad economic times, you should limit your investment to bonds that mature in one year or less, keeping your eye on their ability to pay you, the investor.
I recently had to change my bond investment strategy, once I realized how bad this depression is going to be. I went from bonds that mature in 4 to 7 years to bonds that mature in 3 to 9 months. That meant that I had to take some losses but nothing like the losses that the stock and mutual fund investors are taking. Some of these people lost most of their portfolio. I lost a few dollars in comparison.
You can watch the financial news channel and financial internet sites to find out who can pay, who the government is helping to pay, and who can’t pay. From that news you can figure out what bonds to buy and at what maturity. When the bonds mature, you buy more with more money and so on and so forth. Just continue to turn the money over. Here is an example of part of one of my portfolios;
Nova Chemicals Corp. 7.4% 04/01/09 bought at $800; now $982.50, will return $224.32 for an 87 days per bond investment. A simple 28.04% return. The company is being bailed out by the Canadian Government.
Ford Motor 8.5% 09/21/02 bought at $750, now $737.80, will return $304.70 for a 6 month per bond investment. A simple 40.63% return. They are in line to get a US Government bailout.
Dole Food 8.625% 05/01/09, bought at $920 now $985 will return $115 for about a 90 days per bond investment. A simple 12.5% return. The company will pay off bondholders early. The company is financially independent but the bonds were under pressure by the financial bear market.
City Group 3.375% 04/01/09, bought at $850, now $988.82 will return $161.10 for a 120 days per bond investment. A simple 18.95% return. The company is being bailed out by the Federal Government.
Now who and where did you think all that government bailout money was going to? It is going to people like me!
Friday, March 6, 2009
Thursday, March 5, 2009
Investment Models and Strategy Introduction: Part 1
Why You Need an Investment Model And an Investment Strategy!
Since I started this blog on Corporate Bond Investing back in late November 2008, the stock market has fallen more than 25%. From the stock market all time high in 2007, the fall has been almost 60%. In all this time, the experts have been telling clients to "Stay the Course." If you had, you have gone down with the ship. So the evidence shows that the experts have no clue what they are doing. It is not that your broker or your brokerage firm is incompetent. Their problem is that they never experienced a market like this before. Never have I. However, as a student of market history, I have looked at financial markets going back 200 years and anyone who follows stock and bond markets would have seen this mess coming from at least 10 years ago. In my book, "Building Wealth With Corporate Bonds," written in 2004, talks about investments in the stock market. I say that it is a very bad idea. It is next to gambling.
Brokers go to class to learn how to sell stocks, mutual funds, and other securities to clients. In college, they are taught how to sell products/services, manage companies, and purchase products/services. They are not taught how to react to changing investment and business situations. On the job, people learn how to keep their mouth shut and get promoted. The person who can play the best corporate political games moves to the top. The person who knows what is going on and speaks out stays on an entry level. So it takes about 30 years for your incompetent people to rise to the top and mess up everything from the economy to your small business. I am talking about people like George W Bush, Bernard L. Madoff, and the leaders of GM.
Here are the reasons why the world economy is in the situation that it is in today; top political leaders corrupted; business leaders walking away with billions while their company goes into chapter 11, laying off most of its workers; and your broker telling you to stay the course while you watch your returns decrease as much as three percent per month. The stock market will come back one day. The stock market came back from 1929, in 1956. If you can wait that long then the stock market is for you. But if you are in this to make money then you may want to do what people have done from the beginning of the Twentieth Century to the 1970s. That is to create an investment Model for yourself. From that, create an Investment Strategy.
Your Investment Model includes these three things; financial (like a house), temporal (such as time spent together) or emotional (such as in the welfare of the children). When I was Eight Years old, I started developing my investment model by looking at people in several stages of their lives; my sister and brother who was in their early and mid teen years, older teenagers, people in the area who were in their 20s, married people with children, people in later stages of their lives, and the retired old people. I started looking at their needs, their problems, and what they were doing to fix their personal problems. Looking at these things gave me an idea of what I wanted to do, how I wanted to get there, and what to avoid. Now your model and strategies are a "work in progress." At 8 years old, I can't be set in my ways because in the next 60 years, I have to adjust to future economic and social conditions. In 1959, I did not know that I would live under a Black President, let alone that I would be able to eat at the best restaurants in town. In 1959, in many places in the country, I was not allowed in the business establishment or use their bathroom.
Your Model and your strategy is personal. No one knows where you want to go in life better than you do! It is best to get ideas from other people but other people's top priority is their interest, not your interest. That is why no one prepared you to be in the Blue Jay group instead of the Red Bird group in second grade. No one taught you how to play basketball early so that you can be on the championship basket ball team in High School. That is why your next door neighbor got into Yale while you went off to work at Wal-mart. That is why the people running your 401K told you to "stay the course," while your investments fell 60%. That is why Obama, the son of an African, is President while you sit at your desk worried about being next in your company layoffs.. Your family has been in this country for the past 400 years and no one has gotten past entry level employment. It is all because you and your family had no Model and no Strategies. They did.
Next let's talk about creating that strategy to finance that model.
Since I started this blog on Corporate Bond Investing back in late November 2008, the stock market has fallen more than 25%. From the stock market all time high in 2007, the fall has been almost 60%. In all this time, the experts have been telling clients to "Stay the Course." If you had, you have gone down with the ship. So the evidence shows that the experts have no clue what they are doing. It is not that your broker or your brokerage firm is incompetent. Their problem is that they never experienced a market like this before. Never have I. However, as a student of market history, I have looked at financial markets going back 200 years and anyone who follows stock and bond markets would have seen this mess coming from at least 10 years ago. In my book, "Building Wealth With Corporate Bonds," written in 2004, talks about investments in the stock market. I say that it is a very bad idea. It is next to gambling.
Brokers go to class to learn how to sell stocks, mutual funds, and other securities to clients. In college, they are taught how to sell products/services, manage companies, and purchase products/services. They are not taught how to react to changing investment and business situations. On the job, people learn how to keep their mouth shut and get promoted. The person who can play the best corporate political games moves to the top. The person who knows what is going on and speaks out stays on an entry level. So it takes about 30 years for your incompetent people to rise to the top and mess up everything from the economy to your small business. I am talking about people like George W Bush, Bernard L. Madoff, and the leaders of GM.
Here are the reasons why the world economy is in the situation that it is in today; top political leaders corrupted; business leaders walking away with billions while their company goes into chapter 11, laying off most of its workers; and your broker telling you to stay the course while you watch your returns decrease as much as three percent per month. The stock market will come back one day. The stock market came back from 1929, in 1956. If you can wait that long then the stock market is for you. But if you are in this to make money then you may want to do what people have done from the beginning of the Twentieth Century to the 1970s. That is to create an investment Model for yourself. From that, create an Investment Strategy.
Your Investment Model includes these three things; financial (like a house), temporal (such as time spent together) or emotional (such as in the welfare of the children). When I was Eight Years old, I started developing my investment model by looking at people in several stages of their lives; my sister and brother who was in their early and mid teen years, older teenagers, people in the area who were in their 20s, married people with children, people in later stages of their lives, and the retired old people. I started looking at their needs, their problems, and what they were doing to fix their personal problems. Looking at these things gave me an idea of what I wanted to do, how I wanted to get there, and what to avoid. Now your model and strategies are a "work in progress." At 8 years old, I can't be set in my ways because in the next 60 years, I have to adjust to future economic and social conditions. In 1959, I did not know that I would live under a Black President, let alone that I would be able to eat at the best restaurants in town. In 1959, in many places in the country, I was not allowed in the business establishment or use their bathroom.
Your Model and your strategy is personal. No one knows where you want to go in life better than you do! It is best to get ideas from other people but other people's top priority is their interest, not your interest. That is why no one prepared you to be in the Blue Jay group instead of the Red Bird group in second grade. No one taught you how to play basketball early so that you can be on the championship basket ball team in High School. That is why your next door neighbor got into Yale while you went off to work at Wal-mart. That is why the people running your 401K told you to "stay the course," while your investments fell 60%. That is why Obama, the son of an African, is President while you sit at your desk worried about being next in your company layoffs.. Your family has been in this country for the past 400 years and no one has gotten past entry level employment. It is all because you and your family had no Model and no Strategies. They did.
Next let's talk about creating that strategy to finance that model.
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