They Treat You Like Children!

When my children started crawling around on the floor, they started playing with everything except their toys. Telling them to stop was not working. They were too young to punish. So I had to show them something else and try to get their mind off of the things that I did not want them to play with. I am sure my parents did the same to me when I was about 10 months old. I bet you parents had to do the same thing with your children and your parents did the same thing to you.

Did you know that this type of “physiological deflection” goes on in the investment business as well? I watched a financial analyst who specializes in the Bond Market on MSNBC recently. He was talking about the coming long bear market in bonds. I had to laugh because it reminded me of when I was trying to stop my children from playing with things that I did not want them to have. The analyst is correct in my view that a long bear market will come. The reason! The federal government is keeping interest rates low to restart the economy and put people back to work. But some day, they will have to raise interest rates to stop inflation from rising. This act will raise interest rates on bonds and bring down bond prices.

So you might ask, then why am I laughing at the financial analyst? The analyst was trying to tell you the public to take your money out of bond funds and place them into stock funds. Yes, bond fund prices will fall if what the analyst and I believe comes true. But you the public should not have your money in bond funds anyway. A large part of your investment profits in bond funds goes toward management fees to support the brokers, analysts, and their firms. You get what is left over. You switch to stock funds; you just jumped from one “gambling bookie” to another.

Investment firms and mutual funds make money off you if your investments go down and they make money off of you if your investments go up. When they go down you just pay them from your investment principle instead of your profits. So this analyst wants to deflect you into stock funds and away from stock and bonds.

As I said many times before, stocks are speculative. They are for speculators, not investors. Add mutual funds into the mix and you pay a monthly fee to the bookie to speculate in the stock market for you. Then you wonder why most people with IRAs lost 50% or more of their investment over the past 10 years. You also wonder why your investment firm can give large bonuses at the end of the year to their top employees. Going into a bond fund turns your investment instrument into a speculative instrument because you placed a bookie in the mix. You lose less in a bond fund but why lose your money at all?

Buy individual bonds and wait until they mature. It does not matter if the bond market is in a bull or bear market. All it means to you is in a bull market you can make more money than you can in a bear market. But you may only lose money if the company backing the bonds can’t pay you.

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Darnell L Williams invests primarily in his IRA and for the Darnell L Williams Foundation. He invests mostly in non-investment grade bonds (junk bonds). The established Investment Community claims that junk bonds are more speculative than stock investments or stock mutual funds.

Below are returns from investment indexes around the world. See how they compare to Darnell’s returns.

http://news.morningstar.com/index/indexReturn.html

Darnell’s returned in 2009 45.39% and 17.98% YTD in 2010. He advised one client starting in August 2009 to the end of March 2010 making 11.79% and YTD 2010, 3.93%. He advised a second client starting in August 2009 to the end of December 2009 making 24.81% and YTD 2010, 5.41%.

Now check your investments and see where you fall.

Options: The Next Level in Investing

From 1999 to the beginning of 2009, people have seen a hard time with their IRAs and other retirement accounts. If you were lucky like me, you lost in some years 3 to 5 percent but never gaining more than 17 percent in any given year. If you were like most people around the country, you lost at least 50 percent of your investments and can not afford to retire. If you followed my investment strategy from 2009 until now, you should be well on your way to recovery. In 2009, my rate of return was 45.39%. “Year to Date” for 2010 it is 14.10%.

If you recall, I suggested that you place part of your retirement money in Ford Motor Company Stock. My buy range was from $6.00 to $7.50 per share. I suggested that you let the stock double in price, $12.00 to $15.00 then sell half of your investment. That way you can take your initial investment out. At that point you would be “risk free” in this investment. For the remainder of your Ford Stock investment, all you have to do is check your stock for 10 to15 minutes every night to see if the trend of the stock is still up, the market is still on the up trend, the fundamentals of the company is still good, and if the trend for the auto industry is still generally on the up swing. If these fundamentals change then you know to sell the rest of your stock.

Now let’s take this investment strategy to the next level. Let’s say that you bought 200 shares of Ford Motor Stock at $6.00 per share (200 shares times $6 is $1,200). Following my investment strategy, you decide to sell 100 shares at $12 per share (100 shares time $12 is $12,000). You would be “risk free” after this transaction. Instead of selling the stock, how about “writing a call option” with a strike price of $13 per share at 11:20 AM on March 4, 2010. At that time, a March 10 Call with a Strike Price of $13 was asking 23 cents (1 Call times 100 shares times 23 cents is $23). The transaction may cost you $13 so you will only make $10. But $10 profit divided by $600 investment price is 1.67% and you still have the stock.

By writing or selling the option to someone will allow them to call away your stock at $13 per share until March 20, 2010 (Exploration Date). However, you locked in at least a selling price of $13 per share plus $10 for the option ( $13 times 100 shares plus $10 or $1,310). That is if someone exercises the right to call away your stock at $13. If your stock is not called by March 10, 2010, the option expires and you are free to write another option that will expire on the next expiration date that you take at the price that you set. You will collect more money for that “call.” Writing Covered Calls is a very conservative way to make a few more dollars on your investment. Your risk is that the company may go out of business or never recover from a price collapse. But remember, you have your original investment already!

We only looked at one conservative Stock Option Strategy for selling stocks that you already own. In-the-Money (ITM), Out-of-the-Money (OTM), and At-the-Money (ATM) Option Stategies can give you different amounts of cash based on market conditions and your investment commitment to the transaction. If you would like more information on options, go to this website http://www.optionsxpress.com/