Well well well…after my post last week, what ended up happening? Thats right…a major surge on the markets on Monday which caused stocks to take off like rockets all over the world…a good thing? Some would say IF they bought stocks the open…

What did many people that I spoke with do…the opposite? you got it…with the rally, everyone and their pet dog seemed to put buy orders that were for market prices and that kept driving the stock price higher OR forced people that didnt know what was going on to just purchase stocks that were up already on the pre-markets and set themselves for a sucker play.

Here is the thing, when the markets are rallying, it might be a good idea to buy into a particular stock..but NOT with all your money…compare that to the casino…would you walk up to the roulette table, see that its hitting red again and again and then just put all your money on the next spin on red? Risky moves are going to hurt you.

What I recommend always is to utilize your LIMIT order when buying stocks. With every rally you are going to see on the markets, there is ALWAYS going to be a correction (drop) in the price. Look at any stock, they never go straight up, but people will buy and then sell to take profits…its that those points you would want to enter the market.

So with me for instance, I was looking at buying POT…it was in the $70′s last week, then when I wanted to get in, it was already at $100 again….not really a good time to buy in my opinion when we still have not seen a bottom…

What I did was split the money I was going to invest into POT and bought increments. My first purchase was for $87, while my second was for $80…buy doing this, I was able to AVERAGE DOWN and have less risk rather than just jumping into POT when it was almost $100. Its a common mistake many people do, you see a rally and then want to buy as much as you can at one time fearing this bargain will pass..

Always go in without panic buying or selling and you will fare better in the long term.

Holdings:

So many people keep asking what to do with their deflated holdings from the current down trend. I will only repeat the same thing I did before, DO NOT SELL unless you totally need your money. Remember, you have not lost anything until you sold. If anything, looking for chances to invest more into stocks that are unreasonable deflated and that can average down your spread so you can make that money back to your break-even point quicker. Its what many of us are doing right now. Some might argue that your throwing good money after bad, but depending on the sector, that could be totally wrong thinking.

I would not get into a lot of financial sectors, maybe I’ve been burned once with FRE and that is it for me, but even beyond that, with the over night inter-bank lending rates high, credit between big banks is frozen so without trading, we could see more down before up trends.

What are safe places to start investing?

A couple of people have asked, Aman, I have $XX and want to start investing.

First, thats amazing! This is a total buyers market with some valuable stocks deeply discounted. If you are looking for long term plays, I always say invest in large-cap companies.

What is a large cap? These are companies that have large market share like (GE, BAC, CAT, IBM, WM, etc). These companies dont have huge fluctuation in prices and trend to go a steady pace upward. There are many others, Google or yahoo search can produce a list.

Now another thing I look for when investing long-term is to find these large companies that also pay dividends. A divided is like profit-sharing the company will do 4 times/year with its stock holders. Some will pay a few cents/share while others will pay more. These types of companies in my experiences have added more value on my investment and sort of generate a guaranteed income source which I can either cash out or buy more shares of the company with. Its makes it worth holding these stocks longer also since they are working for you long-term (with share price increase) and short-term (dividends every 3 months).

Finally, whats is going on with gas prices? lol. Oil prices have dropped 50+% from their spring time highs and now with the smaller cars and people out of jobs and worried about spending, demand is dropping. This is good now as its helping the average person save a few bucks, but dont get too comfortable, I can see prices going back up soon…OPEC is meeting earlier than they normally do in order to either cut production or hold back supply as the mid-east is relying on higher prices for their profit margins.

I dont know what fair price for oil is, but a correction of 50% is crazy. Watch oil to go up as the economy picks up.

What did I say last week about housing prices, did anyone else read the stats, new homes are literally stopped from being built – why? The construction companies cant get credit like everyone else for the seed money to build…and those that can build cant sell since people cant get mortgages or require larger credit scores to obtain these homes. In Toronto the prices have dropped over 10% which is more than predicted. So like I said, hold off from buying and you will save even more.

The Canadian currency was up earlier in the week but dropped another cent over the closing of last week. So overall, its falling closer to my predicted value of 80cents. If your hedging, you can do like I am, that is waiting for that 80cent mark and then just doing some huge exchanges from American dollars to Canadian dollars.

So this is all for today. Hopefully some things are cleared up. I do have more to write, but my Medical Exam is coming up so am just going to keep the technicals out and only speak of the important things.

Remember, never buy in haste because the market is up when you wake up. We seen some positive mornings fall off the cliff into negative prices towards close. Nothing is certain except for the fact that you can, and will, make money if you play cautiously.

Until next time…
Aman. MBA

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