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INM April 2010 - Timid Investors Are Missing Out While Odds Favor Stocks Rising More
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net
CANSLIM.net


It would have been more appropriate to have titled this monthly column, "Investing in a Difficult Decade", but there was not a precedent for having two Bear Markets trim the benchmark S&P 500 Index by 50% in the span of just one decade. Many investors have seen their investment portfolios go through severe downs, and ups, and downs again, since the first issue of "Investing for the New Millennium" was published in June of 2000. We have tried our best to help investors be spared the painful setbacks during market downswings, and make the most of the upswings during that time.  Now is the time to be making the most of another upswing, but many investors I speak with are being too timid.

The safety of the sidelines was comforting when the market was diving, and maybe some investors got so comfortable on the sidelines that they hate the thought now of taking on greater risk and going back into stocks again.  I explained in one of the recent INM issues why so many professional money managers have lagged behind the performance of their benchmark indices - that an overly cautious approach squelches the chances of getting above average gains and beating their benchmarks.

More than one long-term client we have helped decided to bargain with us recently. We did not have to deal with many investors bargaining with us and giving us pressure to buy during the market's downdraft, as I remember it. However, when we suggested 3 new buy ideas not long ago, our recommendation was to put 20% of the account's available capital into each of the stocks, which would have the account 60% invested and leave 40% of the capital remaining in a money market account earning near zero interest while we looked for other buy candidates in the days and weeks ahead.  A timid client countered by saying he would rather put just 10% of the capital to work in the 3 ideas.  We pointed out that we disagreed with his approach because it would leave him 70% out of market at a time when a confirmed rally with widespread leadership was offering favorable odds for stock investors of all stripes (not just fans of the fact-based approach we use exclusively).  In a bullish environment, our goal is to get fully invested as soon as possible with only a small handful of stocks meeting all key criteria.  And as I have pointed out before, in the Certification they teach that the proper way to be "fully invested" in a Bull Market is to use margin and get 200% invested.

Had we gone out and put 40% into the 3 ideal buy candidates the account would be 120% invested, the profits the client is now sitting on would be far more substantial, and we would be making the most of the current upswing.  Perhaps this can be seen as an admission that our approach, which was viewed by some as too aggressive, was still too timid.  Of course, we oversee many retirement accounts which cannot use margin, and it is a good idea to build up your confidence and a profit cushion before leaping in heavily with your margin use.

They say that the market climbs a "wall of worry" and if everyone was bullish we would be in trouble because there would be nobody left to turn bullish and become buyers.  We have talked about contrary indicators before, and the above scenario lays the groundwork for more "wrong way crowd" observations.  The fact that our very successful client was timid and recently going in very lightly may have been a good contrary indicator the market was going to have a good near-term rally.  The fact that mom gave up and sold her mutual funds for a small loss after holding those over-diversified buckets of equities for 12 years may, likewise, be viewed as a good contrary indicator that the market is going to rally meaningfully in the coming years.  

Hopefully, many of you who are reading this will have tallied some big gains before we start seeing telltale signs the market is getting in trouble again. We know it eventually will get into trouble, even though policy-makers say they have fixed it - "so it will never happen again."  Hopefully, this Bull Market will put all prior bullish markets to shame, and you will be with us as we do our best to cherry pick some of the best winners.  What should we do when that timid client calls and says he wants to buy stocks on margin, or when mom calls and says she wants to buy another stock-loaded fund?  By that time we should have built up some very meaningful profits, and our job will be to protect them.

About Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net :
Kenneth J. Gruneisen has successfully completed the CAN SLIM® Certification Program.  Mr. Gruneisen became a Registered Representative in 1987 and his career includes experience offering personalized assistance to investors with more than a decade of experience as a Registered Principal managing a branch office.

The recommendations made by CAN SLIM® certified individuals are their own and may not be attributed to the CAN SLIM® Certification Program, William O'Neil & Co., Investor's Business Daily or their affiliates. The CAN SLIM® Certification indicates only that the individual has successfully completed the CAN SLIM® Certification Program. CAN SLIM®, William O'Neil & Co., Investor's Business Daily and any of their affiliates are in no way responsible for any loss or damage caused as a result of the services provided by these individuals.


Comments contained in the body of this report are technical opinions only and are not necessarily those of Gruneisen Growth Corp. The material herein has been obtained from sources believed to be reliable and accurate, however, its accuracy and completeness cannot be guaranteed. Our firm, employees, and customers may effect transactions, including transactions contrary to any recommendation herein, or have positions in the securities mentioned herein or options with respect thereto. Any recommendation contained in this report may not be suitable for all investors and it is not to be deemed an offer or solicitation on our part with respect to the purchase or sale of any securities.

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The recommendations made by CAN SLIM® Certified individuals are their own and may not be attributed to the CAN SLIM® Certification Program, William O'Neil + Co., Investor's Business Daily or their affiliates. The CAN SLIM® Certification indicates only that the individual has successfully completed the CAN SLIM® Certification Program. CAN SLIM®, William O'Neil + Co., Investor's Business Daily and any of their affiliates are in no way responsible for any loss or damage caused as a result of the services provided by these individuals.

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