All posts by Pat McKeough

Nobody can consistently make accurate Stock Predictions today — or any other time

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Relying on stock predictions today to forecast future market trends is likely to cost you money. Follow this advice instead: Focus on share value and using our three-part investing philosophy to profit

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We think it’s a mistake to let stock predictions today guide your investments, but especially so at times like now, when new ideas and differences of opinion are continually streaming into the markets. They make more choices available to you if you are trying to create or update a prediction. This is hard on investors who focus on predictions. When more predictions are floating around, predictions fans have more ways to guess wrong.

The best way around this problem is to quit making predictions. Forget about trying to pinpoint future events or developments. Everybody who tries often enough will wind up making some good guesses. However, no one can foresee the future.

Instead, take a close look at what we know about the current investment situation. Then, try to spot investments that seem to offer attractive opportunities under a variety of future conditions.

No one can consistently make stock predictions today — or any other time

In investing, it pays to avoid relying on stock market predictions. Successful predictions can pay off enormously, of course. But nobody can consistently or even frequently predict the future in individual stocks or the market. The more your investment success depends on predictions, the greater the risk you face.

On the other hand, it’s possible to assess investment conditions in a general sense. That way you may recognize when it’s a good time to buy stocks, if you can afford to hold them for the next couple of years or longer. If you do most of your buying in times like that, you’ll wind up making a lot of money over the course of your investing career.

Keep a long-term view in mind when considering stock predictions today and “a good time to buy”

Mind you, “a good time to buy” is an opinion on a long-term probability. It doesn’t mean the market will go up right away. For that matter, you may buy just prior to one of the market’s occasional downturns. You have to accept this risk if you want to profit from the stock market’s ability to turn middle-income people into well-off retirees over the course of a few decades.

The funny thing is that many people hurt their prospects by going at it backwards. Instead of looking for good times to buy, which are relatively plentiful, they fixate on avoiding the market’s relatively rare downturns. They try to do that by hunting for reasons to stay out of the market. Continue Reading…

How to stay calm and Invest confidently amid Stock Market Fluctuations

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Letting unnecessary stock market worries take hold of your investment decisions can lead to much bigger problems than just finding stocks to buy

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Our early ancestors had to be on guard against threats in their environment. They were under constant threat. At night, if you woke to every sound from the bushes, you lost some sleep, but you cut your risk of being eaten by a lion or killed by an enemy. Today we face much less risk from animal predators and human marauders. But many people still carry this hair-trigger fear response. We spend more time than we should worrying about things that will never happen. This includes stock market worries.

That’s especially true of investors, who generally think more about the future than other people. It’s true all the more of subscribers to our newsletters and members of my Inner Circle service.

Understand stock market worries and risk so you can put everything in perspective

That’s because many of you are the kind of people who seek out investment information from a variety of written sources, where it’s much more extensive and detailed than what you get from a glance at the headlines, the evening news or cable TV. However, some of that information is biased, overblown or incorrect.

This doesn’t mean you should ignore potential threats. You just need to put them in perspective.

Learn what experienced investors do about common stock market worries

There is never a shortage of ways to ease your stock market worries. “You never go broke taking a profit,” is a favourite of brokers I’ve met over the years. They used them to spur their clients to do more trades, to boost their own commission income.

Our view now is that stocks are still a good place for your money, if you can afford to stay invested for several years. If you expect you will need to take money out of your portfolio, you should think about selling sooner than you need to.

Look beyond immediate stock market movements to help reduce your anxiety and stock market worries

Stock market trends are the general direction in which the stock market is heading. These market trends are dictated by a number of factors: what sector investors favour at the moment, economic and world news, interest rates and other trends from industries such as technology or resources, and so on. These trends could be positive or negative, and they could lead to a huge boom for a stock market. They could also lead to a big downturn. Continue Reading…

Why a Market Timing Strategy leads to poor investment Returns

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Forget relying on a market timing strategy to boost returns. Focus instead on these proven tips for successful investing.

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Market timing is the practice of trying to predict future trends and turning points in stock prices. For most people, this is a wasted, if not harmful, effort.

Random events tend to occur in bunches. A market timing strategy generates a lot of random buy and sell signals. Some are bound to work out well. But few work out well enough to offset losses on the inevitable erroneous signals, and leave a decent profit leftover.

Why successful investors stay away from a market timing strategy

The practice of market timing consists of coming up with and acting on a series of guesses (or estimates, or probability assessments) to use in your buying and selling decisions. Market timing theory attempts to interpret and detect buy and sell signals in trading patterns and history. Some of the decisions you make with the help of market timing will bring you profits, and others will cost you money.

Market timing can pay off sporadically, of course. Although the results are largely random, successes and failures are apt to come in spurts. The worst thing that can happen to you near the start of an investing career is that you make a series of successful timing decisions. This may lead you to believe that you have a natural talent for market timing, or that you’ve stumbled on a timing process that’s a guaranteed money-maker. Either of these conclusions can spur you to back your future timing decisions with growing amounts of money.

A significant market setback of, say, 10% or more will come along eventually. Unfortunately, no one can consistently say when that will be. Trying to foresee setbacks is sure to cost you money, however. That’s because many of the setbacks you foresee won’t occur. If you act on your prediction and sell, you’ll miss out on profits. You may buy back in at higher prices, just in time to be in the market when the next setback does occur. That’s known as a “double whipsaw.”

Eventually it happens to a lot of market timers. Some react by giving up on market timing. Others just give up on investing.

The best market timing strategy I can offer is to buy steadily and carefully throughout your working years, and sell gradually in retirement. That approach is virtually certain to enhance your investing profits. For one thing, it stops you from selling all your stocks near a market bottom, which market timers do from time to time.

How to be a successful investor without using a market timing strategy

Instead of trying to master market timing, you are far better off to study the earmarks of successful investments. Your long-term investment results will improve a great deal if you simply learn to spot and recognize these earmarks, and understand how they differ from the common risk factors in unsuccessful investments.

Here’s a look at some ways to make better investments: Continue Reading…

We Don’t Recommend the Dogs of the Dow Investing Approach: Here’s Why

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Here’s a Look at the Dogs of the Dow Investment Strategy

1. The Traditional Dogs of the Dow Approach

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The Dogs of the Dow approach involves buying the highest-yielding stocks in the Dow Jones Industrial Average. It’s based on the idea that a high dividend yield is an indicator of an undervalued stock.

To apply this approach, at the end of each year, you pick the 10 stocks with the highest dividend yields from the 30 stocks that make up the Dow index.

You then invest an equal dollar amount in each of these 10 stocks and hold them for one year. You repeat the selection process and re-jig the portfolio at each year-end.

In theory, these stocks should outperform the market (the DJIA or the S&P 500).

2. The Small Dogs of the Dow Approach

In another variation, you pick the 10 highest dividend-yielding stocks, then select the five with the lowest stock price. Invest an equal dollar amount in each of those, hold them for a year, and repeat. This variation is known as the Small Dogs of the Dow, or simply The Dow 5.

Here’s a Dogs-of-the-Dow ETF

The ALPS Sector Dividend Dogs ETF (symbol SDOG on New York) follows its own version of the Dogs-of-the-Dow strategy. It picks five stocks with the highest dividend yields from each of the 10 sectors of the S&P 500 index. These sectors are consumer discretionary, consumer staples, energy, financials, health care, industrials, information technology, materials, telecommunication services, and utilities.

Each holding begins with roughly the same dollar value, so every company starts out with a similar influence on the ETF’s total return. The end result is a portfolio of 50 large-cap stocks.

Currently, the fund now holds a number of stocks we recommend as buys for subscribers of our Wall Street Stock Forecaster advisory. They include AT&T, Verizon, Kraft Heinz, Snap On, 3M, Newmont Mining and IBM. However, the ETF also holds a lot of stocks we don’t recommend.

Should you Follow the Dogs of the Dow Approach?

One best-selling book of the early 1990s advised investors to buy the Dogs of the Dow: the lowest-priced, highest-yielding Dow stocks. Followers of the approach made money. Of course, anybody who bought stocks in the early 1990s made money.

The Dogs of the Dow strategy worked well in the 1990s because interest rates were going down. This tended to raise all stock prices. But high-yielding stocks were affected more than most because they attracted bond investors who were switching into stocks.

That’s how things work with most formulaic approaches: Sometimes they seem to add value, because they happen to lead you to invest in stocks that were likely to go up for some reason other than the formula’s actual focus.

Of course, you also need to keep in mind that high yields can signal danger, rather than a bargain.

All in all, we don’t recommend the Dogs of the Dow strategy.

Here’s why high yields can be a danger sign

To reiterate: a high dividend yield may be a danger sign. It may mean insiders are selling and pushing the price down. A falling share price makes a stock’s yield goes up (because you still use the latest dividend payment as the numerator to calculate yield: but the denominator, the price, has dropped). But when a stock does cut or halt its dividend, its yield collapses. Continue Reading…

Stock Market Anxiety leads to Bad Investing Decisions. Here’s what to do instead

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Ignore stock market anxiety and negative stock predictions and instead focus your investing strategy on diversification and portfolio balance

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The current state of the world is generating stock market anxiety, as it often does. My guess is that the Israel-Hamas war is just getting started and will last a long time. I also suspect that Russian dictator Vladimir Putin had something to do with getting it started, and will do what he can to keep it going. After all, when it comes to running his country, Putin takes a grasping-at-straws approach.

Putin may think that bringing the longstanding Mideast conflict back into the headlines is going to improve his chances of conquering Ukraine and bringing the Soviet Union back from the dead.

He thinks taking a long shot is better than no shot at all. Who knows? He might get lucky.

Early on in his war on Ukraine, Putin seemed to think that Chinese dictator Xi Jinping was going to take pity on him and his country, and offer free money and/or weapons to shore up Russia’s Ukraine invasion. Instead, Xi insists on staying out of the war, while paying discount prices for Russian oil. He takes special care not to let his country get caught up in the economic sanctions that the U.S. and NATO countries and allies are directing against the Russians.

It’s not that Putin is stupid. If a war between Israel and Hamas turns out to be a big drain on the U.S. budget, the U.S. might have less money available to arm Ukraine.

Up till lately, however, Israel has had little to say about Russia’s treatment of Ukraine. Israel may soon take a more active role in helping Ukraine defend itself.

Any war is a terrible thing, and this one is no different. The stock market seems to be creeping upward. Maybe it knows something that Putin hasn’t figured out.

Meanwhile, if your stock portfolio makes sense to you, we advise against selling due to Mideast fears.

Stock market anxiety recedes with investment quality, diversification and portfolio balance

You’ll find that many of your worries concern things that are unlikely to happen; that are already largely discounted in current stock prices; and that probably won’t matter as much as you feared they would.

You get a much better return on time spent if you devote less of it to worrying about high-risk investments, and more of it to an investing strategy. Create a strategy that is built upon analyzing the quality and diversification of your investments, and the structure and balance of your portfolio.

There’s another advantage as well. A calm investor is much less likely to react in haste and make sudden decisions that could prove to be damaging in the long run. Continue Reading…