Get Rich in a boaring Market
If reserves have soared in a big bull market or fall in response to crisis situations, you can find strategies to help you take advantage of big moves in either direction. What is really difficult, however, is knowing what to do when the markets are still. With the right investment strategy, you can take the inevitable ebb and mounting stocks of wealth.
Dealing with side markets
In this month’s brand new edition of its newsletter Fool Rule of retirement, which will hit digital presses today at 4 pm ET, the interviewer invited and Hidden Gems co-advisor Andy Cross had the opportunity to talk to Vitaliy Katsenelson, author of Active Value Investing and research director at investment Management Associates. In the interview, Katsenelson shares some insight on how the financial markets and how investors can take advantage of their peculiarities.
In particular, Katsenelson draw a contrast between how markets should behave towards the way they behave. Theoretically, rational investors should expect moderate growth and stable, stock prices are at a gently sloping line, without the bumps and falls we have seen so much in recent times.
Instead, investors act irrationally, through cycles of optimism and pessimism that distort the value of the shares. In the long term bull market secular, investors bid stocks, pushing prices to earnings multiples way above historical levels at levels that are unsustainable in the long term. Markets produce enormous benefits for the people, because they benefit not only fundamental underlying growth, but also the multiple expansion that puts a higher price tag for each dollar of earnings a company generates.
By contrast, when investors get more pessimistic, which often leads to the results to the sides of the populations, even when the underlying fundamentals of individual companies are largely unchanged. For example, Morgan Housel Loco colleagues last year to highlight five companies whose income has doubled even though their stock price went nowhere, as Johnson & Johnson (JNJ), WellPoint (WLP) and Google (GOOG). Earnings multiples Once a certain point, begin to contract – which causes stock prices to stagnate, even if the benefits continue to grow.
How to handle side markets
side markets obviously can be incredibly frustrating for investors, especially when companies that have invested in seem to be firing on all cylinders. Anyone who has been sitting on dead money from the top of the 1999-2000 bull market can sympathize with flat to negative returns despite decent economic growth. Moreover, after the big stock market rebound that has seen the S & P doubled since early 2009 500, Katsenelson sees the current market is sideways more than half. Although many on the basis of future earnings estimates does not seem reasonable, they are based on record profit margins – margins that are likely unsustainable in the long term.
To ensure that you put in the best position to profit, you have to do the right moves. Katsenelson makes a recommendation is to invest in stocks that pay dividends. As survivors of the lost decade have discovered, dividends can turn a plane into a portfolio of profitable and Katsenelson notes that during sideways markets, dividends represent over 90% of total stock returns.
This philosophy suggests dividend stocks cheap valuations and no major price hikes could do better. For example, defense stocks Lockheed Martin (LMT) and General Dynamics (GD) may fit the bill, with pessimism about the potential budget cuts eclipsing its profitability and low earnings multiples. Similarly, the value of works such as energy giant Total (TOT) and France Telecom (FTE) payments are also healthy can give a good performance, even if share prices remain flat.
Get more tips
Go to dividend stocks is just one of the five strategies discussed in the new Katsenelson article Retirement edition. You can read about all of them in the new edition, which can be accessed through the Fool’s free trial offer of 30 days. subscribers of First Instance to obtain not only the new edition, but also access to all of the Rule of other resources for retirement.
markets can be boring side, but how to manage have a huge impact on long-term performance. If you can find bargains remain rational and inevitable, markets then can become boring their favorite markets.