Friday, May 29, 2009
Does the Stock Market Really Suck?
Does the stock market really suck? Most people would say, "Well Yah!" If you look at the DOW Jones compared to where it was two years ago, you would most likely agree. If you are a common investor you probably think it stinks. If you lost a lot of money, it sucks.... or .... does it?
I believe we are entering the healthiest stock market in years, maybe decades. At the bottom, stocks were greatly oversold because of fear. Since the market bottomed it has improved 35 percent. Some stocks have gone up over 100 percent. We currently own one stock, McDermott International (MDR) that we purchased at the bottom. It was less than $10 per share. Today it went over $20 per share. Goldman Sachs bottomed out at $49 per share. Today it is $140 per share. Many stocks are up 40 percent or more from their bottom. The bottom was about four to five months ago. Those are pretty good annual increases.
Stocks will continue to go up as the economy improves and people gain more confidence. Buyers always drive the prices up. Right now the short sellers are on the run. This encourages even higher stock prices. If you haven't bought into the market, you've missed a lot on the rebound. But there is still more rebounding to do along with legitimate growth.
Leveraging your money is a key. Buying call options is a good way to leverage. I have a small options account which has increased over 300 percent in the last three months. Just when I got really discouraged, good things started to happen. Mind you, options are much more volatile than stocks, but it is the volatility that helps them to gain value faster. To trade options you must be an active trader and not be afraid to buy and sell with the ebb and flow of the market. Understand what moves the stocks you are interested in and buy and sell accordingly. Don't freak out on a bad day. In these times, bad days are usually followed by good days.
The market did suck. But it is good to us now. Right now financials and energy are leading the way. Dirty energy is good right now. Oil service and drilling companies are doing just fine. refineries are weak. Coal is good. Steal will be good when people start buying cars again, which is soon.
There will be ups and downs. Sell your options on the ups. Buy them on the downs. 200 points down on the DOW is a great opportunity to buy. 200 points up, sell. You'll do just fine.