The Secret to Investing
Like a Professional
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By: Dylan Jovine
Editor
Fallen Angel Stocks
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Published:
January 29, 2008
I could tell it was gonna be one of
those mornings as soon as I woke up.
You know the type of morning I'm
talking about...
The kind of morning where the very
first thing you do is stub your toe
hard on your bed post...the kind of
morning where you walk downstairs
and don't realize until it's too
late that the cat had an
accident...the kind of morning where
you open the freezer to discover
there's no more coffee left.
Yup, several days ago I woke up to
one of those mornings. But things
brightened as soon as I put on Fox
Business News and discovered that
the market looked like it was going
to open up 500 points lower.
My spirits immediately brightened.
Even though the market was down 15%
or so since October, and put a dent
in my portfolio, a market decline of
500 points tells me that investors
were losing their heads. That meant
panic was in the air.
You remember the old expression,
"When there's blood on the street
buy land," don't you? Well if all of
my years on Wall Street have taught
me anything it's that "When there's
panic on the Street, buy stocks."
Thank goodness that an academic who
was clearly in over his head was
sitting in the Fed Chairman's seat.
Thank goodness that the bond
insurers like MBIA (NYSE: MBI) and
Ambac (NYSE: ABK) were teetering on
the verge of bankruptcy, potentially
saddling banks and brokers with
billions of dollars in additional
bad loans.
Thank goodness I learned to
"Be fearful
when other people are greedy and
greedy when other people are
fearful." Let em' all lose
their heads! I felt like a lion
sitting in the bushes about to
attack my prey.
I knew I wasn't the only person
feeling this way. The old timers
used to tell me that back in the day
you could tell it was time to buy
stocks when suddenly, out of
nowhere, old men with canes were
walking up and down Wall Street by
the dozen. They had "come out of
hiding" to visit their brokers and
place their buy orders.
On the way to work I called one of
the most wily Wall Street veterans
I've ever met. His name is Charles
Payne and he is the C.E.O. of market
research and advisory firm Wall
Street Strategies. Although I had
only met him recently (he's a
regular on FBN and I was being
interviewed for my first time; don't
ask to see it, I bombed!) he was
already a legend by the time I came
to Wall Street.
So I asked him what he was saying to
his customers in the wake of the
market down almost 500 points.
Within minutes, he sent me the
following note he sent to his
clients that very morning - well
before the market rocketed up in the
afternoon.
It was the writing of a professional
investor who rarely loses his head.
And that, more then anything, is the
secret to investing like a
professional.
After getting his permission to
share this with you today I was
thrilled. Not only is it awesome to
have such a powerful guest editor,
but here's what he was telling his
troops right in the middle of
battle. Hours later when the market
rallied he was indeed proven right.
But it's the
clear-headed thinking in the time of
panic that makes this letter
important. I hope you enjoy
reading it as much as I did!
"Despite
thousands of books written on the
topic many investors flee when the
market pulls back. The oldest axiom
on the stock market: Buy low, sell
high, is generally ignored as most
would rather pile in after there has
been a big move and sell after there
has been a big decline. This is why
the rich get richer; they hold
during downturns and often buy on
weakness. That said it is human to
worry but we have so much history to
lean on and so many tools to
evaluate the market these days. The
same people that complain when they
take profits too soon lament when
their in stocks that are against
them. If that thinking could be
tweaked it would make all the
difference.
Currently the reasons to hold and to
also be a buyer include the
following:
- Stocks are cheap, even with slower
earnings growth stocks are as
inexpensive as they’ve been in years
- There are tools to stave off or
mitigate recessions and economic
slowdowns
- Recessions are short-lived and the
ensuing rebounds have yielded huge
windfalls
- The world’s economics are still
growing, there are still millions
more poorer people than well off in
emerging markets, many of them will
move into the middle class over the
next decade
I think lower rates will spur the
economy, we already see it in
mortgage application numbers out
this morning. The last two weeks
have seen the greatest surge in
refinance in years (I happen to
think home builders are a great
investment). I think the economic
stimulus package will help, too,
although I have some misgivings with
it.
There are positive signs:
- The rails have posted fantastic
numbers, CSX yesterday and NSC this
morning.
- Financial stocks are rebounding
- Warren Buffett is putting money to
work (in dangerous industries)
- US consumers will spend more than
$9.5 trillion this year (our
estimate)
- The global economy will march
ahead with the occasional hiccup
- Sellers seem to be exhausted
The fact is you should be a buyer
now. I know a year from now you’ll
regret tossing in the towel; perhaps
you’ll regret it sooner than that.
I implore you to not only stay the
course but to make money. Initially
is will be from oversold trading
ideas but in the long run it will be
from owning solid business that were
extremely oversold. I can’t say the
ext week or months will be smooth
sailing, more than likely they won’t
be. Major indices are off anywhere
from 15 to 20% and individual stocks
have been murdered. A large part of
the selling is unjustified.
There is a tsunami of bad news and
the business cycle is at work here
there is a slowdown, one that was
long coming, but when investors
bought in the midst of this in the
past they made a lot of money. The
other part of this story is the FACT
that when investors get completely
out of the market they don’t come
back and they never make the money
they should. I’ve seen it first
hand, for me it’s frustrating and
heartbreaking, too. I’m not calling
for a bottom, but I’m SCREAMING this
is the time to be ready to make a
lot of money not take large losses."
This investment news is brought to
you by
The Tycoon Report.
The Tycoon Report is a free
daily investment newsletter from
Dylan Jovine and his team of
battle-tested professional investors
offering the latest investing news
and financial insights for the stock
market. To view archives or
subscribe, visit
http://www.thetycoonreport.com.
Dylan Jovine
Editor
Fallen Angel Stocks
About Dylan Jovine
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