Van Beek's blog
The secret of stock market timing
Submitted by Van Beek on November 8, 2009 - 03:39How can correct stock market timing give you a way much better investment result than just buy and hold? One basic investment strategy is to buy stocks and hold them for a long, long time. The rationale behind it is that if you look historically, stocks have made very good returns every year on average. Let’s take the Dow Jones index as an example.
The Dow Jones for example is up 267% over the last 20 years. This is thus an average annual compound increase of 6.7%. This means that if you would have invested 20 years ago 10,000 dollars in a Dow Jones index fund, this would have netted an average annual increase of 6.7% and resulted now in a stock holding with a total value of 36,700 dollars. This is excluding dividends.
However, take into account that the Dow Jones index closing for October 2009 is 30% lower than its highest all-time month closing of October 2007, 2 years ago, while still being up more than 37% compared to February 2009, 8 months ago. And consider that the Dow Jones index fell 34% between December 1999 and September 2002, while it increased again 83% between September 2002 and October 2007.Use stock market timing to turn 10,000 dollars into 72,000 dollars
The point I want to make with all these figures is that any investor who started with a Dow Jones index fund 20 years ago and who realized that it was wise to sell in Q1 2000, buy in Q4 2002, sell in Q4 2007 and buy in Q2 2009, would have made way more money than an investor who just buys and holds.
The 10,000 dollars from 20 years ago would have become 72,000 dollars now, meaning an average annual increase of 10.4%. Compare this 72 thousand with the 36.7 thousand mentioned above and think which one you would prefer.
Thus to me the secret of stock market timing is to recognize when the big trend shifts happen. In hind-sight it is always easy by looking at a historic stock market chart. The important thing is to realize it at that time so that I can act on it. In that way I can capitalize on the stock market trends and continue my journey to financial independence.
Rational stock market timing decisions that take little of my time
Thus for me, it is not about every hour or day to see how the stock market is doing. The great thing about this is that it takes very little of my time. I do follow the news, but only once after each month I make a decision if it is time to increase or reduce my stock market investment. To make these stock market timing decisions in a rational way without letting fear or greed drive me to do things I would later regret, I use the Stock Trend Investing strategy and system.
Have you made any stock market investment decisions that were driven by fear or greed and that you later regretted? Register or login and share your experiences with the Stock Trend Investing community.
Who else wants to ride stock market trends to create a fortune?
Submitted by Van Beek on November 3, 2009 - 16:12Remember this guy in Singapore a few years ago who bankrupted this big bank he was working for? He was betting on a certain trend and when he was wrong he was betting more, and more, and more on this same trend, to try to recover. The trend did not turn. In the end he lost it all. Stock market trends can make or break any investor.
I love stock market trends. I think they are great. They enable me to make good money on the stock market without having to spend a lot of time on researching specific stocks. Because of my beloved stock market trends, I do not need to hire and pay any expensive advisors. I just ride the trends.
Look at any ordinary day to any of the stock market indices like the Dow, NASDAQ, FTSE or Nikkei. Most of the stocks in those indices move that day in the same direction. The same is valid for longer periods.
How to see the trend
When you look at a period of a few months, most of the stocks move in the same direction and create the overall market trend. This is not just valid in one country. We live now in a global economy and in general most stock markets around the world trend in the same direction at the same time.
How wonderful would it be to know in which direction the stock market trends go and ride them to riches? Actually, to see the direction of the trend is easy. Simply, do not look to close. If you just follow the news everyday, you probably do not see the trend. There is too much movement and noise.
Take a step back and look at a chart that shows how a stock market index has developed over a number of years. The trends that last 3 to 6 months or longer are easy to spot. These are the stock market trends that I like to ride.
Key question
The key question for every trend rider is: when do they start and when do they turn? To benefit maximal from a trend, you want to ride it as early from the beginning as possible. And you want to ride it as long as possible till the trend really turns. In hind-sight, looking at a chart, pin-pointing the ideal moments to step in and out is easy. However, to identify those moments in the moment is something different.
I use the proven Stock Trend Investing system to define the moments when to step in on stock market trends and when to step out. Do you have a system, strategy or tool that helps you to define these critical moments? Please register or log-in and share your approach or questions on this.
Do you sleep like a baby when your stock market investment devalues
Submitted by Van Beek on November 1, 2009 - 09:26Do you run for safety and move your stock market investment into a low interest savings account or do you stay put after last weeks decline?
Every month, I use the Stock Trend Investing system to decide what I am going to do. This system provides me with buy-indications, correction-warnings or sell-warnings for a number of stock market indices around the world. Accordingly I make changes in my stock market investment.
All indices that we follow had a lower ending in October than their September ending except for the Dow Jones Industrial Averages Index, the Hong Kong Hang Seng Index and the Chinese Shanghai Composite Index. The Dow’s October ending was almost identical to a month ago. Thus the only indices that we follow and that showed real positive gains during October are the China related indices.
What buy indications and warnings do we have now for your stock market investment?
Overall the trend is still up with some warnings for a possible temporary correction.
The US indices do not give us a buy indication but give still a warning for a correction since they went up so much during the last period.
In general the European stock market indices do not give a specific buy indication, sell warning or a correction warning for our stock market investment after their declines in October.
In Asia, Hong Kong and Shanghai still show sufficient positive momentum and trigger a buy indication while both at the same time provide a warning for a possible correction since they increased so much during the past few months.
The Japanese Nikkei does not give any specific indication, signalling to us to hold our holdings and not to ad to them. The Sensex in Mumbai continues to give a warning for a correction. Even after last months decline, it still has gone up so far during the past period that you should be aware of the possible correction.
Gold has gone up for 4 months in a row and is on a roll. No warnings yet that it has gone up too much or so. Our system gives for Gold a buy indication.
What I will do
Given the current situation, I do not increase or decrease my stock market investment. I will see if I sell the put option I have bought last month on one of the European indices with some profit. If I do that, I will buy a put option on one of the US indices (S&P or NASDAQ) to cover for or benefit from a possible correction. However, since the stock market indices in the world follow each other in general, I may decide to keep my put option on one of the European indices since I expect them to follow any correction in the US markets. In this way I save some trading costs.
I do not buy any Gold yet since I have not figured out what for me the best way is to buy Gold.
Please leave a comment to this blog post and share with us what you will change in your stock market investment after the October closing.
8 ways to spread the risk in your stock market investment
Submitted by Van Beek on October 27, 2009 - 09:32Spreading the risk in your stock market investment is more than diversifying into different sectors. In this blog article we will see 8 ways to spread the risk in your stock market investment and I will go a little more into detail for one of them. This is the one that I wished I had used about 10 years ago.
In the beginning of 2000, I did not have my system yet for recognizing market trends and when to make or when to get rid of your stock market investments. During the boom years before I was always afraid that I was too late to step in since the markets had gone up so far already. And every month I was proven wrong since the markets went up further.In the end the pain became too much to see everyone around me making lots of money while I stayed behind with my savings safely in a bank account grossing me a few percent interest per year. Greed got hold of me and I made up my mind how much in total I wanted to invest in the stock market. I created a diversification strategy by selecting a number of mutual funds each covering a different industry sector.
Major mistake
And then I made the major mistake: I invested everything all at once. The first months were great, but then the market started to tank and my losses started to mount (I did not have the system yet that would have warned me to “get out”).
This brings me to the first way to spread the risk in your stock market investment: Stretch your new investments in the stock market out in time, over a number of months.
Do not make all your investments at the same time or in the same month. Start with only a certain percentage of the total amount you want to invest. Preferably do this of course when our system indicates that it is likely a good moment to start riding the trend up. Add to your investments in the following months, provided that the positive trend continues and you and our system do not foresee any serious warnings.
In this way, you minimize the risk in case we are wrong. And that is always possible of course, but it is essential then to limit the impact. And that is what we do when we are going “in” step by step. And when we are right, we could of course have made more money when we would have gone “in” all-out initially. But that is greedy and risky. I prefer to be happy with the handsome returns I make already by playing it a little more safely.
8 ways to spread the risk
Here is the overview of the 8 ways to spread the risk in your stock market investments.
- Stretch your new investments in the stock market out in time, over a number of months.
- Split the investments that you plan to make during a month in two or more batches and execute these trades at different dates during the month.
- Spread out the selling of your stock market investments over a certain time period. Note that in general I prefer to get “out” more quickly than that I get “in”.
- Diversify your investments over different continents.
- Spread your investments over companies with different sizes.
- When investing in markets abroad, consider how the currencies from those markets might move in strength versus your home currency.
- Spread your stock market investment over different industry sectors.
- Divide your investments over different companies to be less dependent on the performance of one particular company.
The best way for me to realize all this diversification and spreading of risks is by investing in a limited number of well selected mutual funds or exchange traded funds. Otherwise, it would become too time consuming to keep track of all the different companies and markets.
But spreading the risk in your stock market investment is important when you want to sleep well at night and not risking it all.
I am interested to hear how you diversify your stock market investments. Please register or login to comment on this article and share how you spread the risk.
How to invest in the stock market – and make money
Submitted by Van Beek on October 24, 2009 - 09:35If I just would have know 15 years ago what I know now about how to invest in the stock market. But we cannot turn back time. And it is never too late. The last 7 years have been very, very good. In this blog I am sharing my experiences on how I invest in the stock market and how also you can make money in this way.
It is simple, pretty save and straight forward. And it is not time consuming. You keep all control and visibility over your money and investments. I just share my experiences.
Having no time to do the ground work
Over the years I have learned how to invest in the stock market and make money, without that it takes me a lot of time every month. I just do not have that time. Or let say, I want to spend my time on other things. My work. My family.
I do not want to spend every month hours and hours anymore to research the financial reports of all those great companies to see if they are really so great. Initially I invested in individual stocks. But that takes a lot of time. Too much time.
And it is impossible to be always right when picking individual stocks. To mitigate that fact, one can research, choose and invest in a large number of different stocks. But that just takes even more time that I do not have.
Selecting funds in stead of picking stocks
Therefore, I invest now mainly in mutual funds and Exchange Traded Funds (ETF’s). However, there are many funds that do not perform well at all. I have had my own experiences with this. But now I know how to pick the funds I can rely on.
Selecting the right funds is less time consuming than trying to pick the right stocks. And funds take care of the diversification for you. But you will also need to know when to buy and when to sell these funds.
In this blog, on this website and in my regular newsletter, I will share the lessons I have learned on how to invest in the stock market. How to make money by knowing when to buy and when to sell which funds, without that it takes you a lot of time.
If you want to get on a regular basis valuable information on how to invest in the stock market, making money with it, without that it takes you a lot of time, sign up now for my newsletter, on the top-right side of the page.
