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Monday, October 6, 2008

Don't Sweat the Market Meltdown; Hold Tight and BUY!

The worst thing that an investor can do right now is sell into this down market.

The retirement account looks like it's dwindling away and the stock investing account account is flooded with red day after day. It's not a pretty sight. As ugly as it looks, we all just need to hold tight, and if there's any extra cash sitting around, now's the time to invest it.

In a down market, VFC says BUY.

For most, to invest now is going against a natural instinct. The fight or flight response says, if it looks scary - run. Unfortunately, that is contrary to making a buck in today's market conditions. To sell out now would mean, most likely, that you're selling for a loss. That's not a good strategy right now. Don't get me wrong, there are times to take your loss and move on, and there's plenty of stocks that you should run away from, but for the most part, now is the time to be strong, fight your emotions and BUY.
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Before you've bought a stock, you've done your research. You've come up with reasons as to why you've bought that stock, and you've developed a plan as to how long you'll hold that stock.

On VFC's Stock House, I like to outline the reasons why I buy a certain stock. For instance, my reasons for buying Dendreon (DNDN) were my confidence in the effectiveness of Provenge, and the fact that I believe that this new wave of cancer vaccines is the next step in cancer treatment. When I bought DNDN call options along with some DNDN stock almost two years ago, my plan was to hold until May when the FDA was to decide Provenge's fate with an approval decision. A risky proposition, DNDN was, because if Provenge failed, I would likely lose my entire investment. So I risked a small bit of capital because reports indicated that Provenge was safe and somewhat effective. I decided to take the risk. That was my time plan - wait for an FDA decision, but I also decided if there was a sharp move upward for any reason, I'd take some profit and run while I could. When the stock jumped into the twenties after an FDA Advisory Committee vote in March recommended approval, my monetary sell point (profit) was reached and I sold without thinking twice. I left a few shares out there to wait out the FDA's decision, and I held onto them, and added to that position after the FDA issued an approvable letter and the stock sank. The point is, one sell point in my plan was met- a surprising upward swing gave me nice profit to sell. On the other hand, due to the fact that I made a profit, the stock that I had left was 'House Money', so I decided to hold onto those shares, and add to the position to wait out the interim results (that were released today) that could lead to Provenge approval. After today's results, I've decided to hold onto those shares longer still, and add even more, because I am encouraged by the prospects of Provenge. That's the anatomy of a stock trading cycle in VFC's House.

Most of the trades I've made a profit on, I did not sell at the high, because when we're buying and selling, we never know what a high and a low is going to be. Because we can't predict an actual high and a low, we need to set our own BUY and SELL points, based on our own research. This is important. Never get too greedy on the way up, and never get too scared on the way down. Right now we're on our way down. My strategy is to buy a little at a time right now and 'Average Down', because I'm not sure where the bottom will be. The more averaging down you do, however, the more profit you'll make on the way back up.

A down stock I like right now is AT&T (T). The AT&T stock is trading at it's 52-week low right now, and in my opinion, it's a great time to buy it. AT&T is not going anywhere, their fundamentals are basically strong and the business plan is solid. The telecom sector is getting killed in the down market, and T is following the market down, it is not a collapsing as a company. Consumers don't have the spare money to spend on the nifty AT&T products right now, but you can bet that when the economy begins to turn around, AT&T will still be there. You can also bet that VFC is buying T in the low twenties, and will be gobbling shares if it hits the teens. If you're already an owner of AT&T, I could understand if you sold some shares in the forties for a profit (VFC never argues with profit), but if you held all the way down, now is the time to HOLD those shares and BUY more if you can afford it. Remember, a loss is only a loss when you sell. The key is, don't let the market scare you.




Many stocks are getting shaken out right now, that's part of the reason that the market is so volatile (the market was down 800 points today before recovering to being down less than 400). Stocks are getting dropped down and weak hands are selling while the big boys are scooping up the cheap shares that they 'shook' from the weak hands. The only ones who lose in that scenario are the weak hands that sold. The big boys have lost millions in this crisis, and they want to make their money back. One way to do that is by scooping up shares in undervalued companies so that they can recoup losses when the stocks rebound.

The key to your stock investments right now, and should always be, is to stick to your plan. Don't let fear and emotion dictate your trading patterns, you'll get burned every time; that also goes for holding onto a stock too long after a spike.

When it comes to investing in ETFs, Mutual Funds and Retirement Plans, now is the time to BUY. I don't invest in mutual funds because i don't like the hidden fees, low rate of return as compared to stocks, and I don't believe in paying someone to do something that I can do for myself. But if I was ever going to reccommend investing in mutual funds, it would be now while the market is down and you could make some steady gains when the market rebounds.
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This also goes for your retirement plans that are invested in funds. I actually quit contributing into my retirement account (into my employer sponsored plan, I still run one for myself) when the market was above 12,000 because I expected a correction at some point. Now that the market has crashed, I'm putting money into that plan again because the percentage of return will be significant from these levels, but it would have taken the market going all the way back up to 12,000 again before I would start making a profit if I put lots of money in up there.

ETFs, or Electronically Traded Funds, are funds that trade like stocks on the regular exchanges. In an up market I generally won't touch those, but I have bought into a couple of them now that the market is down because they'll rebound nicely when the market rebounds.

If stocks aren't your game, researching and investing in ETFs are a nice alternative. You get the excitement of the stock world and the stability of the fund world. Remember, do your research on an ETF just like you would on a stock. ETFs have become wildly popular and there are only a few out there that will beat the market, much like mutual funds, so take the time to find the right one for you.

The key is to not get rattled by the market.

Don't sell into this down market unless the business behind your stock has collapsed or you absolutely need the money. Surviving takes priority over investing, so if you have to sell to survive, then sell, but if you can afford to survive AND invest, you'll be heavily rewarded when the market rebounds.

Again, VFC says BUY in a down market!

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