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InvestorsObserver
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Lee M. Allen
Now that Wall Street earnings season is winding down, it’s a good time to look back and reflect on what we’ve all learned over the last month and maybe even over the last six months.
Many people expected an immediate market rebound in January as a new management team moved into the White House, while others thought stocks might drop like there was no bottom. We all knew we had trouble on our hands with this economy, but we just weren’t sure how it was going to play out exactly or if the stock market would even survive the year.
Some investors panicked and pulled all their money out of the market only to see their losses locked in. Other investors, who we thought were crazy, strategically accumulated stocks like International Business Machines (IBM), Caterpillar (CAT), Oracle (ORCL), Deere & Company (DE), and Goldman Sachs (GS), at their bottoms, only to see them appreciate by up to 50% in the following months. Most of us were too scared to even open our brokerage statements, but these plucky investor firebrands had the foresight to plow everything they had into the market. They won big while the rest of us were picking out mahogany caskets with brushed brass hardware for our portfolios.
What was their edge? How did they know the right time and right stocks to buy?
The answer is simple… Because they can predict the future. And I know ten simple rules to help you predict the future, too.
Read on for more of Lee’s insights into ways to predict the future...
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Could this be the best way to predict where the stock market
is going?
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There is one simple way to predict the future. Just travel forward in time and visit a library or surf the web to find how things turned out, then come back and act on the information you gathered. Short of actually doing the time travel yourself, since it could be dangerous, you might want someone else to do the actual traveling. You don’t think time travel is dangerous… What if you popped up in the middle of a dinosaur stampede by accident instead of New York City in the year 2011? It could happen.
Was he the last person who could predict winning and losing stocks?
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But the bigger problem is that no time machine has been actually invented yet. If there was one, you would certainly see Apple (AAPL), Microsoft (MSFT), and Google (GOOG) fighting it out to be the one who makes the operating system. In fact, it is probably safe to assume that no matter what those physics guys tell you, there will never be a time travel machine. This is for the simple reason that if there was one, someone would probably come back to our time, mass produce the devices, and then sell them at Sam’s Club – a division of Wal-Mart (WMT) – for an odd price like $8,993.34. While supplies last!
So we are still left with the task of reliably predicting the stock market’s future without the use of an Underwriter’s Laboratory or OSHA-approved time travel machine. Which leaves us with “ESP” or Extra Sensory Perception as the only way to predict the future. The nice part about this ESP method is that you don’t need to worry about stampeding dinosaurs, bumping into yourself in the future, or accidently changing history so they have to rewrite all the books since you never actually leave where you are now.
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Those guys tinkering in their garages late into the night trying to build time travel machines may not be happy when they hear that, by following a few simple guidelines, they could just predict the future without getting their hands dirty or borrowing their neighbor’s wrench set and not returning it. As a bonus, they would also have room for a car in their garage.
So here are my ten simple rules for predicting the future when it comes to picking stocks:
1. Clueless CEO
If the CEO seems clueless as to where earnings actually come from, then you can bet the company will tank pretty soon. If he keeps saying the CFO has all the answers but he is on a business trip to Brazil and can’t answer them right now when the company does not have any operations in Brazil, short the stock the first chance you get.
2. Competitor announces a product but misses the ship date and the concept
If a competitor to one of the companies you are watching boasts about having the ultimate category killer but never seems to deliver, then quickly invest in the other company. Example: Yahoo!’s (YHOO) failed search shootout with Google (GOOG).
3. Three great up days in the market
When people are all excited by a string of great up days in the market, that probably means a bad day will come soon. By soon, I mean that probably the next day you can expect a major drop. Unfortunately, this does not work in the opposite direction. The market can throw an almost unlimited number of down days at you.
4. Mutual fund rule #1 – Distance
The farther away geographically a mutual fund invests, the riskier that fund should be considered. By risk, I mean you could reasonably predict that the bottom can probably drop out of this fund at any time. If I invested in this fund, it will drop for sure. Probably yesterday. |
Could this machine be the key to knowing the future?
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5. Personal Financial Goal Proximity
The closer you get to the time you actually need to use the money in your portfolio, the higher the probability the stocks in the portfolio will crash. If you need the money next month to pay for college, a new house, car or Midnight Black Harley Davidson (HOG) Chopper, then it would be safe to predict the investments in that portfolio will crash any moment now. The opposite of this is also true. If you are twenty years away from needing the money, everything will be growing fine. You will keep putting more hard-earned cash into the portfolio on a regular basis since it is doing so well, then bam! A month before you plan to sell the stocks, they will evaporate.
6. Mutual fund rule #2 – Size matters
The bigger the fund, the harder it will be for the astute and hard working fund manager to put all the money to work the way he wants. Expect those ultra huge mutual funds to falter at some point.
Maybe it’s time to buy Coca-Cola (KO)?
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7. Extra ordinary expenses, taxes, and write downs
When a CEO talks about income before ordinary expenses, taxes, and write downs and that amount is roughly equal to or more than profits, it really means the company had a loss and this will probably not be the last one. It would be safe to predict that this stock will fall.
8. Mutual fund rule #3 - Last quarter’s hot fund
Every quarter they publish a list of the best performing mutual funds in leading newspapers. The smart thing would be to use that newspaper to line your bird cage because you can reasonably predict that those top ten funds will not be in the top ten next quarter.
9. Beware technical analysis
Some smart people look at charts and graphs and lines and double derivatives of the standard deviation of the who cares all day. Most of these people don’t invest in stocks based on what they find. If you try to play the technical game, it would be a fair prediction that you will lose. |
10. Shinier and thicker the annual report
When you get your stack of annual company reports in the mail, don’t just throw them in the recycle bin right away. Line them all up on your dining room table and pick the cheapest one to produce; the one that is black and white and on thin paper. No pictures of smiling people who supposedly work in the warehouse. It would be reasonable to predict that the company with the cheapest annual report knows where to put its money: in shareholders’ pockets. That’s the one to invest in.
Bonus rule: Dishwashing predictor
If you have a driving age teenage child… If they cannot figure out how to wash the dinner dishes efficiently, safely, and without property damage, it is a pretty accurate prediction that they will not be able to master the essential skills required to maneuver a several ton vehicle around town. Take their driver’s license away right now before they sideswipe a mailbox, plow through three thousand four hundred twenty-three dollars in various shrubberies, and cause over four thousand dollars in vehicle damage.
But if we could all reliably predict the future, insurance companies like Allstate (ALL), Progressive (PGR), and Hartford (HIG) would be out of business. |
What do you think insurance costs for this car?
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If you have any other ideas on predicting the future or know of a discount auto insurance agency that is hungry for risk, please e-mail me at LeeAllen@InvestorsObserver.com.
FREE for 90 days: Get the InvestorsKeyhole Service and our other premium investor services. Plus Over $1,000 In FREE Bonuses!
CLICK HERE to begin your 90 DAYS FREE.
We can make this 90 day FREE offer because we are confident you will find our service an essential part of your investing toolkit and stay a subscriber for many years to come. Our biggest risk is that we do find people cancel their subscriptions when they move to their own private islands without internet access. |
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