The idea of keeping stock that you buy today for use in your retirement days, was in the past the way to go (till the great depression), when all those stocks were worth a small fraction of the original value. More recently March 2008, with the housing loans defaulting, banks in financial streights, jobs slowing, U.S. and global economy ready to fail, was when the stock market dropped.
Recently the investor because of fear, sold stock quickly. Investing instutitions needed to raise capital to settle with customers pulling out of funds, causing the selling of many good stocks to create capital to settle with out-going customers, when buying these good stocks, would be preferred by money managers.
Institutions have been selling good stocks because of customer fear, of what may happen if the Fed takes some unknown action. What effect will the new government financial rules on the banks have on the economy? Will Health Care Reform harm the economy, or companies and employees. What will be the costs to companies or the nation to pay for health care. What may happen following the November 2010 mid-term election. The economy in Europe was said to be failing less than a month ago, but for now Europe's economy appears to have improved, and the euro is maintaing its value. Worried investors today read and hear these things and panic sets in. Questions are asked with what seems like only partial answers, or answers where two sources don't agree. Not knowing, causes people to try to protect what money they have and start buying bonds, gold, and Reits for protection of their money.
Gold, bonds, and REITS have had a good run, and to rebalance an investor's portfolio today, would require the selling of these and put the money back into stocks (some prices are at or near 52 week lows). This would be the way to profit from todays equities markets that have been having very low volume (more investors needed), and sell-offs almost day after day of perfectly good companies with strong balance sheets paying dividends (like getting interest).
We as investors need to remember that things change quickly today. The quarterly statements that your work place retirement account sends home is not the way to keep an eye on your money. The correct way to do this, is to go online daily, and see where you are, then make changes as needed to protect your principal (the money your depositing). The frequency of changes you make won't be often, and is limited by your account rules. If you max out the account changes in the time period that your account allows, some accounts will allow you to request changes by snail-mail to slow you down (this is to stabalize the money in the account's investments).
The value of stocks (companies) is always changing. The reason for buying the stock may have changed. The economy can be good or bad, having an effect on a companies ability to grow. Maybe a new company producing the same product or service as the stock you own, can do the samething cheaper, better or faster hurting your company's stock. Consumers may decide that the product of the stock you own is no longer wanted or needed. To this end, the iPad is being seen more often in the business enviroment, replacing the lap top. The iPad is easier to transport, and powerful (great for meetings).There are many more reasons for a stock to lower in price, including changes in federal or state laws, that can effect the ability of your stock to grow.
Bear Stearns was at $159.00 dollars a share, and in one year, was worth only $2.00 (March 17 2008). Today Bear Stearns is gone, and so would have been the entire amount of money you had invested in this stock. The Lehman Brothers Holdings collapse caused the loss of investments in the stock owned by employees, and the public. The price of Lehman shares declined 94% in the space of a year. Lehman filed for Chapter 11 bankruptcy, which grants protection while it works out a plan to pay back creditors. Share holders lost their stock investment in Lehman.
Old names like General Motors who became government owned, was removed from the stock market listing. Stock holders in GM lost all the money they used to buy GM stock when the company filed bankruptcy. The government feared many people that had anything to do with producing cars (GM employees, its suppliers, and their suppliers) would lead to huge levels of unemployment. To prevent this the government stepped in financially.
General Mills (GIS) makes products that are known all over the world and you would expect that sales would be steady and growing. The recession, a year ago had consumers eating out less, buying branded label products, and commodity prices fell. Today the recession is nearing an end (debatable), consumers are dining out again, and the commodity prices have stopped falling. In addition General Mills now faces the problem of higher raw materials costs and consumer resistance to price increases and, as a result, narrower profit margins. Fourth quarter profit for (GIS) has fallen 41 percent, causing the stock price to drop.
Pharmaceutical demand can be expected to always continue in companies like Rite Aid (RAD), CVS Caremark (CVS), and Walgreens (WAG). These companies all do the samething, over the counter medicines, prescriptions, flowers, cosmetics and cards. Again things change over time. Wal-Mart, recently began selling over 360 generic drugs for only $4 per subscription. This is significantly less than prices at pharmacies and may put pressure on a company's drug margins.
Another great company I like is Toyota Motor (TM), the price of the stock in 2008 had been about $121 per share, today the price is $67.84. If you had owned this stock and didn't pay attention to it, today your loss would be $66.63 per share which I think you'll agree is not acceptable. Boeing (BA) in the same time frame was priced at about $84, and today the stock sells for $61.13.
By knowing something about the business that your stock is involved in, you will be able to see things that could effect the price that are outside the control of the company, to prevent huge losses. Remember, if the reason that caused you to see your stock growing changes, that's the time to consider selling to reduce your loss.
At http://www.youcontrolinvesting.com/ you will learn how to use charts (called Technical Analysis) as an aid to guide you in the correct time to buy and sell your stock. The professionals use Technical Analysis, and you should to. Visit our site, learn about us, and feel free to ask questions. We offer your first lesson free of charge to learn how easy stock investing is, and to get you started. Visit our site to get instructions on receiving your first lesson free. We look forward to hearing from you.
Bruce Cortez, Instructor
www.Twitter.com/StockmktTeacher for important daily information.
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Selling can be tricky
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