Adapt To A Bear Market

Witnessing a bear market for stocks doesn't have to be about suffering and loss, even though some cash losses may be unavoidable.

Instead, investors should always try to see what is presented to them as an opportunity - a chance to learn about how markets respond to the events surrounding a bear market or any other extended period of dull returns.

Read on to learn about how to weather a downturn:

https://www.investopedia.com/articles/younginvestors/08/bear-market.asp

The Art of Selling a Losing Position

Your stock is losing value. You want to sell, but you can't decide in favor of selling now, before further losses, or later when losses may or may not be larger. 

All you know is that you want to offload your holdings and preserve your capital and reinvest the money in a more profitable security. 

In a perfect world, you'd always achieve this aim and sell at the right time. Unfortunately, it isn't that easy in real life.

Read more at:
https://www.investopedia.com/investing/selling-a-losing-stock/

How does the dividend discount method (DDM) work?

The DDM is very similar to the discounted cash flow (DCF) valuation method; the difference is that DDM focuses on dividends. 

Just like the DCF method, future dividends are worth less because of the time value of money. Investors can use the DDM to price stocks based on the sum of future income flows by the risk-adjusted required rate of return.

Read more at:
https://www.investopedia.com/ask/answers/042415/when-can-i-use-dividend-discount-method-ddm-value-stock.asp

How to make a winning long-term stock pick

Many investors are confused when it comes to the stock market; they have trouble figuring out which stocks are good long term buys and which ones aren't. 

To invest for the long-term, not only do you have to look at certain indicators, you also have to remain focused on your long-term goals, be disciplined and understand your overall investment objectives.

Read more at:

https://www.investopedia.com/articles/fundamental-analysis/09/long-term-stock-pick.asp

The Most Crucial Financial Ratios For Penny Stocks

Given adequate financial disclosure, we can apply some of the same analytical methods we use for larger companies to determine if a given penny stock is worth our investment dollars. 

Strong numbers and a positive trend on the balance sheet, income statement, and cash flow statement, are important because so much of the penny stock’s value is based on future expectations of performance.

Read more at:
https://www.investopedia.com/articles/investing/061915/most-crucial-financial-ratios-penny-stocks.asp

The Basics of Bollinger Bands

In the 1980s, John Bollinger, a long-time technician of the markets, developed the technique of using a moving average with two trading bands above and below it. 

Unlike a percentage calculation from a normal moving average, Bollinger Bands simply add and subtract a standard deviation calculation.

Standard deviation is a mathematical formula that measures volatility, showing how the stock price can vary from its true value. By measuring price volatility, Bollinger Bands adjust themselves to market conditions. 

This is what makes them so handy for traders: they can find almost all of the price data needed between the two bands. Read on to find out how this indicator works, and how you can apply it to your trading.

Read more at:
https://www.investopedia.com/articles/technical/102201.asp

ANNOUNCING re-opening of paid subscriptions to my Monthly Investment Newsletter

I am pleased to announce the re-opening of paid subscriptions to my monthly investment newsletter for a 3 weeks period from Jan 1-21, 2019. A limited number of subscriptions are being offered to blog visitors, blog followers, blog subscribers and twitter followers – on a first-come first-served basis, to enable me to provide personalised attention and guidance to each subscriber.

If you are interested in subscribing, please send an email to: mobugobu@yahoo.com at the earliest for details.

The newsletter has completed 108 issues, with its share of hits and misses. The stock market touched a lifetime high in Aug '18 but has been undergoing a correction since then. Sensex gained 5.9% and Nifty gained 3.15% during 2018.

Mid-cap and small-cap stocks faced the wrath of bears. The 4 months long market correction/consolidation since Sep '18 brought down most selected stocks from their peaks – affecting year-end performance. It is gratifying that subscribers have still kept faith in my stock picking abilities.

Those who have been regularly following my blog posts over the past few years may know what kind of stocks to select, and what type of stocks to avoid. The guiding principle is to choose well-managed, financially prudent companies that generate cash from operations, have low debt, give steady (rather than spectacular) returns and have growth prospects. 

Non-subscribers may be interested to know how the recommended 12 mid-cap and small-cap stocks have fared during the past 12 months. Without revealing the names of the stocks (it won’t be fair to my subscribers to do so), here is a brief summary of performance as on Dec 31, ‘18:

• 4 stocks gained more than 20% from recommended levels, of which 1 gained 31% and 1 gained 78%
• Of the balance 8 stocks, 2 gained between 15-20%, 2 gained between 10-15% and 4 gained between 1.5-6%
• At close of Dec 31 '18, 4 stocks were in the green; 8 stocks were in the red - of which 6 are down less than 9% and should make up the deficit soon, and 2 are down between 23-26%
• All 12 stocks touched higher levels after monthly recommendations

That may not appear all that great, but remember that the market has been correcting/consolidating for the past 4 months. To put it in perspective:  BSE Midcap index was down 13.4% and BSE Smallcap index was down 23.5% during 2018. That means 10 of the 12 recommended stocks have outperformed BSE Midcap and BSE Smallcap indices.

What is important to understand is that none of the recommended stocks were ‘cheap’ – fundamentally strong stocks rarely are - and some had already run up a lot when they were recommended.

The selected stocks are meant to be held for 2-3 years. Over the next 24 months, the laggards are expected to catch up with the leaders. Also, stop-loss levels are suggested every month so that small losses don't turn into big ones. 

If you wish to add fundamentally strong mid-cap and small-cap stocks with growth potential to your portfolio, why wait? Just subscribe to my Monthly Investment newsletter. Send me an email (at mobugobu@yahoo.com) soon – subscriptions will close on Jan 21, 2019.

4 Ways To Survive and Prosper in a Bear Market

A bear market for stocks could be coming.  After a nine-year bull market, there is always the chance that a bear market could be right around the corner.  The problem is, it can be hard to know when it’s coming, how long it will last or how severely it will impact stock prices.  

So it’s always safe to say that a bear market is coming…eventually.  And it’s always good to know some of the precursors and ways to hedge.

There is no reason to be alarmed.  Not only can you survive the next bear market, you can even prosper from it.  Below are some techniques you can use to either reduce your portfolio losses or even to make some money off the big bad bear. 

Read more at:
https://www.investopedia.com/articles/investing/070115/4-ways-survive-and-prosper-bear-market.asp

Key Financial Ratios to Analyze Healthcare Stocks

The Healthcare Sector is one of the largest market sectors, encompassing a variety of industries such as hospitals, medical equipment and the pharmaceutical industry. The sector is popular among investors for two very different reasons.

First, it is viewed by many investors as containing stable industries that offer a good defensive play to help weather general economic or market turn-downs. Regardless of the state of the economy, individuals continually need healthcare. 

Read more at:

https://www.investopedia.com/articles/active-trading/082015/key-financial-ratios-analyze-healthcare-industry.asp

Warren Buffett: How He Does It

Buffett follows the Benjamin Graham school of value investing. Value investors look for securities with prices that are unjustifiably low based on their intrinsic worth.

There isn't a universally accepted way to determine intrinsic worth, but it's most often estimated by analyzing a company's fundamentals. 

Like bargain hunters, the value investor searches for stocks that they believe are undervalued by the market, or stocks that are valuable but not recognized by the majority of other buyers.

Read more at:
https://www.investopedia.com/articles/01/071801.asp

The Walter Schloss Approach to Investing

Walter Schloss was one of the most successful investors of all time, but outside a small portion of the value investing community, no one knows the name. Mr. Schloss studied under Benjamin Graham at Columbia University and eventually went to work for Graham at the Graham Newman Partnership.

In 1955, Schloss struck out on his own and compiled one of the best track records in the history of investing. Over a 50-year span, he earned gross returns averaging 20% annually. His method emphasized buying cheap stocks with solid financials and holding them until they were considered overvalued. Mr. Schloss emphasized price-to-book value (P/BV) as the best measure of a corporation's value and preferred buying stocks that traded below book value.

In 1994, Walter Schloss sat down and outlined his thoughts on making money in markets to serve as a guide to newer investors or those without in-depth knowledge of the value investing process. The result was one typed page listing the 16 factors needed to make money in the stock market.

Read about the 16 factors here.

Training your Mind in Volatile Markets

Volatility in the stock market can be counter-intuitive. Bull markets aren’t typically filled with huge up days. Instead, rising markets tend to experience a slow and methodical rise higher. 

The best up days are usually seen in the same market environments as the worst down days, which occur during down-trending, volatile markets.

...loss aversion is a big reason why investors tend to make more emotionally-charged decisions when stocks are falling, which causes both panic selling and panic buying during a market downtrend.

Read more at:
https://www.investopedia.com/news/training-your-mind-volatile-markets/

Divergences Need Price Confirmation

Divergences visible on technical indicators often provide useful advance information of corrections or rallies. Usually, indications are more reliable when divergences occur inside overbought or oversold zones of indicators.

A negative divergence occurs when an index or stock touches a higher top while a technical indicator touches a lower top. That itself may not be an immediate sell signal.

A sell signal occurs when a technical indicator corrects from its overbought zone. A better sell signal occurs when the indicator drops below its neutral zone (viz. '0' line for MACD/ROC and 50% level for RSI/Stochastic). 

A positive divergence occurs when an index or stock touches a lower bottom while a technical indicator touches a higher bottom. That may not be an immediate buy signal.

A buy signal occurs when an indicator emerges from its oversold zone. A better buy signal occurs when the indicator moves above its neutral zone.

Divergence confirmation from several technical indicators are preferable. Investors should also await price/volume confirmation before taking any buy/sell decision.

Technical indicators of global stock indices showed positive divergences last week. Pullback rallies have followed.

Read more here.  

How to Find Tomorrow's Winning Stocks

The holy grail of investing is to find the biggest winning stocks in the market. The outliers. The stocks that break all of the records, i.e. the leaders that go up the most. 

Studies have been published showing that all of the gains in the market over the decades are from only a handful of stocks. This means that, if your portfolio didn't have some of these leading stocks, it didn't outperform the market. 

Read more at:
https://www.investopedia.com/trading/how-find-tomorrows-winning-stocks/

Why You Should Never Short a Stock

If you've ever lost money on a stock, you've probably wondered if there's a way to make money when stocks fall. There is, and it's called short selling.

Even though it seems to be the perfect strategy for capitalizing on declining stock prices, it comes with even more risk than buying stocks the traditional way.

Read more at: 
https://www.investopedia.com/articles/investing/121415/why-you-should-never-short-stock.asp

NIFTY breaks up trend from March 2016

Julius de Kempenaer is the creator of Relative Rotational Graphs (RRG), a unique method to visualise relative strength of stocks and sectors. He is the founder and director of RRG Research, Amsterdam. Read more about him here.

In a recent post featured on the stockcharts.com site, Kempenaer discusses the decisive break of the up trend on the long-term weekly chart of Nifty, and identifies some of the sectoral indices (based on his RRG) where investors can hide, or expect some outperformance on the down side.

Remember that a trend - whether up or down - is expected to remain in force till it is decisively broken. Last week's downward break of the up trend is a clear indication that another bear phase (within a longer-term bull market) has started.

For those who are unfamiliar with - or have never heard of - RRG, Kempenaer has clearly explained the concept with notes on his RRG charts.

Shown below is the long-term weekly Nifty chart (from Kempenaer's post):

Read more at:

https://stockcharts.com/articles/chartwatchers/2018/10/nifty-breaks-trend-pharma-and-it-show-relative-strength.html

'Rolling Bear Market' Will Paralyze Stocks for Years: Morgan Stanley

U.S. stock investors should brace for a market that will be paralyzed for several years in a narrow trading range, according to one team of analysts on the Street, and as reported by CNBC. 

Investors are already in the midst of a "rolling bear market" that will push the S&P 500 down as much as 17% and no higher than 4% from today's levels, Morgan Stanley's chief equity strategist, Michael Wilson, told clients in a recent note.

"We think this 'rolling bear market' has already begun with peak valuations in December and peak sentiment in January," stated Wilson. 

Read more at: 
https://www.investopedia.com/news/rolling-bear-market-will-paralyze-stocks-years-morgan-stanley/

How to Trade Stocks That Hit All-Time Highs

Each phase of an uptrend has unique factors that need strategic shifts in risk management and profit objectives. This is especially true when a security rallies to a new high that hasn't been traded in its long-term history. This scenario can build wealth quickly but requires special technical rules to capitalize on the mechanics in play.

Momentum dynamics shift when a security reaches uncharted territory. The new high print signals very favorable conditions in which there's no oversupply in the form of shareholders who need to sell at a loss or to get even. This lopsided equation can translate into rapid gains that often exceed logical price targets but can also generate unexpected behavior that encourages emotional decision-making. 

Resistance disappears when a security hits an all-time high but hidden obstacles remain, ready to surprise unwary longs with reversals and shakeouts.

Read more at:
https://www.investopedia.com/articles/active-trading/051315/how-trade-stocks-hit-alltime-highs.asp

Want to Make Money? Show Great Patience

"Earnings season is about to kick into high gear. Over the next few weeks thousands of companies will report their numbers. Some will beat expectations and some will disappoint. 

And some will present some great opportunities to make nice money, especially for those of you who are patient enough to pounce at the right time.

Here's a real life example."

Read more at:

http://stockcharts.com/articles/chartwatchers/2018/01/want-to-make-money-show-great-patience.html

5 Factors to Consider Before Picking Stocks

"Although it must be clear that what happens to prices of stocks over short periods of time is largely a reflection of changes in investor psychology, there is more than enough information readily available to assist in the process of identifying issues that have a better-than-average chance of outperforming the market. 

Understanding the importance of this information is the difference between the astute investor and one who is awash in incomprehensible data."

Read more at:
https://www.investopedia.com/advisor-network/articles/5-factors-consider-picking-stocks/