Let me preface this article correctly prior to your hopeful enjoyment. Prior to finding a career path that I felt passionate about, I like everyone else, looked for a “job” in the urban rat race, and found myself as a broker-trainee at a full-service boutique brokerage firm on Wall Street. 3 months and a week after my interview at that firm, I was a Series 7 & 63 licensed registered representative. In 4 years on Wall Street, I made some good money, ran my own team of brokers and trainees, and most importantly, got out when I realized that my goals for my clients and my goals for myself were in direct conflict with each other. Now that’s another post for another time, but I say all that to say that I know how the industry works from somewhat of an inside perspective. Not an insider perspective’s; I didn’t work at any firms that trade publicly, not as a broker anyway, and am not in position to know anyone that would have “insider information.” Even if I did, I obviously wouldn’t be readily advertising my possession of information that would be illegal to disseminate. So, reading this, you will not receive the “golden tip” that will allow you to “corner the market” on anything.
***Also, and this is the most important: I am no longer a registered representative, nor do I work for any organization involved in the Finance, Insurance, or Banking Industry’s. I do not work for any organization for that matter, as I am currently unemployed. All financial information contained herein this article, and anywhere else on this blog is based solely on my opinion, or that of the writer, and should NOT be considered as a recommendation for or against any trading activity in any financial markets. All investors should consult with a Certified Financial Planner or Advisor prior to making any trading decisions and all decisions that could potentially have serious affects on the financial stability of that investor. Any gains or losses in time or money incurred in the financial markets generated based on any information contained herein this article or on this blog is the sole responsibility of the reader. TheRabidWhole’s Blog, and WordPress.com, will NOT be held responsible for any gains or losses incurred in the financial account of any reader and/or investor that directs market activity based on any of the information contained on TheRabidWhole’s Blog.***
Now that that is out of the way, remember that this is strictly the opinion of one man. You, the reader, are responsible for what you do based on this information.
The World Bank just announced that they are forecasting a drop in the world economy for the first time since World War II. OPEC also announced cuts, that will potentially push oil prices north of $50 per barrel. This should come as no surprise, as we are moving into the summer months. No matter how the economy is doing, people all over the world travel more during the summer. Kids, buses, and planes, go back and forth from private schools, colleges, and universities. Now with unemployment as high as it is, and with the spread between household income and the standard of living closing rapidly, (already “underwater” for some) there will of course be a lot less travel and therefore oil consumption than last summer. However, the cyclical nature of the increase in oil consumption and prices will still prove valid, in my opinion (IMO). As investor, it is always important to know what is going in the economy on a “macro” scale, which basically means on a very basic superficial, many investment professionals would say on a “fundamental,” basis. For me, a great way to access this public information that every investor should know is by checking out cnnmoney.com every Sunday. The site has an article series, “The week ahead” which provides investors with a glimpse into the important economic information due to be reported on for the upcoming week. (Click here for this past Sunday’s article which gives a glimpse into what’s happening on Wall Street and in Washington this week.)
Regardless of whether or not you are able to keep a close watch of your investment portfolio, every investor should be aware of potential upcoming events that may present opportunities to either get positioned in a stock or security you feel can show you profits, or to take profits on a position in which you may already have profits. I myself have found the week ahead article series extremely helpful in allowing me to anticipate the daily fluctuations of the overall markets. How? Well, on a trading day in which there will be important economic news, and that news is mostly projected to be negative, (February Retail Sales due to be reported on this Thursday, for example, or the Trade Defecit Report due this Friday) chances are that negative news will bring the overall market down for that day. When the market is down, most stocks will be down if only due to the reason that a move in the overall market reflects, at the very least, 50% of the move any individual stock will show on that same day. So, unless you have a particular position that has a great news release or some sort of positive catalyst that will cause that position to “buck the trend” and climb in the face of a falling market, most likely that position will follow the trend. Therefore, forming an opinion about how you believe the market will act overall in relation to any economic news released on any day should sharpen your ability to anticipate market moves on any given day. Now, you won’t become the Nostradamus of the Stock Market, nor will you reach “Oracle of Omaha” status, but knowing what is due to be reported, you should be able to discern whether or not that information will be taken positively or negatively by most other investors. Opinions quite possibly vary most on this perspective, but I personally believe that any day where the overall market is down should be taken as a buying opportunity somewhere. The trick is finding that situation that has been doing well recently, both fundamentally and technically, and still has enough potential (enough positive sentiment behind the stock or security) to fall less than the market falls (percentage wise), on a red day, a down day, and also enough positivity to rise immediately and aggressively at the first sign of positive news, which will lend to even more positive sentiment on that stock.
A great and recent example of this has been Gamestop Corp. (NASD:GME). From September, when our economic armageddon began, to November 20th, (the “November Lows”) GME was falling just like the market, despite some positive news specific to that stock. This is obviously because the overall news regarding the global economy, the entire financial system, and our housing and insurance systems was so dismal, and we were in the midst of a recession already 10-12 months in the making, that nothing could really stop the downfall at that time, not even individual positive news. Just like an individual that had A+ credit at that time, Gamestop as an A+ rated company at the time (or at least BB+ rated according the S&P upgrade of their corporate credit rating on Sep. 18, 2008) was still being treated like every other questionable company out there. The entire system was questionable. However, that company was and still is the world’s largest videogame retailer, and still experiencing significant growth, despite the economic contractions. Nevertheless, the stock price fell from $41 the Friday before the Lehman collapse, to as low as $16.91 on November 20th. This illustrates the importance of having information that gives you a glimpse into what may be coming on the economic front. Just looking at information on the stock itself in September, it looked like a good opportunity to buy and make some profits. But looking also at the information that would have been in those cnnmoney week ahead articles around that time, certainly would have given you a completely different perspective, and might perhaps have provided you with enough insight to see that buying Gamestop in September indeed may not have been the best time to get involved. It’s certainly something, you would have wanted to keep an eye on though. Since those November lows of $16.91, GME has traded as high as $29.08 (reached on Feb. 25, 2009), and is currently back down to $22 and change, due to other video game retailers attempting to enter the used video game market that Gamestop has dominated for so long. Anyone else smell a buying opportunity?
Ultimately, it is every investor’s duty to educate yourself on any and everything that could affect your investments in any way. If that sounds like a daunting task, perhaps you should consider keeping all of your money in savings and checking accounts, or the proverbial mattress. But if you want to be successful at investing, just like being successful at anything, you need to arm yourself with the tools that will enable you to do as best a job as humanly possible. No matter how much time you have to devote to research and education on investments, every investor should at least check the news headlines on their positions each week to be aware of what has happened, as well as attempt to gain information on any and all upcoming economic events or reports that could impact your specific holdings, or the industry’s in which your holdings operate. If you haven’t already noticed from the tone of this article, I myself prefer to deal strictly with stocks and stock options, also called equity options. However, that does not mean that this mentality cannot be applied to mutual funds, Bonds, Commodities, ETF’s, and any other financial products in which one might choose to invest. Knowledge is power, and absolute power corrupts absolutely, so never think that you know so much about any one thing that you do not need to know more. Good luck!