You don’t need a cheerleader to find you good stocks in order to make money investing in stocks in 2014 and 2015, but a good coach might open your eyes to some good stocks so you can make money investing while others miss out. TV and the internet are full of cheerleaders trying to turn you on to good stocks; but rarely do they come up with the big play when the going get tough.
The simple truth is that few people make money investing in stocks in a bear (down) market. That’s because most folks think in one dimension: that you only make money investing by picking good stocks in good companies. What happens to those stock picks when the market crumbles? Over 90% of those picks go down with the market. If the going gets tough in 2014 and/or 2015, what might a good financial coach suggest to help you find good plays?
Sometimes you can make money investing by buying last year’s losers. Yesterday’s dogs could turn out to be good stocks in 2014 and 2015. On the other hand, investing money in a company facing financial difficulties is usually a losing proposition. Instead of focusing on individual companies, a good coach might suggest that you concentrate on industries or sectors that have underperformed in recent months or years.
Contrarians sometimes make money by going against the tide, by thinking outside of the box – like a football coach who needs a big play to turn the game around. What might contrarians do to make money investing in stocks when or before another brutal bear market mauls investors? Let’s look at gold mining stocks, as an example. The stock market was up 30% in 2013, while some gold mining stocks were down 40% and more. Will these be good stocks in 2014 and beyond, and if so which one do you buy?
Anytime you pick one company in a sector or industry to invest in, you are accepting more risk than is necessary. Gold stocks in general could prove to be good stocks in general going forward, but that does not mean that every company in the sector will make money for investors. That’s called “specific risk”: any specific company can have problems even when things are going well for the industry in general. The good news is that you can avoid specific risk in your search for good stocks.
Exchange traded funds (ETFs) trade as stocks and have become very popular with investors. Instead of picking one gold mining company to invest in, you can invest in a group of them by simply buying shares in one ETF. You can also make money investing in stocks in other industries or sectors the same way, by simply buying shares in the appropriate ETF. Think of ETFs as good stocks to invest in to simplify your life… if you want to invest outside of the box or make plays you didn’t know how to make before.
Examples: going into 2014 natural gas prices had fallen for years, and interest rates had declined to record low levels. How could you make money investing in stocks now, by betting that either of these trends will reverse in 2014 and beyond? You can do this by buying the appropriate ETFs (which trades as stocks). What if you think that the stock market in general is going to tank and you don’t want to look for good stocks or good sectors in a bear market?
You can simply buy “inverse” ETFs that are designed to rise in price when the market in general falls. For example, stock symbol SDS is designed and managed so that it should go up when the S&P 500 Index goes down, with 2 to 1 financial leverage. If the index falls 10%, shares in SDS should go up 20%. Yes, you can make money investing in stocks in a bear market. View ETFs like SDS as good stocks to make money in when the market is falling. And no, these are NOT good plays in a rising market.
Now that we have broadened our view and added a few plays to our playbook, it becomes quite clear that there are always some good stocks out there no matter what happens to the stock market in 2014, 2015 and beyond. You can’t expect to make money investing in stocks in a bear market if you run the ball up the middle on every play. Good stocks are like good plays. There’re out there if you are willing to think outside of the box.