October

As we fall into October, traditionally a bogie month for stock markets, scenes of fresh civil unrest in both Greece and Spain have once again taken my television screen hostage.

Furthermore, today’s edition of a daily email from my stockbroker describes the All Ords completing a “double top”.

The Double Top Reversal is a bearish reversal pattern typically found on bar charts, line charts and candlestick charts – the pattern is made up of two consecutive peaks that are roughly equal, with a moderate trough in-between.

Put together a protracted floundering global economy with the dire straits in the Eurozone, high unemployment in the US, the next wave of credit-default swaps maturing early next year and global housing market slumps, combined with agflation, and it’s little wonder I am extremely long-term bearish.

This is truly a market for hibernation. Rug up.

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(Don’t) Be Fooled

Don’t be conned over the next few months (Aug and Sep are traditionally good times for share markets), it’s all there in front of you, in black and white:

The Spanish jobless rate has just hit 24.6% – Yahoo News, 27th July 2012.

Greece may run out of money by Aug 20 – Telegraph, 26th July 2012.

On July 25, 2012, Reuters reported that the National Statistics said Britain’s gross domestic product fell 0.7 percent in the second quarter (the sharpest fall since early 2009) confirming that Britain is mired in its second recession since the financial crisis, with the economy shrinking for a third consecutive quarter.

If the euro zone’s crisis intensifies, the Russian economy could contract by 5% over the next 10 to 12 months – Wall Street Journal, 25 July 2012.

Greece is in a “Great Depression” similar to the American one in the 1930s, the country’s Prime Minister Antonis Samaras told former US President Bill Clinton on Sunday –
Telegraph, July 23 2012.

The ranks of America’s poor are on track to climb to levels unseen in nearly half a century, erasing gains from the war on poverty in the 1960s amid a weak economy and fraying government safety net – Associated Press (Washington), 23 July 2012.

Share Market Investing – Six Of The Best

I like to read up on general investment advice. “10 Ways to Wealth” or “Eight Mistakes To Avoid”… yiada yiada. Yet the “Six Rules to Follow When Picking Stocks” (Forbes Intelligent Investing, 16 June 2012) is one of the more sober collection. What’s more, it makes mentions of two investing names, one past and one present, that usually make sense. Here is a modified version of that Bezinga Editorial.

Rule ONE: Invest in stocks that offer an easy-to-understand, fairly straightforward company business model — e.g. McDonald’s, Apple and Starbucks; unless you have or understand specific industry knowledge — is one of the hallmarks of Warren Buffett’s long-term investing philosophy.

Rule TWO: Invest only in companies that are “best in breed”, including companies that have tremendously-established brands or extremely strong emerging brands. This is key. Keep in mind that in some sectors, the concept of “brand” means less than in other areas of the market – for example, means less in the mining sector than it does in retail. Warren Buffet describes a strong brand as a moat around a castle, and if you look at many of the best performing stocks in history, all have one thing in common – a tremendous brand – e.g. Nike, Ralph Lauren, Google and Pepsi.

Rule THREE: While past results do not guarantee future performance, in order for a stock to meet the criteria of this investing strategy, it has to be a strong past performer; not over the last year or even a couple of years, but the long-term chart has to be compelling.

Rule FOUR: Invest mostly in mid-cap and large-cap companies and try to avoid small-cap names. This too is from the Benjamin Graham and Buffett school of thought.

Rule FIVE: Focus mainly on companies that pay out dividends – just make sure that a majority of your portfolio’s companies pay out a quarterly dividend.

Rule SIX: Ideally, buy stocks that fit this framework on either significant market pullbacks or when the stock is breaking out from a large consolidation area or base; as per the legendary investor and founder of Investor’s Business Daily William O’Neill’s CAN SLIM strategy. In particular, look for this pattern with emerging brand stocks and try to buy the more established companies as cheap as possible to hold onto for the long haul.