Trust in the Investment Process

Posted: Aug 04, 2014 12:01 AM

During the last few weeks, I’ve shared strategies to prepare your portfolio ahead of putting your dollars and savings to work. I’ve also shared an important technique to hone your investing skills — the postmortem breakdown of your investments, and how to recognize where you made smart decisions and where things may have deviated from what you hoped.

If you’ve been a longtime investor or even if you’re just a novice, you and I have many things in common, including wanting to generate profits. I mean, is anybody investing with the intention of losing money?

Like anything worth doing, let alone making a profit at it, investing takes work — and I hate to burst your bubble, but sometimes that means hard work. Sure, you may get lucky once in a while, but as I’ve shared with you before, it takes a repeatable process to be a successful investor during the long term.

Yet, I can’t tell you how many times I’ve seen advertisements for “3 Stocks to Buy and Hold Forever.”



The last time I checked, forever was a pretty long time. That advice implies there will be no major changes coming. It’s pretty reasonable if you still live in the days of the tube television, 8-track tapes and amber computer monitors with your polyester pantsuit.

The odds are pretty good that you may have one of those, but certainly not all of them. Why not? For starters, most of them aren’t even made anymore, because new products that incorporated new technologies replaced them.

If you bought the market back in early 2000, you’d be up roughly 35%. On its face, that sounds pretty good, but when you think about it… that’s 35% over 14 and a half years. Sure, that includes two bear markets, but if you were asleep at the switch during that time period, you lost out on a number of opportunities.

Another example is McDonald’s (MCD), which is facing a number of issues these days. Pulling back a bit, however, you’ll see that its shares have been more or less flat since 1Q 2013. During that time, we’ve seen significant moves in Starbucks (SBUX) and Chipotle (CMG), with a fast upward move in newly public El Pollo Loco (LOCO). Again, if you were a McDonald’s investor and failed to notice the shifting landscape around you, it has cost you.

Those are two examples, and here’s a third. Several years back, before the days of streaming content, a highflying stock was Blockbuster. I’m sure you remember it — I know I do. The company had a long run, and even though it got itself into a little bit of trouble, it was the dawn of digital and streaming content that finally put a fork in the company — because it was done.

Those are just a few examples, but you get my point. Had you bought those shares and held them without conducting the pre-trade analysis and monitoring ongoing developments — industry-, company- and competitor-wide — you’d have missed out on other opportunities, as well as inflection points to unload your shares. The former means lost opportunity, while the latter is a great example of opportunity cost.

Ask any mutual fund or hedge fund investor the best way to lose money. The quick answer is to buy and hold, or as they call it, buy and sleep. You don’t have to be an active trader, but rather an active investor likesubscribers to my investment newsletterPowerTrend Profitsand I are. We don’t whipsaw positions around, but we do fine-tune our holdings over time and book profits when it makes sense.

Option Tip of the Week

As Ishared last week, more and more investors are increasingly shifting where they invest to options. In my option video series, I cover a number of the basics when it comes to investing with options. Here’s another tip for you — as with stocks and exchange-traded funds (ETFs), you have to be mindful of selecting options that are liquid. If not, it could be painful when you try to exit. The last thing you want is to plunk your dollars down in a position that turns out to be a roach motel.For more on options, be sure to check out myPowerOptions Traderservice here.

In case you missed it, I encourage you to read my e-letter column from last week aboutwhy you should follow the money to options.