Don't Fall For Their Bull
When asked about the stock market, the professional money managers on TV repeat the same old mantra: "Stay fully invested. When the market goes bear, buy more. When the market goes bull, rebalance your portfolio at year-end."
This concept is simply BS. Not just because if you followed it you would have zero investment gains since 1998. And not because those money managers or stock brokers don't get paid on your cash balances -- those fees or spreads go to the house.
It's bull because it does not adequately reflect the risk of owning stocks versus owning cash, bonds or short exchange-traded funds (ETFs) during periods of contracting economic growth.
Stocks are valued on an estimate of future earnings times a multiple of those earnings.
Cyclical stocks get a lower multiple because their earnings are cyclical. Secular growth stocks get a higher multiple because their future earnings are growth at a multiple to overall GDP growth.
- What's Hot: DELL, DHI November 20, 2009
- Sidewinder: MCD, DKS, JPM November 20, 2009
- Options News: SII November 20, 2009
- Sidewinder: CY, ADSK, KG November 19, 2009
- Options for Dummies November 19, 2009
Chris Johnson
Use a Strangle to Profit From Starbucks' Earnings
Starbucks has been a big mover -- up and down -- after earnings, and the company is schedule to report today after the close A strangle creates a win-win for traders.
The earnings projections for Starwood Hotels (HOT) are ridiculously low. Get in before they blow expectations out of the water.
Bullish call activity in YHOO is hitting highs for the year ahead of earnings -- but when they announce it will be a wake, not a party.
XOM may hit earnings estimates, but a big, positive reaction is not likely to materialize, and the newbies will fall over themselves to dump the stock.
McDonald's reports before the bell on Wednesday, and options traders appear to be betting against a good earnings report. Find out why you'll be 'lovin' it' if you bet against them.
