5. Follow the News

This one may seem obvious, but you’d be surprised just how many people choose to ignore current events and still expect to walk away from market catastrophes unscathed.

More often than not there’s some indication of impending doom before giants like Lehman Brothers and AIG crumble. After Bear Stearns’ collapse, for example, Lehman stayed almost flat for a couple of months. While most didn’t think that bankruptcy was as imminent for the latter, it has to be said that the writing was on the wall. And it’s been more than a passing fancy.

4. Understand Business Cycles

Fool me once, shame on you, fool me twice, shame on me…

Every year, scores of investors get fooled into thinking that that history won’t repeat itself again and again. It’s true that historical gains don’t dictate a stock’s future performance, but when it comes to business cycles, revenues fluctuate like clockwork.

If you’re investing in a cyclical industry like retail or autos, then look at the trends; chances are you’ll see them again in the future.

3. Look Somewhere Else

In the beginning of 2008, investors flocked to overseas investments in India and China for good reason – those countries weren’t experiencing a recession!

If the U.S. stock market isn’t an attractive place to put your money, consider sinking some in other places that are enjoying better times than we are at home. Often, foreign stocks are traded on U.S. exchanges as ADRs (American Depositary Receipts), meaning that you can buy and sell overseas issues like China Mobile just as easily as Verizon or Sprint.

China and India are seeing tougher times now, but there are other economies that are faring a bit better… Now’s not a bad time to take a look.

2. Ask Questions

If you’re at a loss of where to put your money in an economic downturn, remember, there’s no such thing as a dumb question.

There are tons of resources available – from the websites you visit to the magazines you read, asking an expert a question is a “nothing-to-lose” proposition. And if you’ve got a personal financial advisor, ask away… that’s why you’re paying them.

1. If All Else Fails

When you’ve exhausted all of your other options, it’s time to fly to quality. In other words, switch from investments you’re in right now to ones that are less risky.

If you’d rather guarantee a modest 3% return than fight it out for higher profits, moving to safer investments is a decent solution until the dust clears. At least you’ll still have money to invest when the bargains start popping up.

Cheers,
Jonas Elmerraji

December 30, 2008

Five Investing Tips for the Economic Crisis was originally featured in the Penny Sleuth.

Below is a chart of the top three penny stock performers during the past year. Two of the companies are in the business of gas and oil exploration, and the other is in the wireless telecom industry. Two of the stocks have a market cap of under $20 million, and all three have amassed some great returns this year:

While TSYS has held its value very well amidst the economic crisis, New Concept and Mexco both hit their 52-week high back in May, and have since given back much of their returns. If you’d bought Mexco last December, however, and sold when the stock hit $50 five months later, you could’ve claimed a 1,135% return!

Shares of New Concept could’ve been had for $1.50 last December. When the stock spiked to $12.75 earlier this year, investors had an opportunity to cash in on a 750% gain. Despite the hit these stocks have taken in the past six months, they are still giving last year’s buyers a nice return on investment at their current levels.

Now, for comparison sake, lets take a look at the top performing stocks from the Dow Jones over the past year:

As you can see, only two of the 30 stocks in the Dow have had a positive return over the past 12 months. Wal-Mart has been the Dow’s best performer by far. The third best, Johnson & Johnson, is currently sporting a -9.73% return over the past 12 months.

Now, you may be wondering what penny stocks, if any, have performed well since during the recent market turmoil. Well, you maybe surprised to learn that a few small caps have done quite well despite the market meltdown. The top penny performer over the past three months is in the outsourcing business, the runner-up is a provider of competition management services, and the third is a pharmaceutical company that focuses on prescription drugs for central nervous system (CNS) disorders:

All three of these stocks have posted some remarkable gains over a short amount of time, especially when placed in the context of the recent market collapse.

The Dow, by comparison, has two positive performers over the past three months, although their gains are much more modest:

Exxon and McDonald’s have done very well to post any gain over the past three months, particularly considering the Dow Jones Industrial Average is down 23% during that same time period. Despite outperforming their peers, Exxon and McDonalds can’t hold a candle to the returns of this quarter’s top penny stocks.

These comparisons very clearly illustrate the profit potential that these un-diluted penny stocks bring to the table. The blue chips rarely see such explosive growth over such a short period of time. And even in one of the biggest collapses the market has ever seen, you can still find some great penny stock buys. You’ve just got to know where to look.

Best Regards,
John Schuler

December 08, 2008

P.S.: To get a jump-start on the top penny performers of 2009, check out Penny Stock Fortunes. In their December issue, Greg and Jim have found four cheap stocks that would be considered bargains in any market.

The Year’s Top Penny Stock Performers was originally featured in the Penny Sleuth.

An e-mail exchange with a colleague of mine sums it all up perfectly: “Sure, the market may go lower,” he writes, “but the lesson is that people are always doing the opposite thing than what they should be doing.” I know you’ve heard this before — we all have. But no one ever listens while they are in panic mode.

Common sense tells us to buy low and sell high. But with most investors, this is never the case. Many will buy stocks only to see them drop and then sell shares in a panic, no matter how well underlying company might be performing. We’re trapped by our own false sense of urgency — unable to execute sound investing decisions through the panic.

The market is in a tailspin. Now is the time to be cold and calculating, impervious to the panic that surrounds us. If we give in to our short-term fears, we only stand to lose out on long-term opportunities…

Think about the current panic for a moment. There are “players” in the market who are relishing at the opportunity to buy YOUR shares for a lower price. They are quite aware that panic means profits and each tick down means a future of 10 or 100 ticks higher. The only difference is that they have the benefit of discipline.

They look at the indicators that others ignore. They see the pump priming from the Fed. They see insiders buying up shares like they are going out of style. They may be scared too, but unlike the proverbial deer in the headlights, they can put their fears aside and take action. It’s time to step back from the fear and let logic dictate your actions.

Best Regards,
Greg Guenthner
December 5, 2008

Sound Investing Amidst the Market Panic was originally featured in the Penny Sleuth.