Get ready for next month. I always find myself approaching October with a little trepidation. As soon as all those 3rd quarter earnings (or lack thereof) start coming in we could be in for quite a shock. It just seems that surprises of the worst kind show up in the stock market in Octobers past (especially the most recent one).
It doesn’t take much searching for one to start to question the “green shoots” recovery. Over at John William’s web site (www.shadowstats.com) the unemployment numbers are over 20% and climbing. The Baltic dry index certainly does not show a recovery in world wide shipping. Finally the S&P 500 p/e ratios are higher than before the dot com bubble in 1999 (and this in spite of all the stimulus money thrown into the economy).
With all this news what is a boy to do other than head for the bunker with bullets, bullion and beans? Of course I do not think this is TEOTWAWKI. Life will go on and the world will keep spinning. But what to do about this dread in the pit of my stomach as I get nearer and nearer to turning another page on the calendar – to the dreaded investors month of OCTOBER?
Perhaps it is time to take a little defensive action. Nothing as drastic as the 4 – B’s listed above mind you. Here are my simple recommendations:
1. Move up those stop losses. If you do not use stop losses then shame on you. Tighten them up. Maybe as close as 90% to 95% of your stock’s present market value. Sure you might get stopped out on a small dip before a big run up but how many of you are wishing you had done so last October? If the market continues to run up then keep moving the stop loss orders upward. If it drops hard and fast you can thank me later. The market just seems a little toppy to me but what do I know?
2. If you have precious metals in your possession then hold then as a core investment. Right now a 20% to 25% allocation is not too high in my opinion. If you do not have that core investment then now might be the time to buy some and get ready to buy more if there is a short, sharp, quick drop. Decide where you would like to buy in and write it down. Your emotions will get the best of you in a wild ride down. Make a plan and stick to it.
3. Don’t be afraid to lock in profits. If you have a good profit never be afraid to sell a stock and lock it your gains. Maybe sell half and let the other half ride with a stop loss order trailing it closely. Remember that it is not a profit until you sell. Invest for the long term but never marry a position. (You will also need some cash for item #4.)
4. Get ready to buy if the bottom falls out. Look at a few good energy stocks. I like natural gas producers with large reserves. Look at a few mining stocks. There are several good picks out there right now. Maybe even look at a few defense stocks as I smell trade wars on the horizon. See how far they fell last October. Look and see how they recovered. Study their earnings and see what “P” you would be willing to buy at based on their “E” with a realistic P/E ratio. Get those stink bids ready. Remember to have a little speculative investment cash ready to jump in just in case those targets are met. Decide where your buy in price is and write it down. If they are good stocks be bold with a LITTLE speculative capital.
Inflation is already baked into the cake in the long run. The new Japanese prime minister is already talking about making the USA borrow in yen instead of USD. If this ever comes to pass then it will be harder for the USA to inflate their way out of this mess. In the short run deflation is still a possibility and a little cash is prudent. HOWEVER, start building your precious metals positions if you have not already done so. This time is a blessing and will not last forever.
Wishing everyone a very dull October,
Silver Trading Company
Larry lives in the occupied South with his wife Puddy and sells precious metals at the Silver Trading Company. Larry can be contacted at firstname.lastname@example.org. You can view his web site at www.silvertrading.net.
To order advance copies of Larry’s new book, “Investing Without a Net” just go to his website at www.silvertrading.net and scroll down to the middle of the home page and click on the link.