By Sasha Cekerevac for Investment Contrarians | Jan 4, 2013
One of the biggest investor mistakes by the average retail investor is to be late to cash in on an investment theme. These investor mistakes are not limited to just the stock market, but all types of investments. If we look at investor mistakes by the retail public for buying real estate, most people were bullish at the top of the market and were selling, or were forced to sell, their real estate at the bottom. Buying high and selling low is one of the most common investor mistakes by the majority of the public.
Since 2008, the biggest trend for the average investor has been to get out of stocks and to park money in U.S. bonds. EPFR Global, a provider of data, reports that since 2008, equity funds have had a net redemption of $467 billion, compared to bond funds that have seen an influx of $1.1 trillion. (Source: “Desperately Seeking Yield,” The Economist, November 10, 2012, last accessed January 2, 2013.)
According to Morningstar, money flowing into bond mutual funds accelerated in 2012, with 26% of household investments in U.S. bonds up from 14% in 2008. This was during a year in which the S&P 500 was up a solid 13%, now up over 111% since the low in March 2009. Meanwhile, 10-year U.S. bonds are currently offering a negative yield after inflation, meaning people are willing to lose money over 10 years because they are so scared of the market. (Source: “Bond Craze Could Run Its Course in New Year,” New York Times, December 31, 2012.)
This type of thinking is one of the most common … Read More
When I look at this market and how it has performed to date this year, I’m somewhat encouraged and surprised at the same time. While the advance has been decent, I continue to wonder why traders appear to be underestimating the overall stock market risk, which could lead to investor mistakes.
The third-quarter earnings season will likely be weak on both revenues and earnings. We are seeing more major companies slash jobs to compensate for the lower business volume.
I can tell you, considering my trading strategy and my desire to avoid investor mistakes, I’m taking some profits off the table, especially on some of my bigger winners; at the same time, I’m leveraging put options as a hedge against the potential vulnerability I see on the charts to avoid investor mistakes.
The charts are at a crux with technology stocks and small-caps turning lower as the market risk increases. So far, the NASDAQ is down over two percent in October and its gains from the end of the first quarter have disappeared. Moreover, the NASDAQ has broken below its 50-day moving average (MA) at around 3,084, and it is threatening to move lower, based on my technical analysis. The same situation is occurring for the small-cap Russell 2000 index, which is sitting just above its 50-day MA. With the Relative Strength Index (RSI) weakening, I would not be surprised to see more downside moves, so be careful to avoid investor mistakes.
I have talked about the earnings season and the market expectations that growth will be muted and driven more by cost cuts than revenue growth. Keep this in … Read More
By Sasha Cekerevac for Investment Contrarians | Sep 7, 2012
An embarrassing turn of events continues to unfold after the recent initial public offering (IPO) of Facebook Inc. (NASDAQ/FB). Talk about a roller coaster of market sentiment changes. Prior to the IPO, it seemed as if everyone wanted a piece of one of the hottest technology stocks in recent memory. Yes, Facebook’s user growth has been tremendous over the past few years, but questions are arising about everything related to the company, including questions from its underwriter Morgan Stanley (NYSE/MS).
When technology stocks go public, the underwriter will try to sell one basic idea to investors: the stock’s future growth is huge. Market sentiment was built up to a frenzy, yet it appears that the environment for technology stocks in this social media space is changing at a rapid pace, faster than Morgan Stanley expected. Morgan Stanley lowered its price forecast for Facebook, just a few months after its IPO. This is quite a surprise, not just for technology stocks, but for any company. The lead underwriter should know everything there is to know about the company. For changes to occur so soon after an IPO, it certainly causes some eyebrows to be raised.
Market sentiment has, of course, drastically shifted from overly bullish to quite negative, with shares near the year’s lows. With a high of $45.00 and a low of $17.55, this extreme shift in market sentiment cannot give investors much assurance as to the type of investors involved in this stock. Yes, many investors in technology stocks are shorter term and, thus, cause increased levels of volatility. But if the underlying strength of the company is that … Read More
By Sasha Cekerevac for Investment Contrarians | Aug 21, 2012
Like many commodities, platinum investing is based on supply and demand dynamics. While the demand portion of the equation is based primarily on world economic fundamentals, the supply side can have shocks to the system that can impact prices and affect one’s platinum investing strategy.
Last week saw massive violence break out in South Africa, at the location of the third largest platinum miner Lonmin Plc (LSE/LMI.L). A strike by miners erupted in bloodshed, with a total of 44 people killed, most of who were gunned down by police after strikers attacked the security forces with machetes. Platinum investing through mining stocks can be risky for many reasons; labor strife in unstable countries is chief among them.
There appears to be some resolution close at hand, as the company has backed off its disciplinary actions, announcing that returning workers won’t be fired. As of Monday, approximately 27% of the approximately 28,000-person workforce was back in action.
Investors interested in platinum investing should note that prices have spiked because of this violent outburst. Another important point to note is that a small concentration of mining stocks has a large impact when it comes to platinum investing. Actions or issues at these mining stocks can reverberate throughout the industry, causing ripples across the pond and hitting many firms involved in platinum investing.
South Africa extracts approximately 75% of the world’s platinum. Mining stocks in that region are susceptible to labor issues and an incident such as this current one with Lonmin’s mine has the potential to spread to neighboring operations. If that were to occur, platinum prices would continue rising substantially.
Two … Read More
By Sasha Cekerevac for Investment Contrarians | Jun 19, 2012
One of the common investor mistakes that occur quite often is trying to catch the bottom in a stock… or trying to catch a falling knife, as some might say. Many companies go through periods of being up and down financially, with the market sentiment causing stocks to rise and fall. Investor mistakes occur when people believe a rebound might occur when there are significant hurdles for the companies to overcome. A great example of trying to predict a change to the market sentiment before the time is right and of investor mistakes along the way involves two cell phone makers, Research In Motion Limited (NASDAQ/RIMM) and Nokia Corporation (NYSE/NOK).
Nokia recently announced layoffs of approximately 10,000 people in an effort to try to change the market sentiment of the company. Nokia used to be the largest cell phone maker in the world, but has seen a massive fall from grace and is now incurring losses. With the cash pile being burned on an increasing basis, it appears that if things don’t change, the company could run out of cash by the end of 2013. Many have made common investor mistakes like buying Nokia earlier in the year purely based on the dividend yield. However, they would have lost a lot of money, as we’ve seen a continued fall in the stock. In fact, it’s now trading at just over $2.50, down from a 52 week high of $7.38. Back in 2007, the stock was trading over $41.00.
Research In Motion (RIM) has gone through a period in which it had over 40% market share of the smart phone market. … Read More