Long-term investing an investment strategy where a position is taken in a stock, a market, a currency or a commodity and is not sold for at least a few years. Long-term investing is creating an investment thesis on taking a position and why this position will pay off in the long run. The danger with long-term investing is staying with a position that continues to lose money. The most important aspect of long-term investing is to evaluate the investment thesis constantly. Things change. If the change alters the investment thesis, then an investor needs to sell and move on. If the thesis still works, then the difficult part is staying with a losing position until the market turns and proves the thesis right.
As my long-time readers know, contrarian investing is all about buying when others are selling and selling when others are buying. Getting in ahead of the crowd is the key to successful long-term investing.
One market segment that has been severely hit over the past few months and could be ripe for long-term investing is the international potash market. Two firms operating out of Russia and Belarus essentially control approximately 40% of the potash market through a cartel that dictates supply and, ultimately, pricing.
In July of this year, this cartel collapsed, with one of the firms changing their strategy to maximize volume. This caused potash prices to drop by approximately 33%.
I believe there is a long-term investing opportunity in the international potash market. The current squabble between these two firms really is a soap opera, involving egos and politics centered between former Soviet Union nations.
For long-term investing purposes, one has to envision what’s likely to occur over the next few years. I don’t believe that management and the political leaders of both Russia and Belarus want to see potash prices at such low levels when they are able to reduce supply and raise prices.
This creates an investment opportunity for domestic potash producers.
While the overall stock market has soared, potash companies have seen their share prices drop significantly. For long-term investing purposes, I believe this is creating an attractive investment opportunity.
When it comes to long-term investing in a sector that’s beaten up, I would suggest looking at the market leaders, since they have the cash on hand to weather the storm.
Potash Corporation of Saskatchewan … Read More
Which stock is a great long-term investing opportunity? That’s one question I’m always asked. Obviously, I can’t answer that question for everyone, as each person has a completely different financial situation to take into account. However, there is a common occurrence in the stock market that, with the right strategy, every investor can take advantage of for a profitable long-term investing opportunity.
What I’m talking about are swings in investor sentiment. These swings from optimism to pessimism in investor sentiment can be beneficial for those interested in long-term investing. While it’s difficult to see one’s stock or portfolio decrease in value, that shift in investor sentiment creates a buying opportunity for the long-term investing horizon.
But going back to the original question, I would say that instead of always looking for the next “hot” stock, focus on firms that you know really well and look for shifts in investor sentiment that could offer a good entry point.
By having a watchlist of companies you’re interested in for long-term investing and waiting for periods of panic when investor sentiment is dropping rapidly, you can begin accumulating and effectively buying pieces of the company on sale.
Fear pushes investor sentiment far below fair market value. Conversely, greed pushes investor sentiment far beyond market value, to the upside. Essentially, you want to be buying when others are selling, and selling when others are buying.
Chart courtesy of www.StockCharts.com
A recent example of this type of opportunity might be lululemon athletica inc. (NASDAQ/LULU). As some of you may or may not know, earlier this year, Lululemon suffered a significant drop in investor sentiment when … Read More
There are two ways to look at interest rates: as an investor and as the company issuing debt. As a consumer, you obviously know that higher rates mean higher expenses. Well, the same goes for businesses; they have to evaluate the expected return when it comes to long-term investing versus the financing cost of the debt.
While interest rates have risen substantially over the past couple months, they’re still at extremely low levels historically. My belief over the past year has been that we are about to embark on a reverse course in interest rates over the next five to 10 years.
Over the past year, many companies have taken on additional debt by issuing bonds to help allocate their long-term investing goals with the current interest rate environment. This is actually a very astute business planning strategy.
While many people who have been looking at long-term investing might view more debt as being bad, they’re really not looking at the big picture. If a business can achieve a rate of return greater than their financing costs, this is a positive for shareholders. However, if the Federal Reserve begins adjusting monetary policy, this will create an upward move in interest rates—a move that I’ve been forecasting for some time.
What does this mean for stocks?
Let’s go back to that initial goal of creating shareholder value.
If you are a business owner with a project that can create an eight-percent return on capital and your interest rates are five percent, that difference is the increase in equity for shareholders (three percent). However, if interest rates rise to eight percent, or … Read More
I’ve always been a fan of long-term investing, as it allows big picture thinking to be more important than short-term gyrations. One of my concerns when it comes to developing a long-term investing portfolio is the Chinese economy.
Over the last 10 years, we’ve seen the Chinese economy take a greater role in the global economy. As readers who follow the markets closely already know, any news of economic growth or contraction within the Chinese economy now has the potential to move markets around the world.
This makes long-term investing more difficult, as we have to move beyond simply looking at a company’s potential to including the underlying fundamentals of the Chinese economy.
One of the red flags that concerns me is the massive increase in debt within the Chinese economy. I believe that non-performing debt, especially within the local governments of China, could cause a serious issue, not only for the Chinese economy, but the global economy as well.
Another nation that took on a massive level of debt was Japan during the 1980s. As we all know, anyone who takes out a large amount of debt needs to pay it back, which usually involves reducing spending and hunkering down to pay the large bill, or as I like to call it, the “hangover effect.”
While hard statistics are difficult to come by, I believe that local government debt within the Chinese economy has risen by approximately 50% over the last five years. The impact when it comes to long-term investing even here in America could be dramatic if this were to suddenly cause the global economy to slow … Read More
Recently, I’ve had several conversations with friends of mine who were quite worried about the latest rise in oil prices. They brought up two interesting questions that I can help shed some light on: 1) will higher oil prices have an impact on the U.S. economy; and 2) how can the average investor profit from this event?
As we all know, consumer spending is a huge part of the U.S. economy. And, to no surprise, Americans consume more gas than any other country on a per-capita basis. So yes, on the margin, higher oil prices will certainly impact the average American.
When it comes to long-term investing, we should incorporate these macro-economic variables, basically looking at the big picture. Oil prices have remained elevated for some time, and I believe they will continue to be relatively expensive.
Considering most Americans are not seeing significant increases in their wages, I would consider reducing exposure to firms that focus on discretionary income for my long-term investing strategy. Think of the things you want to buy but don’t really need. I think we could see lower-than-expected revenue for these types of firms.
For example, if you’re short on cash this month, you will likely pay for food rather than some fancy gadget or expensive jeans.
Are there ways you can profit from higher oil prices when it comes to long-term investing?
I believe there are firms that will do quite well over the next decade. One of the companies I’ve mentioned before to my readers is Halliburton Company (NYSE/HAL). I’ve been a big fan of this company not only because of my belief … Read More