Asset Classes - Going Back To School
It is time to attend classes; in the world of investing, those “classes” are asset classes. Each class is a type of investment, and financial professionals tend to agree that there are four distinct asset classes: stocks, bonds, money markets and real estate. When used correctly, each asset class is a valuable tool to the investor in order to build a successful portfolio. We will focus the majority of our attention on the stock market. These asset classes include:
Real Estate
Real estate is land plus anything permanently fixed to it, including buildings, sheds and other items attached to the structure. It is a unique investment because its value is directly related to the properties surrounding it.
Money Markets
Treasury bills make up the bulk of the money market instruments. Securities in the money market are relatively risk-free.
Bonds
Bonds are certificates of debt issued by a government or corporation guaranteeing payment of the original investment plus interest by a specified future date. These are very stable, slow-growing investments and can serve as bedrock for any long term investing portfolio.
Stocks
Stocks are the basic unit of ownership in a company. Stocks entitle their holder to the benefits of an owner, namely dividends and voting rights.
The Value of Stocks in a Diversified Portfolio
At the risk of oversimplifying things, real estate, money markets and bonds can provide stability in a diversified portfolio; but stocks can provide the big money. These investment options include more stock volatility and risk but the returns can be incredible. You can diversify your portfolio with the different asset classes but you can diversify your stock holdings individually as well. Your stock portfolio can, and should, include small cap stocks, mid-cap stocks, large cap stocks, utilities and the like. Having stocks of different types and from different stock sectors provides a security that is lacking if diversity is lacking.
Portfolio Diversification
Many financial experts discuss stock market strategies and asset classes are an important part of any such discussion. Investing in the four asset classes allows the successful investor to take advantage of the strengths of the various classes. A portfolio that only has one or two different asset classes is more vulnerable to volatility or changes in that particular area. Since these asset classes move independently, they tend to have highs and lows at different times, which enhance portfolio diversification to protect portfolios.
Conclusion
Whether discussing the stock market or investing in general, asset allocation is a critical part of any discussion. For stocks, it is imperative that asset classes and portfolio diversification are a part of any stock trading plan.
Market Direction: Where is the next target for the Dow? How much further can it go down? After a large move in the markets, investor sentiment has obviously changed. That was illustrated with the selling after the Doji, down through what had been acting as a support level. The fact that the selling continued through a level that it had not sold through before confirmed the closure of positions upon the appearance of that new investor sentiment. The simple stop loss process closed out all the long positions on the open last Tuesday. That put the portfolio predominately in all cash, except for the few short positions that had recently been established.
When should that cash be recommitted to the markets? Should there be more short positions established now?
DOW
Unless one had the foresight to anticipate a 400 point sell off in the market in one day, there was no clear evidence that short positions should have been moved into on a full scale. If one is sitting with cash, there is no necessity to commit it back to the market right away. The purpose of investing is putting funds to work where the probabilities can be identified in your favor. This is what Candlestick analysis does. These current market conditions are not producing signals or patterns that would help create good probability situations. If that is the case, sit with cash until the market tells us what the market is going to do. The risk of trying to commit funds before the market produces recognizable signals creates a hit or miss investment program. Be patient. If this market is pulling back too far too fast, watch for the next 'buy signal' opportunity.
When the market continues to show weakness, price movements, confirmed with a candlestick pattern, produces that much more evidence that the buyers are participating in spite of the general market. Are there good trades to be bought when there is no apparent buying in the rest of the market? Of course, it purely becomes a matter of recognizing price patterns. Methode Electronics has experienced a strong price move over the past couple days of trading.
METH
This is in the face of a very weak market. Is this a safe place to buy? It becomes much more comfortable to commit funds to a position where the pattern can be recognized. In this case, a Fry Pan bottom can be seen to have formed since the middle of November. What has occurred at the same level as the beginning of the pattern? A breakout to the upside! A gap up on big volume.
METH longer term Chart
The benefit of candlestick analysis is that it pinpoints where buying and selling is occurring despite overall market conditions. Take advantage of the information that has been proven to work over the past three centuries. Candlestick signals reveal where investor sentiment is occurring that counteracts what would be expected. Why is buying coming into METH? That we may not know but we do know that what ever buying is occurring, it is creating a pattern that has produced successful profitable trades many times in the past.
April candlestick training seminar - Recognizing high profit candlestick signals is good knowledge to have. Being able to identify high profit reoccurring patterns can dramatically improve your returns. Having the ability to use candlestick signals to identify the general trends of the market will put an investor well ahead of most investors. Applying all this information in your total analytical process produces potential for making huge and consistent returns from the markets. Mr. Bigalow provides a clear and easy-to-understand training process for simulating this knowledge into your visual analysis. Two full days of common sense investment philosophy put into a simple graphic depiction will improve your investment abilities for the rest your life, to the point where you will be able to control your own investment future without having to depend on others. Sign up now! The information you obtain from candlestick analysis will dramatically improve your investment capabilities. This is not theory! This is not extensive and complicated analysis! These are tools that have worked successfully for generations. You can learn this, it is not difficult. Come join us in Houston!
Chat session tonight at 8 p.m. for the members. Thursday night session will be Ricky Wayne providing a full night session on his investment techniques. It is open to all. Come join us. Click here for instructions.
Special Thursday Stock Chat Session, March 8th – Our apologies, many of you emailed us that you were not able to join last Thursday’s Stock Chat because the room was full. We have doubled our room size to accommodate 400 participants. Fortunately, Rick Saddler (aka Ricky Wayne) has agreed to return, and will present his ‘hit and run’ candlestick trading program. We are allowing the full hour for his presentation. If you missed his last Stock Chat now is your chance to see why our room was booked to capacity.
Be sure to check out this week's Website Specials
20% off our newly released CD - Projecting Price Targets - Reduced to $102.22
20% off our latest e-Book - Trading Rules to Successful Profits - Reduced to $39.96
20% off the popular CD tutorials - Major Moving Averages - Reduced to $71.02
Final Week to receive the Ultimate Candlestick Training Package for $619 before it returns to full price.