Daily Gains Letter

Investor Mistakes

40% of Retirees Have Mortgage Debt; Why It Could Be a Bad Idea for Those Over 65 to Leverage Assets for Wall Street

By for Daily Gains Letter | Mar 12, 2013

120313_DL_whitefootThe Dow Jones Industrial Average has been on a record-breaking sprint, drawing in investors from the sidelines with optimism and high expectations. With weak bond rates, there is growing sentiment that many retirement funds will only experience modest returns unless they park their money in the stock market.

At the same time, other investors are cautiously watching from the outside, wondering if there’s additional room to run.

It’s hard to decide where the market is headed. While the Dow Jones is on a tear, it certainly can’t be based on the underlying economic indicators. Unemployment remains high—so does personal debt. Gross domestic product (GDP) is essentially flat. And the outlook doesn’t look great either.

Despite record highs, the American Association of Individual Investors reports a bullish sentiment of just 31%; it was double that amount in early 2011. A low bullish sentiment suggests investors are not anywhere near the point of taking profits or divesting their holdings. (Source: “Sentiment Survey,” American Association of Individual Investors web site, last accessed March 8, 2013.)

That means that there are a lot of people who expect the Dow Jones Industrial Average to continue its nascent ascent. Which also means that some will be looking for ways to raise capital to invest in a market that they believe can only climb higher.

Over the last number of years, the easiest way for people to get their hands on a large cash investment position is to take out a home equity loan.

At the same time, there could be some retirees thinking of borrowing against their house simply to get out of debt. Forty percent … Read More

Steering Clear of One of the Most Common Investor Mistakes

By Sasha Cekerevac for Daily Gains Letter | Jan 7, 2013

DL_Sasha_4One of the biggest investor mistakes, when it comes to trying to determine stock market winners, is what we professionals call “chasing returns.” This is one of many investor mistakes in which people look at what firms have recently performed well and incorporate these returns when analyzing which companies they feel will be the stock market winners in the future.

The reason this is one of the most common investor mistakes is that it is easy to be tricked into thinking that past performance is an indication of future success. Stock market winners in the past can indicate that the company is a solid performer, but this is no guarantee that the same returns will continue indefinitely.

Looking to analyze which companies will be the stock market winners in the future is a far more complex task than simply picking past outperformers. This is because the financial and economic landscape continually changes. Competition increases, which leads to a far more dynamic marketplace than many people expect.

It is easy for people to make these common investor mistakes, since it is hard to go against the crowd. When a stock languishes against its peers, it takes a lot of courage to believe that this company will be part of next year’s stock market winners.

One way to prevent making investor mistakes is to ensure that both the technical and fundamental analysis line up accordingly. Stock market winners consistently outperform their guidance levels, and the stock chart has a trendline that is positively sloping. While there are oscillations over a long period of time, the long-term stock market winners will have consistent … Read More

Don’t Make This Investor Mistake

By Sasha Cekerevac for Daily Gains Letter | Dec 20, 2012

DL_Sasha_1One of the hardest things for a person to do is to go against the crowd. As investor sentiment starts to spread, an individual has an increasingly hard time looking past the short-term gyrations and focusing on the long term. This lack of ability to separate oneself from the herd of investor sentiment has led to a famous occurrence: that the majority of people are wrong when it comes to investments.

By the time everyone starts to take part in an investment, this is when one should be looking to exit. Investing in stocks was viewed as a great investment, right before the crash. After the crash, investing in stocks was then viewed as a horrible place to put capital; but that was exactly the best time to buy stocks.

One needs to take advantage of shifts in investor sentiment. A great example has been the shift in assets by investor sentiment since 2008. According to EPFR Global, since 2008, bond funds have seen an inflow of $1.1 trillion, while equity and money market funds have seen an outflow of $793 billion. (Source: “Desperately Seeking Yield,” The Economist, November 10, 2012, last accessed December 11, 2012.)

The low-rate environment is pushing investor sentiment into any yielding asset. Plus, the recent decline in stocks is scaring people away from investing in stocks. In fact, this should be the exact opposite for the average investor. When people are pulling out of stocks, one should be looking to buy them.

To gain long-term wealth, one must move in the opposite direction of investor sentiment when it is at extreme levels. When there is … Read More