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| Stock II (Photo credit: hawkexpress) |
By InvestorPlace
Purchasing stock in great businesses at sound prices
New York, May.4, stock tips .- As I mentioned in an earlier article, I am ramping up my contributions to a 401 (k) plan, in order to reduce current tax liabilities and enjoy tax free compounding of gains. However, I already had an old 401 (k), which was eligible for a rollover. In early April I cashed out the index funds in it, and rolled the money over into an IRA. After that I decided to equally allocate the money in twenty individual dividend stocks. The money was immediately available for me to invest in the very next morning. This is a different account from the IRA I used to lower my current tax liabilities.
I had identified a list of stocks to purchase, and decided to buy them throughout the day and be done with it immediately. I read many blogs, newspapers, financial websites, and only saw negative sentiment toward the stock market. This is a strong sentiment indicator that the market will continue going up from here. This is why it is best to purchase stocks that look fairly valued today rather than wait, and purchase them when they get more expensive. My review of dollar cost averaging identified that putting money to work as soon as possible might be a better solution than waiting to allocate the funds. Of course, since I went from 100% invested in stock mutual funds to 100% invested in dividend stocks, this should have minimal effect on me.
Over the past four years, I keep hearing the same information that stocks are overvalued and that we are going to see somesort of hyperinflation. Lucky for me, I only pay attention to company fundamentals. I should know better, since economists as a group are known for having forecast nine out of the past five recessions. I also keep looking at the number of perma bears, who have been consistently bearish on stocks and the economy for the past 20-25 years. At one point they will be right for a few years, but then, even a broken clock is right two times per day.
Markets can easily go higher from here, given the fact that everyone is expecting corrections. However, I am not a market timer, which is why I reinvested almost all of the money immediately into the following 20 stocks:
The one thing I care about is purchasing great businesses at fair prices. My analysis of these businesses has shown that each of them should be able to generate higher earnings to pay me a rising stream of dividends for years to come. Even if stock prices fell by 50%, the dividend income would most likely hardly change. Because I do not plan on adding any money in this particular IRA account, I have set up the distributions to be reinvested automatically.
You might have also noticed that I am holding an MLP in an IRA. However, for the two years since I owned Oneok Partners (NYSE:OKS), the UBTI has never been even in positive territory. This is why I doubt I would have any taxable issues with this MLP in my rollover IRA.
Full Disclosure: I have a position in ADM, AFL, APD, CVX, DLR, FDO, JNJ, KMI, KO, MCD, MDT, MMM, MO, OKS, PG, PM, UTX, VOD, WMT.
5 Tips to gain 67% per year with Breakouts
A good strategy to win money in the market, is to select stocks when they makes breakouts. In a world where many people complicate investment using complex algorithms and formulas difficult to understand, this simple strategy continues to give very good results.
Many professional traders that I know personally, are dedicated to finding stocks that make good breakouts.
One of the paradoxes of the stock market is that stocks rising, still rising. And the stocks going down, continue to fall. A stock that makes a good break can climb 30%, 40% or 60% before beginning a major correction. It is therefore very attractive to find one of these stocks.
Likewise, really is not very difficult to do a good search for these stocks. Conversely, no great technical knowledge needed to implement some few investment strategies that include breakouts.
However, there are some factors to be taken into consideration to fully benefit from this strategy. In the followings paragraphs, I will show you 5 things that I believe are essential to succeed with breakouts.
1.- Prices.- It is very important that the breakout comes accompanied by a significant price increase. Is essential to understand that the price variation reflects the greater demand on a stock. I personally consider a stock is a candidate for this strategy, if the break is made with a price increase of not less than 2.8%. Ideally, look for stocks that have experienced increases of between 3% y 5% the day of the break. Large increments may be a more attractive, but are often accompanied by short-term corrections.
2.- Volume.- A good breakout is always accompanied by a increase in the volume of shares traded. The Smart Money realizes that something positive is happening with this stock and decided to take position, all together in the same day. To be considered a good break, the volume, that day, should be at least 30% higher than the daily average of the last 50 days. If the volume is higher (eg, twice), even better
3.- Price Pattern.- Not any increase in price of a stock with a high volume, should be considered a breakout. According to Wikipedia, "A breakout is when to pass through and stay prices-through an area of support or resistance. On the technical analysis to chart occurs when to breakout price of a stock or commodity exits an area pattern". Remember that the most important in the stock market is to understand the concept of "Support and Resistance". Many studies point out certain "forms" that takes the graph of a stock when starting a new way up. However, I am of the opinion that learning to identify support and resistance levels is more simple and useful. In the chart that is included in this article, you may clearly see this. In this strategy, it is important that the stock breaks a base of prices current for a given time.
4. - Consolidation Time. - This is a key issue. From my point of view, to produce a good break, the time of "consolidation" of the price, should be not less than 8 weeks. Price Breaks bas shorter in time produce numerous false signals.
5. - Time Frame. - You can identify a breakout at any time frame. I recommend, however, use 3 day or weekly time frames. It is much easier to recognize a good breakout using these frames that a daily time frame.
Why 67% of return?. We have made a numerical exercise with the breakouts we reported during the past year. If we had prepared a portfolio with 8 stocks with these breaks, the average annual return would have been 67%. This is just a numbers exercise. What I want to emphasize is that this strategy is successful and easy to implement. It takes a few elements and basic knowledge of the stock market and its operation. For this reason, is that we consider to be a very good idea to invest in stocks considered to make good breakouts. It is not difficult to recognize these stocks and relatively easy to make it upproperly.
5 Tips to gain 67% per year with Breakouts
Likewise, really is not very difficult to do a good search for these stocks. Conversely, no great technical knowledge needed to implement some few investment strategies that include breakouts.
However, there are some factors to be taken into consideration to fully benefit from this strategy. In the followings paragraphs, I will show you 5 things that I believe are essential to succeed with breakouts.
1.- Prices.- It is very important that the breakout comes accompanied by a significant price increase. Is essential to understand that the price variation reflects the greater demand on a stock. I personally consider a stock is a candidate for this strategy, if the break is made with a price increase of not less than 2.8%. Ideally, look for stocks that have experienced increases of between 3% y 5% the day of the break. Large increments may be a more attractive, but are often accompanied by short-term corrections.
2.- Volume.- A good breakout is always accompanied by a increase in the volume of shares traded. The Smart Money realizes that something positive is happening with this stock and decided to take position, all together in the same day. To be considered a good break, the volume, that day, should be at least 30% higher than the daily average of the last 50 days. If the volume is higher (eg, twice), even better
