Americans are addicted to bad news. So this may come as a surprise. There are stocks within the market that are on fire! I’ll give you one example from my portfolio.
In February, I took dividends from Honda Motor Company (a stock I’ve owned a long time, having a flat year) and invested those dividends in Ford Motor Company. For those who don’t know what that means, investing dividends means that I didn’t put any of my cash in from my accounts, this is money Honda “gave” me as my share in their profits. It wasn’t “real money” but untouchable income, “free money” to me in my IRA.
I bought Ford stock at $1.92 per share on a hunch. (Remember, I was playing with dividends… just cash sitting in my account.) Zooming out on their 3 year history I could see that Ford is traditionally a $10 per share stock. And while they aren’t doing well in the U.S., their European line is doing fine. Since they have a lot less debt and cut deeper, not taking government bail out money, it was reasonable to assume that their sector (American auto maker) had dragged their stock down more than real losses.
Look at March and to-date in April and you will see a massive rally. As of this moment, shares of Ford are trading at $5,98. That’s $4.06 more than I paid for them. Roughly 200% interest. Of course, looking at the chart you can see that I sold some shares at $4.24. Last week, I locked in some of those profits by selling enough shares to cover my original purchase. That means that I guaranteed that I wouldn’t lose any money on Ford… the balance of those shares becomes more free money. So, I took dividend money, which was free to me, and in less than 90 days was able to double it while still holding on to free shares in Ford.
My point is not to make myself look like a genius. Though, right now, I’m feeling pretty good about this investment. Certainly, in the last 5-6 years I’ve made the exact opposite mistake. I invested a ton of my portfolio in Sirius Satellite Radio because they started putting free radios in every car being made, never thinking it was an overvalued stock. The iPod hit it big and Satellite radio became the 8 track player. Shares I bought at $7 and $10 in the early 2000’s… I sold at $3 per share. (Currently trades at .43!) So you can see I am not a perfect investor.
My point is that you can’t base how you feel about yourself on news reports. There’s a lot of talk about our nation being in a recession. Certainly, millions of people are out of work and we are facing a very real housing crisis. But, that doesn’t mean that everything in the world is bad and we should wallow in our depression! There is certainly lots and lots of money to be made. People on Wall Street are making BAGILLIONS of dollars right now while the rest of the nation thinks we are in a borderline depression. (The swine flu is also a great cover for this! Can you say, “distraction?”)
Think of a recession as a shifting of how money is being spent. It’s not that people aren’t spending money. It’s not that there is less money in the marketplace. It’s that they aren’t spending it in places that we expect them to.
How do I know what to look for?
Companies are typically slow to react to that shifting. Ones who jumped the trend, even a little, will do well. Companies that tried to ride out the last few dollars on yesterday’s trend (Just look at every car General Motors had on their line in 2008… another example would be AOL/Time Warner) are going to get punished because they don’t have a product people will buy. You have to be like Warren Buffet. Before you invest in anything, see it. Do your research, read the reports… but that shouldn’t replace walking around a store… or in this case a car lot.