Marketplace Options
Tuesday, July 31, 2007 | Jason JovineRating:
Get out your pen and paper, and listen up!The market has been wild, but not as wild as many in the news have made it out to be. Do you remember what I said in one of my past articles? Focus on percents instead of absolute numbers.
In other words, if, for example, the market (DJIA) is at 14,000, and it goes down 200 points, that’s only about 1.42%. It is not that big a deal, folks. The media focus on absolute numbers because they want ratings. They want you to have a panic attack because you think the sky is falling so that you stay tuned to their channel. Just remember how high the ratings shot up for news channels after 9/11. God bless capitalism gone wild.
Now, the market closed just over 14,000 not long ago. The market will eventually go to over 20,000 in the next several years (barring a catastrophe) because more people around our smaller and smaller world are getting more and more money and will spend more and more of this money on goods and services.
The companies that will benefit the most will be those brand name companies such as Proctor & Gamble (symbol: PG). The stock as I write this article is at about $63 per share. I would buy it for the long term. They will continue to sell their products such as Crest toothpaste and Ivory soap in more and more developing countries. This is a great long term investment; remember that I told you.
Another thing: don’t focus too much on the Dow Jones Industrial Average (DJIA). This is arguably the most famous index in the world. When you hear “the market was down today,” the reference is usually to this index.
Here is the exact definition of the DJIA:
Price-weighted average of 30 leading industrial stocks traded on the New York Stock Exchange, compiled by Dow Jones & Co. and published daily in The Wall Street Journal. The industrial average is one of four securities averages computed by Dow Jones; the others are a 20-stock transportation average, an average of 15 utility stocks, and a composite averaging all of these securities. The industrial average is the most popular, and is widely quoted as an indicator of stock prices and investor confidence in the securities market.
Now, remember that this index of 30 stocks has incredible psychological power over the market; especially the “Average Joe” (I guess that may be why it’s called the Dow Jones Average) out there. When someone hears that the “market is up,” he gets mad if he sees that his own portfolio isn’t. Can you relate?
Remember that there are thousands of stocks out there. There are many indexes out there, as well. Do not become Mr. Dow Jones Average. Know where you are invested and to what memberships these investments belong, and focus on them. Focus on where your money is; not everyone else’s. Do not get me wrong: the DJIA can and will affect your portfolio because so many people focus on it, but not as much as you think.
Make Money Right Now
The great thing about Tycoon Publishing is that all of us here have our own opinions and ways of doing things. We all agree to disagree. I could not and would not try to trade or invest in a way that I am not comfortable, and neither should you. Remember that risk and reward go hand in hand, and if you are too stressed out from the way you are doing it, then you are doing something wrong.
The most successful investor of all time is Warren Buffett, and he is one of the mellowest guys that I have ever seen. If your personality is not as mellow, and you like more action (and like to trade more), then perhaps you could follow a William O’Neil type (Investors Business Daily). The good thing about trading and investing is that you could make money either way. Just be comfortable with it.
I would say that I am more conservative and lean more toward a fundamental approach. It suits my personality. This does not mean that if I see an easy trade, I won’t take advantage of it.
Now, I have mentioned in the past that risk and reward go hand in hand. They pound this into your head at any quality business school. This is one of the reasons that I am telling you to buy Proctor & Gamble (PG). In the current market environment, this is an investment with a risk/reward ratio that I believe will work in your favor.
Sell Some Call Options
An investor who sells calls believes that the price of the underlying stock is going to remain stable or decline.
In this market environment, I think that you could sell some short-term covered call options on stocks that you currently own, because I believe that stocks, generally speaking, will remain stable for a bit (or will decline). The market should trade sideways for a bit.
Use this method to generate extra income during difficult and strange times. You can do it now, and it will carry less risk than during really bullish or really bearish markets. Are you with me?
Until the next time, folks, spend your hard-earned money wisely.
Related Articles: From the Editor: We Told You So?, 6 Simple Rules to Think About Before Investing Your Money, "Become the Casino" with this Simple Options Strategy
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Jason Jovine
Contributing Editor
The Tycoon Report
