Staying Safe In A High Risk Market

Thomas Mullooly
 


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Where do you stand at the end of the third quarter 2005? Will you be making money in your account this year? There’s only one quarter of 2005 left! The overall market averages have not done well at all! At first glance, it appears that if you own large cap growth stocks, like the well known blue chip names that dominate the Dow and the S&P 500 Index, your money may have been better off on the sidelines! Once again, another quarter has rolled by where small caps, foreign markets, technology and commodities have run the table. And these sectors continue to flash more and more buy signals, even today. It’s not too late! This is a sector driven market. Those investors with money in the right sectors will do well. Those that are “along for the ride” will find themselves waiting at the curb.

Staying Safe In A High Risk Market

There are MANY paths you can take when things start moving against you in the market. Some of the other methods involve selling calls against your individual stocks, buying inverse market funds and inverse index funds. You can also move into other types of investments, like foreign markets and commodities (as mentioned earlier, both of these areas have skyrocketed this year). You could always put money in bonds, if interest rates are in your favor. Just keep in mind that bond prices go up and down, so you will always have your principal fluctuating in bond investments. Always. One of the very simplest, and yet, one of the most important steps you can take is to do a little housecleaning. Throw out the stocks that just don’t seem to fit, or offer little hope of coming back any time soon.

Looking Backwards

Periodically, I’ll review a position backwards. That is, I will check out the trend chart and its patterns, the strength of the sector, check out the relative strength of the stock against the market and the peer group.

At that point I will step back and decide if this is something I would want to buy today. Not hold onto, but rather, buy today. You have to really love it.

Once I’ve made a decision whether I’m a buyer, only then will I look at the NAME of the stock.

Try it; you may be surprised with your decisions! You see, many times we look at the name of a stock we really like and we are pre-disposed to give it a “pass” if it is not performing. Sometimes, our sub-conscious has already made up its mind before step one!

Now, if you’d like to try this experiment on your own holdings, then email me at tom@mullooly.net and give me the names a few stocks you are concerned about. It has to be more than one stock, I need to mix them up and remove the names, so you can’t tell which chart I’m sending you first. As I mentioned before, the results may surprise you!

One strategy you won't see from us when we’re in a high risk market is doing nothing, and just “sitting out this dance. ” You've worked too hard to get where you are financially, the last thing you should do is sit idle and let the market take your profits away from you.

Reducing the chances of a loss in your account is what should be of supreme importance when the market is on shaky ground.

Thomas P. Mullooly, President of Mullooly Asset Management, LLC (http://www.mullooly.net ) has spent over twenty years in the investment industry, as a broker and as an investment advisor. Mullooly Asset Management is a fee-only registered investment advisory firm based in New Jersey, specializing in retirement plan accounts, particularly managing 401k, 403b, and deferred compensation accounts for individuals. Feel free to contact us to check out the relative strength of your portfolio by sending an email to tom@mullooly.net or visiting http://www.mullooly.net/403b-plan.html or sign up to receive the market report and tips on how you can soundly invest your money at http://www.mullooly.net .

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