Tuesday
Jan242012
4 Trends Not to Forget About For Investing in 2012
Tuesday, January 24, 2012 at 9:27AM Here Are 4 Trends Not to Forget About For Investing in 2012
2012 is here and as is the case with the dawning of any new year, investors take a look back at what worked and make plans for the coming year. 2011 will be a year to forget for European investment markets as a whole but some investors still managed to come out ahead. Will 2012 bring more of the same and how should we prepare for a year that already has investors understandably nervous?
1. Dividends Will Work
It has been such a common theme that we’re tired of hearing it. We should all have a portfolio of dividend paying stocks that guarantee us income even when the market is severely challenged. We heard this advice all year and it worked.
Not only were investors looking for sources of income when their growth strategies broke down, but as money poured in to these defensive names many of these stocks went from boring income names to more exciting growth names. Watching dividends enter our accounts is about as thrilling as watching paint dry but as Europe weakened, dividend stocks strengthened.
Don’t expect that to change. Until the European debt crisis is a distant memory, low beta, high dividend names will continue to work.
2. Don’t Try to Make Money
Sometimes we play defense and sometimes we play offense and 2011 was a year for defense. Making money took a back seat to trying to preserve capital. We were happy if we minimized our losses and we were elated to see any returns that were green in color. 2012 isn’t setting up to be a year of offense.
Once again, investors will start the year in a defensive position and hope that the latter part of 2012 may turn around but until then, greed will take a back seat to fear.
3. But we’ll Look for Opportunities
Just because we’re thinking defensively in our trades doesn’t mean we won’t jump at the chance to make some exciting long term investments. Challenging markets aren’t fun but for long term investors, severely discounted, high quality companies are as good as gold. Taking a long term position in a company that has seen a 30% or more decline because of the overall market is a sale not to be missed.
Not only does that set up a fantastic growth opportunity but it also increases the dividend yield.
Profitable investors know that there is little money to be made when you trade with the masses. The stock market is already on sale and if Europe remains under pressure the sale prices might become even better. Putting your emotions aside and buying when the market is at its weakest will eventually pay off in a big way.
4. Say No to the Banks
With the thousands of stocks on the market, there is no reason to take a chance on a sector that has proven for multiple years that it doesn’t want to perform. 2011 was a year where some of the most respected analysts continually said that banks have bottomed. They were proven wrong many times over and investors lost money. At some point in the future banks will outperform the markets. They will return to the glory they once had and the investors who buy the financials and wait will see returns that far outpace the overall market.
But we don’t know when that will be and our money will work harder for us in other sectors. Nearly every corner of the markets did better than banks and that probably won’t change any time soon.
In Conclusion, We Don’t Know What Will Happen
Although the financial media will bring us thousands of guests in 2012 who will tell us where the market is going, the truth is that they are making a prediction based largely on their opinion and biases. Nobody knows where the markets will end up at the end of 2012 or even the end of January.
What we do know is that markets will continue to be choppy and volatile. They’ll be hypersensitive to world economic news and short term trading opportunities will present themselves amidst that choppiness.
Make cash a large part of your portfolio in 2012. Not only will you have funds ready when the market presents an incredible buying opportunity but also to avoid the heavy volatility that will certainly continue.
Tim is a stock trader and freelance writer who writes reviews of the best credit cards for CreditCardCompare.com.au, an Australian comparison website where he recently wrote a related post on the rules for investing in stock. If you'd like to track his work on CreditCardCompare.com.au, follow @thecreditletter on Twitter.
Reader Comments (3)
Thanks for sharing these tips that how can we be invest our money. I found this so informative.
Awesome points. Very well said Tim. I found this article through Twitter and I'm glad I did! :)
Denver S.
Alistrol
the year 2011 was a year to capture business, this year will be used to open doors for future long-term investment where perseverance prevails in this trade and pick the fruits as well planted this year