Saturday, January 10, 2009

2008 invesment post-mortem and tips from investment gurus

Writing up some lessons learned in the brutal 2008 investment year. The DOW lost more than 30%, the NASDAQ and S&P also in the similar or more extreme ranges.
Like most of the crowd my investments performed no much better. What are the lessons learnt and some tips from investing experts which I could have applied for my 2008 investments.
1. Buy and hold might not work all the time. I mean it can if your investment horizon is beyond the bear market zone.
2. Book your losses and help your 2008 tax returns. Once can claim up to $3000 in one tax year provided the same or similar investment is not bought within 30 days. This is the wash sale rule. A strategy suggested by a blogger and the comments there in suggest to sell the fund/stock and then buy back after 30 days . Caveat is one might lose potential gain within the 30 days lost. Other choice is to buy another investment in next 30 days.
3. Investor Business Daily(IBD) suggested cutting losses greater than 8%. Lesson learned: An 8% loss takes 10% gain to make it even. This strategy would have saved me a lot in 2008.
4. Invest in certain cyclical companies - eg. Walmart during downturn. Keep a small goal for return and book profits and cut losses. I do not hold Walmart at this time.
5. Being long in bear markets is risky. If shares are bought then buy and hold will not be a good strategy.
6. Even if I would have followed the 200 day EMA then the long term entry or exit points would have established.
7. Look out for strong sectors and stocks within these sectors (Cramer & IBD).
8. "The stock market is always looking 6-12 months down the link. Present losses are already taken into account". I partially agree with this. The market direction is set this way but day to day dips could be caused due to real time news.
9. Investor Business Daily states never average down. I am not sure if I completely agree with this. Average down with a single company stock could be bad but with a fund might not not so bad.
10. And finally do a post analysis of your buys and sells (IBD) and note them on the stock charts. As Cramer puts it put 1 hr per week per stock.


Can you share your 2008 investment thoughts?

4 comments:

jj-momscashblog said...

hey Tapan, Great post. I love Cramer don't you? Sometimes he can get a little hyper (well a lot of the time lol) but he always has good advice if you can catch it all. I'm always watching with a pencil and paper trying to write down some of the stocks that he recommends and later look them up on the online. My stocks have suffered quite a bit for 08 and I was advised at the start of this mess to either hang tight or decide if I wanted to do something with them. I hung tight...not sure now if that was wise but time will tell. Do you work with Wall Street or are you a stock broker? Good postmortem and some good tips too.

Tapan said...

Hi JJ,
thanks. Yes I like Cramer on and off, though a lot of people have started to hate him lately. The advice now is buy and sell with profit or stop loss since bottom fishing could be dangerous.
Nah .. not a stock broker.. do this out of interest , that too in mathematics. Like to apply mathematics to the weird market. If you like my post please help me stumble or spread it around, thanks.
TD

income.portfolio said...

Tapan,

Very good summary post. You inspired me to write my own post-mortem for 2008. BTW is Cramer a american phenomenon? It's certainly not in india!

Regards,

Tapan said...

Thanks.Jim Cramer stars in his Mad Money show in the US.