Give yourself some “options” in this market

As most of you know, I haven’t been checking in on this site too frequently, because I’ve been more focused on my main site, Let’$ Talk Money, as I believe the best way to trade in the current market conditions is to do so with the protection of options, so you can put your head on the pillow every night and know your exposure to turmoil in the market is limited.

I’m no longer surprised when I stop by and read comments that some of you tried to post here while I was MIA (despite the fact I’ve mentioned numerous times on here that I block responses from being published).

This response is not directed at the majority of you who get it and ask specific questions about the best ways to go about doing your own due diligence, but rather the individuals who claim they’re frequent readers here, yet they’re still asking for “a hot tip.”

That question is so ridiculous that I have to just shake my head and laugh.

It’s a telltale sign to me that you really haven’t either read a single word I’ve written here, or you need improvement on your comprehension skills.

If you’re looking for “a hot tip” — you’ve come to the wrong place.

In fact, this is the forum where I jump atop the proverbial milk crate and preach relentlessly that there is no such thing as “a hot tip.”

The best tip you’re ever going to get from me is this — do your own due diligence.

Just as important of knowing what to buy and when to buy is knowing when to sell — and you’re not going to know that, if you don’t do your own due diligence.

I strongly encourage those of you who are prone to jump around the Web looking for hot tips to read some of my past columns explaining why you really need to do your own research on a company — and its competitors — before buying a single share of its stock.

As for those who complain that I’ve “abandoned” you in this market — you’re nuts.

I never have — and never will — hold someone’s hand as they walk up to the window to buy or sell a stock.

Let me make this crystal clear, this forum is aimed at those investors who are leery of having all their money tied up in mutual funds.

While I have some of my money in mutual funds in my retirement account — I’m not a big fan of investing in funds, as inevitably there will be one or two of its top holdings that I feel are dogs, so I’d prefer to own single stocks of companies I do want to own, rather than have to “take one for the team” of holding something I don’t want that I feel holds my fund back from performing to its full potential.

I also can’t stand the fees associated with owning mutual funds, so a word of caution is to pay close attention to whether, and how much, any loads are that you will pay for a mutual fund. Just a sidenote, is that there are certain fund managers who have a fantastic record of way out-performing the market, and it may at times be better to pay a higher load that they deserve, than to be penny-wise and pound foolish by trying to go with a no-load or low load fund where the returns are dismal.

Remember the name of this column guys – This Ain’t Your Daddy’s Market Anymore, Baby! — and that means you can no longer stick your money in some fund somewhere, pay no attention to it, and think you’re going to retire in X number of years it you’ll have all the money you put into the fund plus tons of gains waiting for you.

You have to think like a trader and know where your money is every single day.

Do you know how much money you have in your wallet, and do you pay attention to what you spend it on?

I am constantly dumbfounded by people who will go with a lower price item on the lunch menu to save themselves a buck or two — but have absolutely no idea what are the top stocks they own in a mutual fund.

They’re positively clueless.

Some think they’re actually doing good if they read their quarterly statements.

Give me a break.

I call that the “too late now” mail.

If you are monitoring your fund on a regular basis — you can switch your money into a different fund if your fund manager suddenly makes a move you don’t approve of, or if he’s not making moves when he should be.

Fire him and take your money elsewhere.

I swear that I will absolutely, positively never understand people who will drive 10 miles out of their way to pay $10 bucks less on an item closer to home — but they can’t be bothered to take two minutes while sitting in their own home and look up what their fund’s top holdings are, and make appropriate moves with hundreds of thousands of dollars in their retirement account.

I swear — it completely baffles me.

Try it sometime.

Ask a friend what the top holdings of the funds are that they have in their retirement account.

Get ready to be blown away when many times they not only don’t know what the top holdings are — but they don’t even know what funds they’re in.

If I hear one more person say to me “Oh, I just checked off that box for my age group, and the nice people who take a nice chunk of my check every week said they’ll take care of diversifying it for me.”

Ugh.

I have a zero tolerance for that type of ignorance.

And, trust me, those will be the same people who will get their quarterly fund performance notices and run around complaining that “they” (as in someone else) lost all their money.

Give me a break.

So, again, my feeling about mutual funds is they’re perfectly fine for people who just don’t know have the aptitude or patience to diversify or invest their money on their own — but owning a mutual fund is not a license to ignore what’s going on with your money — you’re still responsible for making sure the funds you select are the ones you should stick with.

Then there are the people who comment that they’ve done their research, have picked a company they want to buy, but they’re afraid to actually make the purchase because they’re absolutely terrified that the second they buy it — the whole market will take another dip and they’ll lose money.

That’s not an uncommon fair, and a legitimate one, especially in this market.

For those people I have two responses.

Are you going to be the same people who on the other side of the coin will be afraid to snap up some shares when we are in a bull market and stocks are soaring, as you’ll be afraid that you’ll be paying top dollar for a stock, and you’re afraid there will some sort of a pullback after you buy?

As my mother taught me about investing many years ago — the market is not designed to sit still — it’s always moving — sometimes higher and sometimes lower.

Would you really want to put your money into something that just sits there stagnant?

But for those who do enjoy doing their own due diligence and understandably, and legitimately, have concerns about jumping into this market buying straight stocks, I strongly advise you to start reading about other strategies for buying stocks.

A good book I’ll recommend to get you started on your learning venture is Jon Najarian’s “How I Trade Options.”

Great-great book — but, again, I don’t want you to just read that one book and think you’re ready to go primetime and start trading options on your own.

You won’t be by a far shot.

But it will hopefully give you some basic information and set you on your quest to want to learn more about this means of trading, which I think is the best way of trading in this market.

As for me, I have many of the same names on my due diligence list that I’ve mentioned before, and I’ve added a lot of tech stocks and Hewlett Packard and DuPont to the list. Again, this just means they are all on my DD list — this is not a recommendation to buy or sell any of these names.

And whatever you do, please heed the usual disclaimer: Do not base any of your investment decisions on anything you read here. Do your own due diligence, or at least do enough research to pick the right professional to do it for you.

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