Can we see revival of American Economy during Obama’s Presidency?

Ever Since, Mr.Obama took over the presidency of USA, the US Stock Markets saw a deep correction followed by sharp rally. But it is well below the highs of 2007. The US Stock Market Index Dow Jones Index made a high around 15000, in 2007. But it is trading around 10,500 now.

The Economy is gauged by the stock Market Indices in any country. So, if we want to know the future state of the Economy, study of Stock Indices would reveal the real picture. So, if Stock Indices behave well during his Presidency, than the Economy is going to perform well.

The Dow Jones made a high of 15000 in 2007. If the US economy performs well in his tenure, then Dow is going to move above 15000. Is it possible for Dow to move above this level? If so, then he will be recorded as one of the best performed President in USA history.

Let me examine the possibility in detail. Stock Markets behave in cycles. If you see a five rally then it will be followed by some period of correction. Normally, bearish periods are more in time than bullish periods, which means, Dow Jones has to remain in bearish mode for another 5 years.

Since Obama’s term will end in another 3 years, the chances are less for the Dow Jones to move above 15000 which in turn unlikely for the US economy to grow in the next three years.

If this happens and if Obama doesn’t get a second term, then he may go down in the history as an unpopular President of USA.

Fundamental performance of companies for the past five years

The fundamental performance of any company is the performance of their sales, net profit and etc. If it grows year by year then we can say it is growing. It can be stagnant or it can show negative growth. Some companies may show loss also.

So a company can grow positively, or it can grow negatively. Likewise, it can remain stagnant or it may show loss. The financial health of any company can be gauged by the financial performance of that company over these years.

Technical performance of the stock price may not really reflect the fundamentals. Let me discuss the fundamental performance of all the companies in the year 2008-2009. Though Stock Markets have rise all over the world in the year 2009, does it really reflect in the fundamental performance of the companies?

The performance of the companies started showing good growth since 2003 and it peaked in 2007-2008 year. In 2008-2009 period it showed negative growth in many sectors except few sectors. In 2009-2010, it has improved but not at the pace that we have seen in the last five years. To put it simple, the present growth is not as good as it seen in the past five years.
But Stock indices have rallied to 2008 levels which show that the present rally is not supported by the fundamentals. So, it is purely a technical rally in the Bear Market. One need to wait and watch for few more quarters of financial resulss before deciding about the future fundamental performance of the companies.

Cutting losses is the toughest decision to make!!!!!!!!!!

Ask any trader or an investor in the stock market or commodities market, he will say, the toughest decision he has to take is when he plans to cut his losses, if his positions goes against his way. The art of decision making is an important department in human’s life. Though decision making is the most important factor in trading, but it is been given the least importance.

For a trader to be successful, he has to be prompt and wise in taking decisions to cut his loss. If he makes a mistake in taking a decision in booking a profit, it will not affect him financially. But, if he makes a mistake in taking a decision in cutting a loss, then his capital would be wiped out partly or completely.

For a trader to take a wise decision during cutting his loss, he should plan his trade before he enters it. If he enters the trade with proper planning, then he will surely know, when to enter and when to exit.

Entry and exit are the important decisions, but, exit is the more important of these two. Even if you make a wrong entry, you will be saved by correct exit. Suppose you make a correct entry but you fails to make correct exit, then you will end up loss.

Traders who have mastered this art are the ones who are making consistent profits in speculative markets. This type of traders will be only a five percent of the total traders. The other nifty five percent traders are losers.

You decide in which type of traders you belong to.

How should be your investment portfolio?

The short term trader is meant to the people you who trades in the Derivatives Market (Futures and Options Market) in Stock Markets or Commodities Market. A trader takes a position in the market in futures or options and holds it for few days. Normally, we can see one month, two month or three months contract in the derivatives market, but we have contracts ranging from months to years.

The trader holds the positions until he makes a profit or until he cuts his losses. Not all trades end up in profits. If the trade goes against his position then he has to close it before he makes a substantial loss. Anyway, he has to close the position with profit or loss or at cost. If he feels, the underlying security move as per his expectation for the next month also, then he can carry forward the contract to next month also. Likewise, he can carry forward the position to unlimited number of months.

So a person trading in this time frame is called a short term trader. In a futures positions, he has to pay a margin to hold a futures position (whether it is short or long). In case, if the position he holding is loss, then he needs to pay the extra margin to make up the loss and also to continue to hold the position. So, there is always a risk of holding these type of positions. Unlike, holding a delivery share, holding a futures position would anytime invite margin call. If we are not prepared for that, then we have to close the position in loss, if it goes our way in the near futures.

Trading for the short term is always risky. But the profits we make in the short term is substantial. You no need to hold it for a long time. Your money will not be blocked for a long time. You can quickly use your funds.

But in the long term investments, your money will be blocked for a long time. There may a time when your money would remain idle without appreciating for years. But it is less riskier than short term positions.

I prefer any investor to invest more than seventy percent of their investments in long term and trade only twenty five percent of your investments in short term trading.

Don’t be married to a stock!!!!!!!!!!!!!!!!!

In investments, don’t marry a stock. Don’t stick to a stock all the time. Not all the stocks perform all the time. Various groups and various sectors perform at different times. Sticking to stock just because you love that stock is a waste of time in Investment.

Let me take the example of Hindustan Unilever from the Indian Stock Market and General Motors from the American Stock Markets. Hindustan Unilever is in Fast Moving Consumer Goods sector. It is a Multinational Company and excellent performing company fundamentally, till now.

The high price of Hindustan Unilever was 325 during 2000. The 2000 bull market was followed by a bear market till 2003 in all world stock markets. From there a bull market started in all world stock Markets. The Indian Bombay Stock Exchange Index , Sensex soared from 2600 to 21000 in another five years where as Hindustan Unilever traded in between 100 and 300 till 2008 and it is still now trading between this range.

If had been a fan of Hindustan unilever for it s performance and its fundamentals, then you would have invested a major portion of your investment in that stock. But for the past 9 years I would not have given a return on your investments.

Had you invested your money in Infrastructure and Reality stocks, it would have appreciated by more than 100 times in these 5 years. So don’t get married to a stock. Always every bull market is supported by a new set of Sectors. Identify it to for successful investing.