Investors are finally sitting back, taking a breath and looking at the market with calmer heads and realizing that it looks deeply oversold.
With this in mind, I thought I’d highlight a few more of your questions that I received in my inbox last week that were especially relevant with the current market environment.
As you know, I opened my email to your most pressing investing questions, and more than a thousand of you responded. I’m still sorting through all of your emails, but you can read my previous answers here, and below are answers to five more questions that are great topics right now:
“How is the market affected by the election cycle?”
Typically, election years are great for the market because voters are promised everything under the sun and that makes them optimistic and prone to spend. This year will be the same, but the fact that the candidates are so focused on the economy—exactly what voters want to hear about—we should see an additional boost of optimism.
In fact, there have been only three election years that suffered losses since World War II.
This isn’t to say that the market will go straight up from here—clearly there is plenty of volatility around the world. But it does give us a measure of downside protection, and any sort of summer correction that we see will be much shallower than in recent years.
“Gas prices are going down, which is great news for my wallet, but not for my oil stocks. What do you think?”
Great question. The reason why oil and commodity stocks have gone down is because of the temporary strength in the dollar that in turn was caused by the chaos in Europe and the weakness in the euro. Because oil is priced in dollars, this naturally means that the price per barrel of crude goes down as the dollar goes up.
And this is why it’s important to have a balanced portfolio. Because while oil companies may see their margins shrink, lower gas prices put more money in consumers’ pockets—and no surprise that retail sales remain strong. Right now my Buy Lists are loaded to the gills with consumer stocks, and I’ve narrowed my energy companies down to only the best-of-the-best that are able to profit in the current environment.
“Sometimes you seem much too optimistic—are you really so confident in the market?”
Well, I’m very confident in the companies that I recommend to my subscribers. Even when markets are weak, we can almost always find stocks that are succeeding by paying attention to the fundamentals and keeping calm when other investors are making knee-jerk reactions.
In addition, I’m a long-term investor. Although no one likes to experience the sell-off that we saw last week, it helps when you think of it as sale. I love to buy stocks when they’re on sale—and you should too. It gives you a great chance to pick up great stocks with stellar fundamentals and leave the panic sellers in the dust.
“How many stocks should be in a healthy portfolio?”
I like to recommend that your portfolio is diversified in at least 20+ stocks. I also recommend equally weighting our stocks by trimming our winners and dollar-cost averaging into stocks with great fundamentals that have pulled back.
Let’s say I’ve recommended a stock and I’ve told you I think it’s a great buy right now. The stock ranks an A in my exclusive Portfolio Grader stock-ranking tool
, and all the buzz on the Internet seems to be positive. But for some reason, you’ve bought this company and it has done nothing but drop for two months. Rather than blame bad Karma, you may want to dollar-cost average because the stock hasn’t shown any weakness that would prompt such declines.
If, however, my Portfolio Grader tool ranks one of your current stocks a D or and F, and everybody on Wall Street thinks the stock is a “dog with fleas,” dollar-cost averaging is probably a very bad idea.
The important thing is to stay diversified—and sometimes you can’t always do that by just trimming winners.
“After the big sell-off, what’s one of the top companies that you recommend adding while it’s on sale?”
Right now, dividend-paying blue chips are top of my list. My Blue Chip Growth Buy List has a full 23 well-balanced stocks with an average dividend yield of 2.7%.
I also have my eye on Sturm, Ruger & Company (NYSE:RGR). This has been an A-ranked stock in Portfolio Grader for the last nine months, but it got hit with some profit-taking in May after it hit an all-time high earlier this month. The stock is down nearly 30%, and although this consolidation has been a bit painful, the company is one of the best mid-cap stocks out there with a massive order backlog.
In fact, the company had to stop taking orders earlier this year just to catch up with demand. That’s a good problem for a manufacturer to have, and the company’s earnings have been stunning.
