How to Deal With the Current Stock Market
The stock-market collapse and subsequent market dips that started back in October 2008 have caused investors to reevaluate how they invest in stocks. Understanding how the market has impacted your personal investments is the first step towards determining investment strategies moving forward. You need to understand how the market changed and what ways you can be a more-involved investor.
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Instructions
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Review your current stock investments. List the current prices of the stocks you have and compare that to the initial purchase price. Make a list of your best and worst performing stocks over the last 18 to 24 months. Note when your holdings dropped and note what the state of the overall market was during those dips. Search for large economic or social events that occurred during downswings and compare to determine whether larger, macroeconomic events impacted share prices.
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Make a list of companies and stocks that you have an interest in. List the current prices of the stocks and research the one and three-year high and low prices for all stocks. Calculate where the current price falls in terms of the highest and lowest trading price for each stock. Research the business model for the stocks you are interested in purchasing. Note whether the business engages in global business activity or is solely a domestic operation. Recognize that global business endeavors are more susceptible to market fluctuations due to instability in world markets. For example, if a business has a large customer base in Greece, that stock would have recognized a drop in business based on the financial crisis in Greece that started in early 2010. You must understand global economic implications in the current stock market to determine which markets and individual stocks will rise and fall based on external influences.
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Determine the amount you have available for additional investing. Calculate how much money you can comfortably afford to invest in the stock market. Calculate trading fees in to your equation to arrive at a total available amount for investing in additional stocks. Determine the amount of money that you can afford to tie up in stocks. Understand and learn how to quickly buy and sell stocks. The historical preference of holding on to stock for long-term growth and dividend income potential is not as clear as it was pre-2008. Make adjustments to allocations for stock purchases to reflect the potential for reduced dividend and capital gains over time.
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Purchase shares of additional stocks and sell existing holdings of stocks that have been performing poorly. Make all trades and update your stock portfolio to reflect all changes. Print out the list of holdings and highlight the stocks where you have the most money invested. Verify that your asset allocation mix is providing a return on investment. Current stock market conditions and fluctuations mean that stock holdings vacillate more than in the past. For example, the 30 large companies that make up the Dow Jones Industrial Average dipped to a five-year low on March 2, 2009, even lower than the level reached after the average collapsed in October of 2008.
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Make a schedule to check on the performance of your major holdings. Check stock prices once every week and make notes about stock price performance. Compare all holdings to determine which stocks are going up or down in value. Hold stocks that are maintaining or gaining in value and reduce holdings in stocks that are consistently trending downwards. Because of the volatility and uncertainty of the current market, buying and holding shares of solid companies for years may no longer be the best strategy. Examine your holdings and the economic climate at least weekly to determine whether to continue holding or to sell.
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Compare individual stocks in your portfolio to similar stocks in the same industry. For example, if you have an investment in a fast-food restaurant, check stock prices and performance for other fast food and quick service restaurants to see how that market segment is performing as a whole.
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Make additional trades as necessary based on the tracking and monitoring of your stocks that you have been doing. Keep in mind that stock prices fluctuate, and can rise or fall quickly in today's market environment. Pay attention and monitor the entire stock market and do not make decisions to buy or sell based on events of one day.
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Tips & Warnings
Keep lists and notes about stocks you own and markets that the stocks are in.
Although some stocks are safer than others, all equities are subject to the kind of market risk that pulled down the market in late 2008.
References
- Photo Credit Stock Market image by Paul Heasman from Fotolia.com
