This financial crisis is causing a stir in the Dow 30. The Dow 30 this year is dropping a few well known company and replacing them with other.
GM is replaced by Cisco (CSCO)
Citigroup (C) is replaced by Travelers Group (TRV)
AIG was replaced by Krafts Food Inc (KFT) back in September ’08
Usually, companies that are removed from an index the stock declines a bit and of course companies that are added to an index the stock gets a nice bounce.
The way to invest has always been buy low and sell high. However simple as that sounds it’s probably one of the hardest things to do. We all heard of how the stock market is in such a turmoil these days. Everything has lost 50-60% and sometimes even more.
For me that sounds like it’s buying time. Sure, the market can go lower and even tank. Nobody knows what it will do and that’s why you have to just close your eyes and pull the trigger. I’ve been putting a little money in here and there. On Friday, I plunkered down some more and bought Citigroup. Their ticker symbol is C. According to Yahoo Finance, Citigroup stock trading range on Friday was 8.79 – 10.11 and ended the day at 9.53. I won’t tell you exactly how much I invested but I’ll tell you this – I got in on the lower end of that range. I did not do my due diligence in researching the company before buying the stock. However, I believe it’s large size can withstand the current economy and come out stronger five years from now. Let’s wait and see. I’m putting calendar reminders to revisit this in 1,3,5 years.
I can tell you what not to do in a bear market – that is sell. Why should I not sell everything and stop the bleeding? Well, first of all the saying goes “Buy low, sell high”. If you sell in a bear market you are doing the exact opposite, unless you got in long time ago at lower prices. However, I doubt most people are in that situation.
For me now is a time to average down. Averaging down is when I have shares at say $20 and now the stock is down to $10. If I buy the exact same amount of shares then my cost for all my shares of the same company is now $15 ($20+$10 = $30 /2 = $15). This way if the market recovers, which they always do, my stock has to climb back to $15 to break even and $15+ to profit, not $20 as before.
However, I would not recommend this if you don’t have the stomach for it. The stock can go down even further like say bankrupt (WAMU, Lehman). Both WAMU and Lehman Brothers were in the $40+ at the beginning of the year. In those cases you would lose all the money you invested in the company. I only average down if I believe the stock has been pushed down too far and that the stock will recover once the market picks up.
Not many people practice this because how do you put more money into something that is losing money almost everyday. My thoughts are if you believe in the company then you are buying the stock on a discount. When the fears are over the stock should rebound. Timing is almost impossible so it’s best to just buy and wait. Sometimes it could be a year, sometimes more.
Welcome to JPMorgan Chase
WAMU was siezed by the OTS September 26, 2008. The largest bank failure ever. On it’s last day the stock drop 90%, from $1.69 to 16 cents. It’s 52 week range was $36.47-0.15. The sale of WAMU to JPMorgan Chase was so quick it felt like WAMU was euthinized. If you bank with WAMU, you have nothing to worry about. All of your deposits (checking, savings, CDs) was bought by JPMorgan and is fully insured up to $100,000 per depositor. You can be more insured if you title the accounts correctly. I, myself, was never worried about my money at WAMU. I was sure if the bank did falter it would be fully insured by the FDIC. The financial market shakedown is not over. It is rumored that Wachovia is next. It’s stock is down to $8.50 from a 52-week high $52. If Wachovia can not find a suitor soon it’s fate might be the same as WAMU. If anyone is thinking about investing this might be a great time to put some money in the market. However, believe me, it’s better to buy an index fund or an ETF than to buy individual stocks. Let’s see how next week turns out for Wachovia and it’s stockholders.
