Opportunity Investing: How To Profit When Stocks Advance, Stocks Decline, Inflation Runs Rampant, Prices Fall, Oil Prices Hit the Roof, ... and Every Time in Between

374 Pages·2006·4.71 MB·English

by  Gerald Appel

Opportunity
Investing

Opportunity
Investing
How to Profit When Stocks Advance,
Stocks Decline,
Inflation Runs Rampant,
Prices Fall,
Oil Prices Hit the Roof, . . .
and Every Time in Between
Gerald Appel
An Imprint of PEARSON EDUCATION
Upper Saddle River, NJ • New York • London • San Francisco
Toronto • Sydney • Tokyo • Singapore • Hong Kong • Cape Town
Madrid • Paris • Milan • Munich • Amsterdam
www.ftpress.com
Vice President, Editor-in-Chief: Tim Moore
Executive Editor: Jim Boyd
Editorial Assistant: Susie Abraham
Development Editor: Russ Hall
Associate Editor-in-Chief and Director of Marketing: Amy Neidlinger
Cover Designer: Alan Clements
Managing Editor: Gina Kanouse
Project Editor: Christy Hackerd
Copy Editor: Keith Cline
Indexer: Larry Sweazy
Compositor: Moore Media, Inc.
Manufacturing Buyer: Dan Uhrig
© 2007 by Pearson Education, Inc.
Publishing as FT Press
Upper Saddle River, New Jersey 07458
FT Press offers excellent discounts on this book when ordered in quantity for bulk
purchases or special sales. For more information, please contact U.S. Corporate and
Government Sales, 1-800-382-3419, [email protected] sales outside
the U.S., please contact International Sales at [email protected].
Company and product names mentioned herein are the trademarks or registered
trademarks of their respective owners.
All rights reserved. No part of this book may be reproduced, in any form or by any
means, without permission in writing from the publisher.
Printed in the United States of America
First Printing, September 2006
ISBN: 0-13-172129-1
Pearson Education LTD.
Pearson Education Australia PTY, Limited.
Pearson Education Singapore, Pte. Ltd.
Pearson Education North Asia, Ltd.
Pearson Education Canada, Ltd.
Pearson Educatión de Mexico, S.A. de C.V.
Pearson Education—Japan
Pearson Education Malaysia, Pte. Ltd.
Library of Congress Cataloging-in-Publication Data
Appel, Gerald.
Opportunity investing : how to profit when stocks advance, stocks decline, inflation
runs rampant, prices fall, oil prices hit the roof, . . . and every time in between / Gerald
Appel.
p. cm.
ISBN 0-13-172129-1 (hardback : alk. paper) 1. Investments. 2. Speculation. I. Title.
HG4521.A655 2006
332.63’2--dc22
2006009655
This book is dedicated
to my grandchildren—Emily, Caroline, and
Alexandra—and to all children across the globe.
May they grow up in an ever-better and peaceful
world.
This page intentionally left blank
C
ONTENTS
Acknowledgments xvii
Introduction: New Opportunities xix
Chapter 1: The Myth of Buy and Hold 1
Variable Rates of Return from Stocks 3
Speculative Bubbles Are Often Followed by
Years of Below-Average Investment Performance 5
The Moral of the Story—Be a Flexible,
Opportunistic Investor 6
Growth Targets—“The Magic 20” 7
Growth Target Zone 8
Active as Opposed to Passive Management of Assets 9
Diversification—A Major Key to Successful Investing 10
Geographic Diversification in the
Developing Global Economy 10
Diversifying Geographically in Foreign Bond Markets
as well as in Domestic Income Investments 12
Sector Diversification for Smoother
Performance and Risk Reduction 13
Income Investing—Time Diversification 16
Creating a Bond Time Ladder 17
Year-by-Year Management of the Bond Ladder 18
Increasing Returns from the Stock Market
while Reducing Risk 19
vii
viii OPPORTUNITYINVESTING
Useful Market Mood Indicators That You Can
Maintain and Use in Just a Few Minutes Each Week 20
Illustrations of Mood Indicators 20
Relationships of Price Movements on NASDAQ
and the New York Stock Exchange 23
How to Identify Periods When NASDAQ
Is the Stronger Market Area 25
General Suggestions 28
Chapter 2: Putting Together a Winning Portfolio 29
Which Investments Have Paid Off the Best? 30
Life May Not Be So Predictable After All 31
The Moral of the Story 31
And Perhaps Most Important 32
The Best Places to Put Your Money in Recent Decades 32
Implications for Mutual Fund Selection 33
Mutual Funds Provide Excellent
Vehicles for Your Diversification Program 34
Benefits of Using Mutual Funds for Both
Financial- and Nonfinancial-Based Investing 34
Mutual Fund Selections for All Seasons 35
Periods of Rising Interest Rates 35
Periods of Falling Interest Rates 36
A Quick and Dirty Way to Determine
Trends in Interest Rates 37
Summing Up 38
Creating and Measuring the Performance of
Well-Balanced Diversified Investment Portfolios 38
The Basic Portfolio Mix 39
Summing Up 41
Income Investing 41
Diversification Certainly Does Appear to Help the Cause! 44
Upping the Ante! Increasing Returns and Reducing Risk
through Active Management of Your Diversified Portfolio 45
CONTENTS ix
Employing Mutual Funds to Carry Out Sector
Diversification 46
The Selection of Specific Mutual Funds 47
Comparing Performance—The Diversified Portfolio,
Buy and Hold, Versus the Vanguard Standard & Poor’s
500 Index Fund 48
Rebalancing the Portfolio to Improve Returns 49
An Object in Motion Tends to Stay in Motion 49
The Basic Procedure for Rebalancing
Your Sector Portfolio 50
Year-by-Year Comparative Results 52
A Final Thought 54
Chapter 3: Selecting Mutual Funds Most
Likely to Succeed 57
Myths and Merits of Morningstar 58
A Quick and Dirty Checklist to Locate the
Best Mutual Funds 60
Expense Ratios and Portfolio Turnover—
the Lower the Better 60
No-Load Funds Are Likely to Outperform Load Funds 61
Verify That Your Brokerage House Is Giving You
the Best Deal, Not Just Upping Its Own Commission 62
As a General Rule, the Lower the Fund Volatility,
the Better 63
With Excellent Market Timing, Some Higher-Velocity
Vehicles in Your Portfolio Might Prove Advantageous 64
Continuity of Management Is Important 64
Putting Together and Maintaining a Mutual Fund
Portfolio for Long-Term, Tax-Favored Holding Periods 66
The TPS Strategy: Selecting Mutual Funds That
Qualify for the “One-in-a-Thousand Club” 66
Managing Your Buy and Hold Portfolio 73
Putting Together and Maintaining a Portfolio of Strong
Mutual Funds for Intermediate-Term Investment 74