The Alchemist: What to Buy Now

Posted in Money Matters on November 24, 2002

The following is this week’s installment of The Alchemist, a column by Mensan Al Thomas, author of If It Doesn’t Go Up, Don’t Buy It. Click ‘Read More’ below for this week’s article, “What to Buy Now.”

The Alchemist: What to Buy Now

by Al Thomas


The stock market seems to have bottomed out on October 8 and has
been going up since then. It looks good. I’ll bet you have been thinking
about getting back in. You may have been spooked by the drop for the past 3
years and your broker has told you the market always comes back. What should
anyone buy now?


Most investors, brokers and financial planners have thought they
were financial geniuses during the 1990s, but have had their head handed to
them.


One of the things I learned over the past 30 years is that the
trend is your friend. If you invest with the major trend you will be safe,
not sorry. During the 90s the trend was up and it was hard to make a
mistake. You did not need a broker. A dartboard would have given similar
results. Now that the trend has changed you must realign your thinking to be
in step with your friend – the trend.


It is difficult to see the forest when you are standing too
close to the trees. You must step WAY back to have a proper overview. When
you walk back up the hill the view IS different. The recent low of October 8
can be seen as well as the current upward move, but what you can now see
very clearly is the major trend is DOWN. So what do you buy here?
The answer is very simple – NOTHING. Unless you are willing to be a
short-term trader.


The most important thing about investing is not to lose money.
Safety is your first concern. It seems right now that the best place for
your hard-earned money is in bonds or a money market fund. Most people don’t
realize that there are hundreds of no-load bond mutual funds that you can
buy in $1,000 increments or less at a discount broker. That means no
commission when you buy or sell and your money is always 100% accessible any
time you need it.


With the major down trend in place you will want to sell those
poor performing stocks and mutual funds and replace them with some safe
no-load bond funds when this intermediate rally ends. You will not be able
to do this if you are with a full-service broker, as they will only have
funds that have a nice fat commission.


It takes a long time for a trend to change, but you can see it
when it does. The indicator you can find is the Mutual Fund Index published
every day in Investor’s Business Daily. There is a 200-day moving average on
this chart. When the index is below that line you should be out of the
market and when it is above that line you can be a buyer of equities.


What to buy now? Only no-load mutual funds that are moving up
during the last 45 days or if you own stocks and funds wait for this upward
move to complete and then sell. Safety first!


Copyright Albert W. Thomas. All rights reserved. Author of “If It Doesn’t Go Up, Don’t Buy It!” www.mutualfundmagic.com. Comments to al@mutualfundmagic.com.