Or, I should say, "he's" coming.
Warren Buffett? No.
Bill Gross? No.
I am referring to Dick Clark.
He's on his way. He will be hosting, again, the annual ball-drop on
Times Square -- for the 435th year -- in just a few short weeks.
And you know what that means.
It's time to set some New Year's resolutions.
From an investment standpoint -- the "macro" view -- I always find
myself wondering the degree to which these annual promises are
harmful to companies like cigarette maker
, booze purveyor
and houses of goodness and calories like
Starbucks (Nasdaq: SBUX)
. Happily, most New Year's resolutions are resolutely abandoned
until Lent, and any promises made then last only six weeks, hardly
enough time to scuttle any fragile recovery that has emerged.
The other investment perspective, the micro, that is, "you,"
introduces several other resolution possibilities. Will this be the
year you finally learn to read a balance sheet? The annum in which
you actually read those proxy statements and vote in shareholder
elections? The year in which you decide to seek the best returns
possible and subscribe to my
Shameless, I know. Just shameless.
Here are three other suggestions that you might want to consider.
All are relatively painless. All will help you build your
One: Resolve to invest in small amounts.
I've been meaning to write a piece about how procrastination is the
biggest sin among investors, but I haven't gotten around to it.
[Pause for laughter.]
But it's true. Far too many investors wait until they have enough
money to invest. That's like waiting until you have enough money to
have children. No matter how much you have, it will never be
And yet it is possible, cost-effective and even easy to invest
modest sums. The easiest way to do this is through dividend
reinvestment or direct stock purchase plans. These plans, sponsored
by the companies themselves and administered by the transfer agent
charged with looking after the company's ownership, carry extremely
low fees and allow participants to invest as little as $50 at a
time. Most public companies make these plans available.
There are two ways to use them.
The first is to allocate a recurring monthly withdrawal from a
checking account. On a given day each month, the plan scoops a set
amount from your checking account and uses it to buy shares of
stock. (Sometimes fractions of shares, so all of your money is put
to use.) This method of investing is called dollar-cost averaging.
The idea is that you buy throughout the year, buying some shares at
a low price and others at a slightly higher price. This reduces the
risk that you will mistime the market and buy at the wrong moment.
The other way to use these plans is to open the account with the
small required investment, typically about $250, sometimes lower,
sometimes higher, and then wait to buy until the shares hit your
target price. When they do, you invest the money you have
ostensibly been setting aside each month. If it rises above your
buy price, you let your shares sit and wait to buy additional stock
when favorable circumstances present themselves.
Either way, a direct stock purchase plan or dividend reinvestment
) is a long-term investment of the tortoise school. If you
agree that slow and steady wins the race, then this might be a good
resolution for you to consider. (The DRIP strategy has certainly
paid off for my boss Paul Tracy. He's now pulling in about $85
a day in dividends alone -- well on his way to $100 a day. See what
other "daily paycheck" tricks he's using to get there.) You can
check out a variety of these plans at computershare.com and at Bank
of New York-Mellon.
Two: Resolve to take profits.
My friend and StreetAuthority colleague Amy Calistri started
playing poker to improve her sell-side discipline. In other words,
she picked up the game to learn when to fold 'em. (She became one
of the best poker writers in the business in the process and has,
in fact, just published a book about one of her big-winning
Now, I'm not necessarily suggesting you need to take up poker like
Amy did, but learning how to deal with losses is the critical
difference between a good investor and a great investor. It's also
the difference between a rich investor and a poor one.
In the upcoming year, resolve to invest with the words of Sun Tzu's
"The Art of War" in mind: "Every battle is won or lost before it is
ever fought." To that end, you need to develop a mental strategy
for victory and an exit plan in case of defeat. Wise investors set
price targets and sell stocks that hit them. They take profits off
the table and reallocate them to the next opportunity. Rinse and
On the flip side, smart traders don't hang onto losers because
they're too proud or afraid to admit a mistake. Don't marry your
stocks and vow to be faithful for richer or poorer. That's a great
way to run a marriage but a lousy way to manage a portfolio. If
your stocks hit your sell price, then get rid of them. Simple as
that. Then deal yourself another hand.
This year, don't buy any stock with an indefinite future. Knowing
where you're going is the surest way to get there.
Three: Resolve to rebalance your portfolio.
Investors who survived the collapse in 2008 have seen some of their
wealth return in 2009. That doesn't mean, however, that their
portfolios are in good shape.
As 2010 dawns, resolve to take a serious look at your holdings with
an eye toward your risk tolerance and your time horizon. Are you
overweight growth-oriented equities and short income-producing
stocks? Should you be oriented toward aggressive growth to the
degree that you are? Where will your portfolio be in five years
given its current makeup?
It's worthwhile to seek diversity across a number of industries and
to further manage your risk by allocating assets to different
geographic regions. Most investors are far too concentrated in
dollars. Most investors are far too heavily allocated to equities.
The good news is that these are easy fixes. Foreign markets and
corporate bonds are more accessible and easier to invest in than
ever before using exchange-traded funds. (You can always stay up to
date on the ETF space by checking out the research from Nathan
Slaughter, the editor of
The ETF Authority.
) These investments, available through your existing brokerage
account, can provide a one-click method of achieving the
appropriate level of diversification, and at far lower cost than
other alternatives, like mutual funds.
As the end of the year approaches, investments may be the last
thing on your mind while you juggle holiday commitments. Once the
calendar turns over to the New Year, indeed, to the new decade,
promise yourself that you will resolve to have a profitable 2010.
Best of luck.
Editor, Government-Driven Investing
Disclosure: Andy Obermueller does not own shares of any security
mentioned in this article.
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