Over decades, we have made our money in stocks by identifying companies that are expanding earnings due to a catalyst such as a new Chief Executive Officer (CEO) or new product(s), or changes in the company’s market …   We say that understanding the specific catalyst occurring at the company is knowing the “story” about the company, and we use our S.I.M.P.L.E. Company Analyzer that we have built to quantify and measure the story and other key investment components, before we decide to make our investment.

Just because we have identified an interesting story, doesn’t mean that we immediately buy shares of the company.  One of the key components of a good stock investment is placing the investment when the background market is suitable for investing in stocks.  There are times when the market is NOT good for putting money to work.  It’s like making money as a fisherman.  The fish may be out there, but the ocean may be too dangerous or treacherous for putting your fishing boat to sea.

For example, in mid 2008, things were going very well for Apple, Inc., but the background market was bad enough that even the shares of Apple, Inc. dropped from $200 to approx. $80 / share in 2009.  Once the market turned around, the shares increased to over $700 / share (pre-split).  That’s right.  The shares increased from $80 / share to over $700/share. The emphasis here is that the background market needed to be suitable for investing in stocks.

Therefore, just like a fisherman keeps a close eye on the sea, we always keep a close eye on the background market.

The chart below shows the shares of the “DXD”, which is the Pro-Shares Inverse DOW Fund.  When we say “inverse” we say that the shares of this investment vehicle increase in value, when the Dow Jones Industrial Average decreases in value.  In fact, this fund is designed to increase or decrease in value at a rate of two to one.

A few blog posts ago, we mentioned this DXD tool as one possible way to buy shares that increase in value when the background market – in this case, the DOW Jones Industrials, decreases in value.

Don’t let us confuse you.  It is VERY important to remember that our primary focus and success is in buying stocks of companies that are increasing earnings due to a catalytic change at the company or in its market, and making the purchase when the background market is safe for investing.  We have often waited for the background market to improve (sometimes 6 months or longer), before putting money to work.  So observing shares of the DXD in anticipation that the market is going down is a derivative of us monitoring the market and NOT applying our S.I.M.P.L.E. Stock Investing System.  This is an advanced investing idea, with many more risks than applying our system that lines up 6 key components, which when all line up, often leads to a great investment.

Sometimes, the markets DO decrease in value ahead of uncertainty (like a particularly uncertain national election) as investors lock in gains from a long run-up in the market, both of which we have in place with this market.  Maybe this will happen, in combination with the old adage “Sell in May and go away (from the market)”.  Time will tell!  Meanwhile, we will be continuing to use our S.I.M.P.L.E. Stock Investing Method to identify new, excellent company growth opportunities to invest in when the market is “right”.

On to successful investing.