Looking back at 2012 one word certainly comes to mind, CONSISTENCY. 2012 provided terrific opportunities with three major rallies and three corrections. The chart below shows the three rallies during 2012. In-between each rally, the media both online and offline was filled with doom and gloom. Those who follow the adage of “sell in May and go away”, should have followed “return in June for a summer bloom”.
Doom Sayers Wrong Again
In 2012 the doom sayers were wrong yet again. Some of the supposedly smartest investors claimed stocks would crash this year as they pointed to everything from death crosses, the bond index disparity, the plunge of Apple Stock and the supposed collapse of the US Dollar, as confirmation of the impending collapse of stocks in 2012.
I received hundreds of emails from investors this year, worried that another 2008 crash was getting underway. They pointed out all kinds of reasons to pull everything out of stocks.
It is important to turn down the media and the hype. Instead watch what is in front of you. Remember that market crashes are not common events but corrections in a bull market do happen and can be taken advantage of both on the downside and the rally back up. Raise cash in a pullback to put back to work in the rally back up. Forget the noise of the talking heads and media pundits as none can advise with any degree of certainty when a bear market will rise again.
Those of us who in 2012 stayed invested with consistently winning strategies, remained cautious but played the corrections and the rallies back, had a stellar year.
So what does this tell investors? That it is important to stay with the trend, remain consistent with your strategies and watch for opportunities and forget the “noise” that comes with investing. Stay focused on the bigger picture which is a continuing bull market and a Federal Reserve still pumping in billions of dollars and doing everything possible to keep interest rates at historic lows.
2012 Returns
The returns this year were among the best since 2009. The total return for my USA Portfolio was slightly more than 40%. Of that amount, 29% was from option selling, primarily Put Selling, and a handful of stock trades. The remaining balance came from my SPY PUTS Trades and the Trading For Pennies Strategy Trades. The previous year, 2011 saw a return of 26.8% and 2010 was 29.86% so it is obvious that this year was considerably better.
Three major rallies for the S&P 500 in 2012
A lot of the benefit came from staying fully invested and playing the downside as well as the rallies back. This year the large cap dividend paying stocks were spectacular performers as more investors moved into large cap dividend paying stocks. The movement of so many investors into dividend paying stocks helped support almost all of my stocks and made Put Selling a lot easier. Stocks like VISA Stock, YUM Stock, Coca Cola Stock (which did a 2 for 1 Split) and McDonalds Stock provided wonderful Put Selling opportunities this year. YUM Stock in particular returned more this year than the past 3 years combined.
Intel Stock Disappointment
The only stock that disappointed late in the year was Intel Stock which while it did not break to levels below $19.00 lost 30% and placed a number of my puts, deep in the money. I am continuing to roll my puts forward, reducing the number of puts at risk of assignment and Put Selling at lower strikes to lower myself into the stock which I will at some point accept for assignment unless it should recover. It’s a great year when only one stock disappoints!
Technical Indicators
Throughout the year my technical indicators both for my stocks and for the market direction in general worked very well. The debate on the merits of technical indicators for investing will always rage on but investors who read my website know that I follow them daily and believe strongly in technical timing of trades. All I can say is my trades, all of which are done with technical timing indicators, speak for themselves.
Apple Stock
One of the best trades this year had to be Apple Stock where my technical indicators got me into the stock through call options at the beginning of the year and on September 25 advised buying puts.
Apple Stock hurt a lot of investors this year as it plunged over 28% from $700 to almost $500. The best advice for investors in any stock is to never believe the hype. Instead stay consistent and when analysts are pushing a stock heavily as they were when Apple Stock was at $700, be wary as many times those who are pushing a stock are often unloading it on unsuspecting investors.
Don’t Marry A Stock
Don’t marry a stock. Don’t believe the buy and hold mantra but instead use stops, turn to solid options strategies and always remember to protect your profit and your original capital. Don’t fall in love with your trade. Instead realize that there are thousands of stocks to choose from. Remember that the goal of investing is to grow your portfolio. Buying a stock for a 4 percent dividend yield and watching it plunge 25 percent or more and expecting it will quickly return is harmful to the goal of growing a portfolio. Instead take profits, consider Put Selling at support levels and sell covered calls at resistance levels.
3 Key Aspects Of Successful Trading
2012 shows the value of remaining invested but cautious. When certain stocks moved too high and in my opinion were overvalued, I stopped Put Selling and moved to other stocks. When they pulled back to support, I sold puts. When they were ready for a bounce I used the Bollinger Bands Strategy Trade or a variety of other strategies to benefit from a short-term bounce.
While I love the stocks I trade against and enjoy the fun of investing, I know that the ultimate goal in any year is to stay focused, stay consistent and protect my capital from losses. Those 3 key aspects taught me a long time ago that every stock can be risky.
Always remember that earning profits, not buying and holding stocks for small dividends, is the best way to grow a portfolio.