NEW YORK (TheStreet) -- The big questions that I hear people ask about the market right are rooted in investor regret -- most were underinvested during the last four months. If they traditionally had 50% of their investible assets in the stock market, they often had cut their exposure in half or had an even larger percentage in cash and treasuries.
That's understandable -- investor appetite for risk had reached historic lows in March and no analysts were in their wildest dreams expecting the 43% rise from the lows in the
we have seen.
My readers were much better invested than most of the public in this latest run-up, but I had advised an extremely conservative portfolio of dividend-producing consumer staple and non-cyclical names. While we did well and have banked some healthy profits, many of these names far underperformed the general indices, particularly technology where I was grossly underinvested.
Everyone has regrets in how they've handled the markets recently.
So how do we play it from here?
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There are three investor profiles we need to look at:
1. The investor who is fully but conservatively invested -- like me.
2. The investor who has less exposure than he or she "normally" does.
3. The investor still mostly in cash.
For all three, one difficult but critical word applies: Discipline.
You must map out a plan and stick to it. Discipline in investing and trading is the most important and most difficult attribute to have, but it has always set the great investor apart from the common one.
I'll start with my discipline as it applies to investor profile number one. I invested fully but with very conservative names. My reasoning was simple: I believed in the U.S. economy and saw terrific value in stocks, but wasn't sure (and still am not entirely sure) whether we had turned the corner in our economic woes.
Defensive stocks gave me the power to invest but also the safety of dividends. As the market has moved up, I've captured some of these gains, but I'm not about to change my discipline now and do wide-scale sector-swapping, trying to capture quick moving gains in technology or other areas. I will stick with these names for the rest of the year and look for opportunities to buy more.
For the person who is less invested than he or she traditionally is and is looking for more exposure, your discipline is to avoid reaching. You need to map a strategy for the stocks you are interested in and find target prices, where you are willing to risk capital and stick to those prices.
I have a list I keep of stocks that I'm interested in owning at certain prices and force myself to follow this list and these prices. I allow myself the luxury of looking at this list every few weeks, never more often, and I make a case for
not changing anything
. Sticking with the plan is always paramount.
The list I have right now is long but also contains these widely held stocks with specific target prices:
Johnson & Johnson
This is just
list -- based on my cash position and my ideas of value. Yours should be far different. I may never get the opportunity to buy any of these stocks at these prices again, but on the other hand I bought and have many of these stocks at even better levels based on previous lists I had made in the last year and a half.
For our third profile, those investors who are all or mostly in cash, you have the most difficult discipline of all -- buying stocks now.
The inclination will be to abstain from investing -- you figure you have missed all the opportunities to buy stocks at great prices and cannot bear to buy anything now. You must hold your nose and get in, even if you feel much of the value is gone.
If you normally have 50% of your portfolio in stocks, my suggestion is make a mechanical buy strategy to purchase at least 25% of your portfolio in five successive Mondays of 5% each. Don't try to time your baseline portfolio holdings; it's too difficult. Without a baseline, you cannot invest wisely and with the discipline of our other two investor profiles.
That's it -- a simple plan to follow for the rest of the year. It's a plan common to the best traders and investors but requires discipline. Stick with it and whether you win, lose or draw, you'll never be able to blame your plan and your discipline -- and you more than likely will have fantastic results.
-- written by Dan Dicker in New York.
At the time of publication, Dicker was long Colgate, Johnson & Johnson, JPMorgan, Apple and Chevron but positions can change at any time.
Dan Dicker has been a floor trader at the New York Mercantile Exchange with more than 20 years' experience. He is a licensed commodities trade adviser. Dan's recognized energy market expertise includes active trading in crude oil, natural gas, unleaded gasoline and heating oil futures contracts; fundamental analysis including supply and demand statistics (DOE, EIA), CFTC trade reportage, volume and open interest; technical analysis including trend analysis, stochastics, Bollinger Bands, Elliot Wave theory, bar and tick charting and Japanese candlesticks; and trading expertise in outright, intermarket and intramarket spreads and cracks.
Dan also designed and supervised the introduction of the new Nymex PJM electricity futures contract, launched in April 2003, which cleared more than 600,000 contracts last year alone. Its launch has been the basis of Nymex's resurgence in the clearing of power market contracts over the last three years.
Dan Dicker has appeared as an energy analyst since 2002 with all the major financial news networks. He has lent his expertise in hundreds of live radio and television broadcasts as an analyst of the oil markets on CNBC, Bloomberg US and UK and CNNfn. Dan is the author of many energy articles published in Nymex and other trade journals.
Dan obtained a bachelor of arts degree from the State University of New York at Stony Brook in 1982.