Pimco founder Bill Gross said on CNBC that "buy and hold" is dead. He said stocks over the long run will no longer boast average annual returns of 6% but, instead, more like 2%. That means the Dow would be at 11,900, not 25,600, in 20 years. Looking back, the Dow was around 2,500 in 1989. If it would have gone up by an average of only 2%, we would be at 3,700 today. Oddly enough, it went up by 6%, and here we sit at 8,000. What does that mean for investors? Is Gross right? Are stocks a dead or slowly dying investment? The better question to ponder is what our "new" investment strategy should be? The answer is this: The trick is no longer just in the pick. We need to get back to basics. You can no longer purchase a stock and let it ride. Being proactive is now the name of the game. To that end, I believe many people need an investing primer. The era of turning over all your hard-earned money to money managers or mutual funds is over. Some money ought to go there. But you're in charge of your own money. The call for a new "era of personal responsibility" shouldn't only be applied to liabilities (credit card debt, mortgage debt, etc.) but also assets and investments. Here's how to go forward. Read and learn: The more you take control and monitor your investments, the better off you will be. No longer can you simply buy a stock and ignore your account statement. Investing is hard work and requires that you earn your return just like any other business venture.
Don't be afraid to trade: I'm not talking about being a day trader -- that's bad news for 99% of investors. If you make a decision to buy a particular stock, watch it, read up on it and follow trends. In other words, forget reading the funny pages. Let's take, for example, two large-cap stocks that I'm looking at buying: 1. Caterpillar ( CAT), an $85 stock a year ago, trading around $31 today, and off its recent low of $22. 2. Verizon ( VZ), a $46 stock 18 months ago, now trading at about $32, off its recent low of $23. Both these stocks are way off their highs and yield about 6% at today's price, which is good. If the economy picks up, they should both see higher levels. In fact, Caterpillar stands to benefit significantly with the infrastructure stimulus that will be spent globally. I plan on watching these two and buying on the dips. Use your broker to your advantage: There are hundreds of companies that are easy to research and understand. If you have a broker, call and bounce your ideas off him. Make him work for you, compiling research reports. If you end up buying stocks, ask your broker to keep you updated, so you can catch a buying opportunity. Conversely, if you get caught up in a big rally, you may want to take some profits off the table. Never be afraid to sell and take a profit. Diversify on a global level: Are you unsure of where to start in your portfolio? We are in a global economy and I would not be doing anybody justice if I didn't recommend that everyone should have some global exposure. I have made no bones about the fact that I like the China market above all other foreign markets. There are numerous companies that can be bought on the cheap and should show tremendous upside as China grows. Many are small- and micro-cap players. Chinese alternative energy companies I went on record with, on March 17, are: Yingli Green Energy ( YGE), Huneng Power ( HNP) and China Bio Energy ( CBEH). (I own shares of China Bio Energy.)
The secret for success in today's investing arena: take charge of your own money, do your homework and use common sense. I don't believe that investing is a dead art, just one that has a new face. Stocks are here to stay and you would be a fool not to own them. But you would be a bigger fool if you choose to close your eyes and hope for the best. Sometimes in life you tend to get out of things what you put into them.