Let’s take an objective look at a gambler’s portfolio and an investor’s portfolio by asking ourselves key questions:

- Is your portfolio diversified? A gambler will have one or two “heavyweights” in their portfolio, while the investor will probably have a mix of ETFs and mutual funds in addition to cash and a diversified stock portfolio. This is not always the case. The real question is why the gambler has one or two heavyweights. Are they seeing upside and downgrading the risk involved? If so, they are gamblers, as they are essentially guessing that their one or two big plays will make some serious money for them.

- How much cash do you have? An investor will almost always have some percentage of cash on hand, even if it’s only 5 per cent of their overall portfolio. Some have as much as 50 per cent or even more! Gamblers will often put their entire portfolio to work on a select few investments. This is risky, even in a bull market, because there is to room for error—if the stocks pull back, or if the market hits a rough patch, there is no way to average down and buy more at a lower price.

- Why are you buying in? If you are making regular contributions to a fund or an ETF that you believe has the potential to grow over time, then you are an investor. If you are purchasing in the short-term (like a month, days, or even minutes) then you are making a guess as to how the market will perform. Even with all the fancy computer models, software, charts and analysis—it’s still a guess. An investor is also taking a risk, but that risk is over a much longer time horizon (like years or even decades).

Is one type of investor better than the other? Not really—many people are very good at timing the market, taking calculated risks and weighing in large positions. There are lots of gamblers out there, and many are successful. Problems usually arise when someone thinks they are an investor but behave like a gambler. It’s all about expectations. For example, if you are a successful day-trader, no amount of “investing” advice will help you change, since you are trading quickly, using the tools that you have at your disposal and (hopefully) making money doing it. There are lots of successful gamblers out there. But make sure that you know what you are doing before you start acting like one.

Today’s screenshot comes straight from myself at precisely 3:15 PM EST when the market was selling off heavily. Take note of the yellow highlighted boxes, they are all stocks hitting fresh lows on the day at that very second. The image came from one of my 19″ monitors, so click it to see the full screen view (credit due to TD Ameritrade, who is the broker I use).

(click to view, click again to zoom)

Have Your Own Screenshot to Share? Send it in!

If you have a badass image to share with the investment world , then hit that “print screen” button on your keyboard when it is happening live, and send it to me, “blain (AT) stocktradingtogo (DOT) com” with a description and I may just post it up here on the blog.

So when the market drops, many people panic and begin to sell their shares, which only lock in your losses. However, the smart long-term investor knows that the perfect time to sell their shares is… never.

You may aks, “Why buy shares at all if you are not planning on selling them?” Unless you are going to live forever, you are correct—since you can’t take it with you, obviously you are going to want to sell some shares someday! Warren Buffet, widely regarded as the world’s most successful investor, has popularized the term “buy and hold forever”. Critics are quick to point out exceptions to the mantra. For example, the Nasdaq market took a tumble in 1972 to 1974. It fell 60%. (Okay, 60% is more than a “tumble”). Critics have pointed out that it took until 1980, almost six years later, for the Nasdaq to break out.

But that’s my point: if you had sold out of your position in 1974, at the bottom, you would never have recovered your money. If you had bought and held “forever”, you would eventually have recovered your money and went on to make some pretty significant gains over the next twenty years.

Let’s take that scenario and run with it: in theory, the “buy and hold” investor would have valued the Nasdaq as a “buy” in 1972 and bought a position. Then it tanked only weeks later. But instead of jumping off of a bridge, consider this. If you considered it a “buy” in 1972, it would have been a “screaming buy” in 1974, when it was selling at 60% off regular price. So, the “buy and hold” investor would have bought more (and not sold any). By 1980, the “buy and hold” investor would be considerably up as the difference between 1974 and 1980 would be positive 60%. The 1970s guy would have averaged his way to wealth.

Remember that investing is more than just buying a chunk of stock and locking it away in your attic for thirty years. It’s continually adding to your portfolio through disciplined investing, reevaluating and monitoring. “Buy and hold” doesn’t mean “under any circumstances”, it just means a disciplined and patient approach to investing over the long run.

Most speculate it will be a quarter point, but from what we’ve seen earlier this year a half point cut cannot be ruled out completely.

What decision do you think is coming?

If you are looking to diversify your portfolio, one of the best ways to do it is to pick stocks that are geographically diversified. Canada offers one of the best industries to invest in, and it could be very attractively priced considering the sub-prime mortgage meltdown that has plagued the U.S. recently.

I am referring to Canadian bank stocks. “Financial services?!” you may cry in disbelief. However, I ask that you consider the following:

• Many Canadians have never heard of “sub-prime” mortgages before now. Many of us didn’t even know such a product existed—all Canadian mortgages are either 10% down or are backed by mortgage insurance to protect the banks. This means that the Canadian banks have very little exposure to the sub-prime crisis in the U.S, and very little chance that defaulted mortgages will financially impact Canadian banks.
• The Canadian banking industry is regulated. There are only six big banks in the entire country: TD Canada Trust, Royal Bank, CIBC, Bank of Montreal, Scotiabank, and National Bank of Canada. This industry has high barriers to entry.
• The banks are all profitable. Bank of Montreal and Royal Bank announced earnings over the past year that were so high, they have become a source of embarrassment for the company. There has been some public pressure for the banks to reduce their user fees because the bank’s earnings have been almost ridiculously high.
• Canadian banks pay a regular dividend. The earnings for the big banks are steady and somewhat predictable, and this has resulted in ever-increasing dividends over the years. Royal Bank, for example, pays a 3-4% dividend—and it’s more than doubled in the past 5 years.When a quality company’s stock is dragged down by the overall market or unrelated factors, it could be a great bargain. For many Canadians, the bank stocks form a core holding in almost every major portfolio because of their cash-generating attributes and relatively low risk. With the sub-prime mess in the U.S., Canadian big banks could be just the thing for that conservative section of your portfolio.

What does this mean for the average investor? Should uranium be considered as part of your portfolio? When I say “uranium”, just what do I mean?

The demand for the actual uranium mineral is expected to rise considerably in the next 20 years. This is due to increasing global demand, primarily from nuclear reactors. With environmentalists continually pushing for a cleaner source of energy, uranium has become seriously considered by many countries as a viable “zero emission” energy source. (The nuclear waste is another issue altogether, but nuclear energy does not create greenhouse gasses like other energy sources). China has recently announced that they plan to build about 30 new nuclear reactors over the next 15 years. What’s so attractive to uranium investors is that once the billions of dollars have been spent on the plant, the input cost of the actual uranium is a very small factor in the overall cost of the energy produced. The nuclear power plant can’t use an alternate source of fuel. It must buy uranium. And China could be on track to become biggest energy consumer in the world over the next 20 to 50 years.

There are some different ways to play uranium, but all of them have one thing in common: a very long-term focus. If you are an investor in your fifties and looking to retire in the next 2 years, look to safer and more conventional securities. However, if you have a 10-year time horizon (or longer) then you should think about jumping on board one of these plays.

1) Uranium Focused Energy Fund - This mutual fund is listed on the Toronto Stock Exchange and holds securities related to the uranium and general energy sector. It was initially offered in March 2007—right before the Uranium spot price took a huge tumble. It’s NAV (net asset value) price hovered under $10 before plunging to $6.21 in August, but it’s back to almost $8 as of November 15^th.

2) Uranium One, Inc. (TSX: UUU) – This company has mines in South Africa, Australia, Canada and the U.S. It was trading at around $26 in the summer before the spot price collapsed; it now sits at around $9.

3) Paladin Energy Ltd. (TSX: PDN) – This company operates mines in Nambia, South Africa and also Australia. The stock is very volatile, having fluxed from $5 to almost $10 over the past 12 months.

4) Uranium Participation Corporation (TSX: U) – If buying the actual uranium is more your thing, then consider UPC. This investment fund basically holds physical uranium. It’s NAV (net asset value) fluxes as it’s value increases (or decreases) in the open market.

Many of these stocks fluctuate with the actual spot price of uranium. The website www.uxc.com gives weekly updates to the market price of uranium, which could in turn affect the price of uranium companies.

In all likelihood, uranium is NOT ready to explode any time in the next 12 months. However, if you are kicking yourself for missing the last incredible run that uranium had, keep an eye on one or two of these plays as they may run again when they fall back in investor’s favor. Typically, investors will not buy stocks that have been beaten down… and then after they rise again, people shout, “if only I had bought earlier!” Remember to think long term.

Here are five guaranteed ways to screw up your portfolio, cause stress, and most importantly, not make any money. Avoid these and you are on your way to some quality long-term returns:

1) Continually trade in your portfolio every chance you get. Timing the market is very difficult. Unless you are a very experienced and / or very good day trader, this strategy often does not work. One of the problems, even if you make money, is that you are continually paying trading fees every time you pull the trigger on the trade. Even a trade at $9.95 is actually double, since you have to sell a stock and then buy a stock. Just like in the sporting world the saying goes, “Sometimes the best trade is the one you never make at all.”

2) Use investing advice in any popular magazine that showcases “hot” stocks. Once the magazine (which means the public) finds out about a really hot stock, the party is over. Magazines enjoy telling investors about great stock runs to the present, but are notoriously horrid at predicting the future.

3) Put your entire portfolio in money market, bonds and/or cash. I have more than one friend who is terrified of the stock market, frightened by real estate and one guy who’s even scared of most mutual funds! I imagine he sits around all day in his house, guarding his cash-stuffed mattress with a shotgun. He has most (if not all) of his money sitting in a money market account, getting 3 or 4 per cent interest per year. Some of it just sits in cash, earning less than 1 per cent! While it’s prudent to have cash on hand, it’s just a sitting place for your funds while in-between investments (even if it sits there for a whole year, waiting for that perfect bargain). Money market is not a great investment vehicle, because chances are that you will not even beat inflation over the course of your life with a money market account.

4) Go to a full-service broker. Maybe back in the 1960s this was a viable option, before the internet, ETFs, tons of investing blogs, magazines, newspapers and television shows all dedicated to investing. There’s no excuse to not take charge and cut out the full-service broker, who charges a substantial fee to look after your money. Don’t know anything about investing? Don’t like high-risk stocks? Don’t know where the market is headed? Buy a few balanced mutual funds (or diversified ETFs) and leave them alone.

5) Time The Market. All I can say is “good luck”. People continually try to time the market. It can be done, but none of the big investors who have made a fortune in the stock market advocate timing the market to any great extent. Besides, why lay awake at night worrying about it? Just carry a diversified portfolio (including cash) and then buy on the dips. Take advantage of a bear market by loading up. Unload a little bit and take some profits when things are going really well. There’s nothing worse and going for the home run, taking a big swing, and then missing the pitch and falling down at the plate.

As most investors should know last year was all about ethanol, and this year it seems that solar is the #1 choice as stocks like First Solar (FSLR) have had fantastic runs in 2007. Are fluorescent lamps the next big trend?

From the article:

Orion Energy Systems is offering a version of green energy that sounds rather old-fashioned: fluorescent lamps. Though you may feel like you’re under fluorescent lights all the time, in fact the tubes have traditionally been used only for ceilings lower than 15 feet or so. For big rooms — like warehouses and factory floors — they’re too dim and diffuse.

Orion, though, offers high-intensity fluorescent, or HIF, lighting. Thanks to technological fiddling, HIF is bright enough to light even humongous indoor spaces. And, like changing your round light bulb for a corkscrew one, it saves users a lot of energy.

As oil and gas prices have gone through the roof, many businesses have found HIF to be a worthy investment. Orion has installed nearly a million of them in the last nine years.

Orion Energy Systems was founded in 1996 and since its inception has installed about 970,000 lighting systems. The company has now just started to become profitable, and for the last year and a half has been cutting a positive bottom line. Competitors include Cooper Industries (CBE), Ruud Lighting, and Acuity Brands (AYT).

Other info from the article:

THE RESULTS

Revenue in the six months ended Sept. 30 — which constituted the first half of fiscal 2008 — rose 73% from a year ago to $35.1 million. Net income went from $5,000 to $1.8 million.

USE OF PROCEEDS

Orion expects to raise $64.9 million from the offering of 7.7 million shares, or $78.8 million if the underwriters exercise their options in full. It does not have specific plans for the money, but Orion says it will use it for working capital and general corporate purposes.

The stock will trade under ticker OESX, and is expected to have an offering price of $12 – $14 with its IPO date to be set anytime now. The lead underwriter is Thoms Weisel Partners.

Are you a ‘green’ investor?

Source:
Power-Saving Lighting Firm Rolls Out Next ‘Green’ IPO
Amy Reeves
Investor’s Business Daily
http://www.investors.com/editorial/IBDArticles.asp?artsec=26&issue=20071203