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Editor's note: Stocks are near all-time highs. Longtime DailyWealth readers know that's actually a good time to buy. But many investors are worried. This week, we're sharing four classic essays to show you how to minimize your risk and maximize your stock gains – even near all-time highs. In today's edition, Steve shares...

How to Start Out in Stocks – Here at Record Highs

By Dr. Steve Sjuggerud
Monday, December 22, 2014

I just received a fantastic letter from "Pastor Mark" – a new subscriber...
 
Pastor Mark's fear is the "right" fear to have right now...
 
He is worried about buying in at this point, after the U.S. stock market has run up so much and is sitting near record highs.
 
Boiling it down, he says, "I don't really want to buy into some of the positions that have already run up so much."
 
He asked me to share "some practical insight, guidance, or suggestions on the best way to enter the positions and what positions might want to be avoided if entering in at this stage of the game."
 
Pastor Mark says he's new to investing. Fortunately, he's been "doing a lot of research and reading," which is clear from his letter. And he says he's "ready to jump in, albeit with fear and trepidation."
 
Pastor Mark, you are not alone in your worries... I am certain thousands of other folks are thinking the same things you are right now.
 
Let me focus my answers on how to start out buying now, especially with stocks at new highs...
 
1) You can ALWAYS find reasons NOT to invest... the hard part is overcoming those reasons.
 
This is one of the most important concepts you can possibly learn...
 
 
There's ALWAYS a reason NOT to invest. It's incredibly easy NOT to invest. It's much more difficult to puff your chest out, hold your head high, set your fears aside, and put your money to work.

You can always come up with an excuse to NOT put your money to work. In that essay, I said, "Nobody will fault you for not investing. Meanwhile, you won't make any money."
 
I highly recommend you go back and read that DailyWealth...
 
You will never be a massively successful investor unless you understand this concept and learn to overcome it.
 
Having said that... when stocks are at new highs:
 
2) You must play good defense, first and foremost.
 
Before putting new money to work, the first question you must answer is, how much money are you willing to lose? I am serious...
 
Most people are thinking about how much money they could potentially make, or how much they've missed out on. But you can't control either of those. But you do have some control over how much you are willing to lose...
 
For example, you could use "trailing stops" and/or stop losses. If you have $50,000 in savings, and you are not willing to lose more than $5,000 of that, then you must use 10% "stop losses" across the board. This is even more crucial after a huge run-up in stock prices. (You can read more about trailing stops and other stop losses right here.)
 
3) Don't worry about how much stocks have gone up... worry about what you are getting for your money.
 
There's no denying that U.S. stocks have gone up – a lot. But with bonds paying you next-to-nothing, and your savings account paying you even less, U.S. stocks are still a good value compared with all other financial investments. If you are worried about buying them here, read No. 1 on this list again.
 
4) Be willing to look beyond U.S. stocks.
 
I believe European stocks and emerging markets are better values than the U.S. stocks today.
 
You may wonder why I keep buying U.S. stocks when I think these other countries are better deals.
 
I think being fully diversified across all of these sectors is the way to go. We have made money sticking with the trend in U.S. stocks, and we haven't made as much in Europe and emerging markets, but we know the value is there. Our eggs are spread out over a few baskets.
 
One crucial fact here... Typically, when the U.S. sneezes, the rest of the world catches a cold. What that means is foreign stocks will likely fall if U.S. stocks fall. Don't think that because you're buying cheaper stocks outside the U.S. that you are safer.
 
In my opinion, foreign stocks have more upside potential from here, so I want to own them. But they are certainly not immune from downside risk.
 
So, to invest at new highs, at minimum, you must:
 
1.   Learn to overcome your objections.
   
2.   Play good defense.
   
3.   Don't worry about how much something is up... worry about what you're getting for your money.
    
4.   Be willing to look beyond U.S. stocks.

All of these are difficult to do... You can understand these concepts rationally. But emotionally, something happens inside that makes them difficult to implement.
 
In addition to these few thoughts for how to buy when stocks are at new highs, I highly recommend you go back and read my 10 rules for successful investors.
 
Pastor Mark, I can't give you all of the answers neatly in one little DailyWealth. Hopefully today's essay gives you some of the insights – and the confidence – to do what's right for you...
 
Good investing,
 
Steve




Further Reading:

In a follow-up essay, Steve summarized an important concept Pastor Mark had missed about investing... "It's simple in principle," he writes, "but hard to commit to in practice..." Find out what it is right here: The Secret to Making the Biggest Gains in Stocks
 
U.S. stocks recently had their worst week in more than three years – falling 3.5%. Is this a sign that this great bull market is over? Steve says "In short, no. Instead, history tells us we should buy this dip..." Get all the details here.

Market Notes


NEW HIGHS OF NOTE LAST WEEK
 
Allstate (ALL)... insurance
Berkshire Hathaway (BRK)... Warren Buffett's holding company
PNC Bank (PNC)... bank
Morgan Stanley (MS)... financial services
3M (MMM)... manufacturing
AutoZone (AZO)... car parts
Advance Auto Parts (AAP)... car parts
Home Depot (HD)... home improvement
Lowe's (LOW)... home improvement
Sherwin-Williams (SHW)... paint
Visa (V)... credit cards
Bristol-Myers Squibb (BMY)... Big Pharma
CVS Health (CVS)... pharmacy
Oracle (ORCL)... Big Cheap Tech
Altria (MO)... cigarettes
Boston Beer (SAM)... Sam Adams beer
WD-40 (WDFC)... all-purpose lubricant
Clorox (CLX)... the "basics"
Procter & Gamble (PG)... the "basics"
Sysco (SYY)... food services
Dollar General (DG)... dollar stores
Nordstrom (JWN)... luxury retail
Target (TGT)... retail
Office Depot (ODP)... office supplies
Dominion Resources (D)... utility
Consolidated Edison (ED)... utility

NEW LOWS OF NOTE LAST WEEK
 
Honda Motors (HM)... auto maker
BP (BP)... Big Oil
Exxon Mobil (XOM)... Big Oil
Hess (HES)... Big Oil
Chevron (CVX)... Big Oil
Royal Dutch Shell (RDS)... Big Oil
Cameco (CCJ)... World's largest uranium miner
IBM (IBM)... Big Cheap Tech
McDonalds (MCD)... fast food
Anadarko Petroleum (APC)... oil & gas production
Continental Resources (CLR)... oil & gas production
Transocean (RIG)... offshore drilling
Schlumberger (SLB)... oil services
Rayonier (RYN)... timber REIT
BHP Billiton (BBL)... diversified miner
Vale (VALE)... diversified miner
AngloGold Ashanti (AU)... gold miner
Barrick Gold (ABX)... gold miner
Cliffs Natural Resources (CLF)... coal miner
Wynn Resorts (WYNN)... casinos
Las Vegas Sands (LVS)... casinos
RadioShack (RSH)... electronics
SeaWorld (SEAS)... entertainment
Pandora Media (P)... social media

premium teaser

Why now is a great time to invest in stocks...
 
Last week, the S&P 500 was down as much as 5% from its December 5 high. That's enough to scare most investors...
 

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