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If you sit on Twitter long enough (especially Stocktwits) you will see a message like this: “I think XXXX company is great because their new widget is awesome and it is going to shake up the industry.” So the question is out there, should you invest in the company based on this amazing new product?

Probably not!

  1. One cool product does not make a great company. It takes many products over a series of years to make a company that you can be confident will be a long-term hold. Great companies consistently offer good products to their customers and create ways to keep and attract customers over a long cycle.
  2. While there is some bounce on new good news, typically this is just a bounce. It doesn’t last. If you are a day-trader then you may want to take advantage of these “news bounces” but if you want to hold a security for some time, you need more than just a single new cool product.
  3. You are probably late.  Most companies have the majority of their stock held by institutional investors. If this new product was that significant then they have already factored this news into their holdings. Major investment firms do not wake up in the morning, read Engadget, and then decide to buy a company. If this new product was that significant then they were slowly accumulating the stock in advance of the introduction and they were doing it by listening to the company’s statements of direction in their annual meetings, quarterly calls, and analyst updates.
  4. You are swimming against the tide. As I pointed out in 3, most of the stock of many companies is with institutional investors. They aren’t going to buy the inflated price from a product bubble, they will wait until the excitement is over to continue to accumulate. That means the only people you are going to sell your stock to are the fools that also listened to the new product fervor and are late to the game (so they have made a 2nd mistake by being late).
  5. You may be wrong! How many great products have been introduced that simply didn’t live up to the hype? Even great companies will sometimes release a dud product.

Let me give you a great example.  Arguably, the iPhone from Apple is the most significant cell phone ever released to the market. It only operates on the AT&T [stckqut]ATT[/stckqut] network so a few weeks before the introduction of the iPhone in June of 2007, you could have surmised that AT&T stock was going to boom.  Didn’t happen, on May 31, 2007 the stock closed at $24.82. Yesterday, the stock closed at $26.26 – not even 10% growth. Yes, I know that AT&T put out some dividends in that time but those didn’t increase in size either – on April 27, 2007 AT&T gave out a dividend of $.412 and on April 28, 2010 they did a dividend of $.398 (all prices per Yahoo Finance).

On the flip side, Apple [stckqut]AAPL[/stckqut] had a significant rise in stock price but Apple makes a lot of great products and their customers love the company. Apple is a Good Company on my ranking scale, AT&T is not.

Market timing is fine for buying stocks but you should limit yourself to momentum indicators and overbought indicators on Good Companies (see the Watch List on the right side of this site). Don’t try to market time based on product introduction hype.

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A core component of accumulating wealth with investments is to acknowledge that you must give back to society. I strongly urge everyone that I advise that they should give 10% of their earnings to charity. I do not care if it is to United Way, your church/synagogue, or some other charity that you feel strongly about.

When you invest, you are using your mind to create a profit for you. You are analyzing the psychology of the world to take advantage of an opportunity to grow your income. By the very fact that you are blessed with extra cash to invest and the mental awareness and acuity to realize market opportunities, you owe it your fellow man to be generous to others.

I do not feel this is a religious conversation. It is a matter of being blessed and therefore helping out others that are not so blessed.

I am embarrassed and disappointed that US Vice President Joe Biden has elected to give away so little of his income. He donated under $4,000 to various charities (none very significantly) and gave away some old clothes to Goodwill.  Mr. Biden donated a measly 1.5% to those less fortunate than himself.

I do not feel that this is good leadership nor adequate understanding. This is very disappointing.

I will not comment on Mr. Biden’s poor income from his investments. As a Senator and now a Vice President, he probably should not actively trade stocks the way I advise others to do.

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BusinessInsider.com has an interesting analysis that says that we would could be in for a correction.  I am not sure that I agree but it is hard to argue with the metrics.

If you continue to follow the practice of investing in solid companies and making sure that you are sitting on the sidelines when the market turns against your stock pick, you should be fine.  In fact you may thrive!

90 Years Of History Suggests A Move Like This One Is Followed By A Market Bust

Based on data going back 90 years, whenever the 12-month rate of change (ROC) in the Dow Jones Industrials Average has exceeded 40 percent, it has generally signaled trouble ahead.

In three cases, a 12-month ROC above that level has only marked a short-term pause, after which the market traded higher.

But on 11 other occasions, similarly rapid advances have been followed by notable corrections, including the collapses that followed the 1929 and dot-com era peaks, as well as the 1987 crash.

Given those odds, increasingly exuberant bulls might want to have a rethink.

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The Supreme Court rejected a controversial lower-court decision that
would have severely limited investors’ ability to sue mutual-fund firms
over the fees they charge.

In a widely watched case, the court ruled that a lower court went too
far in deciding mutual-fund managers can’t be held liable for charging
excessive fees unless there is fraud involved.

The justices instead kept in place a standard long used by other
federal courts to evaluate lawsuits that claim fund fees are excessive.
That standard favors the industry and is difficult for investors to
overcome, but gives judges some room to scrutinize the fee-setting
process even in the absence of fraud.