December 6, 2011 | In: General

Investment Strategies for 2012

It’s that time of the year again, where many investors start evaluating their lessons learned in the stock market in 2011 and start start planning their investment strategies for 2012.

Well, I have made the job of these investors easier, by recommending the following investment strategies:

  • Buy stocks in early January and sell in mid February: This holds true especially for stocks that lost quite a bit of their value back in 2011. Here’s the logic: when small investors lose money on their stocks, they tend to sell them in December (causing the stocks to retreat), and then they tend to buy them back in January (causing an increase in the stocks’ prices). The buying spree will continue until mid February. This phenomenon is called the January Effect, and is well know in the stock market for decades now.

  • Avoid real estate worldwide throughout the year: Real estate is heading nowhere but down, and that’s worldwide (before it was only a US problem). A lot of credit crunches will happen in many developing and developed countries (that weren’t affected by the first credit crunch). Buying real estate as an investment in 2012 would be madness.

  • Avoid banks stocks: I’ve mentioned several times before that what’s happening in Europe is only the tip of the iceberg. Look at what happened so far and this is all because one of the smallest economies in the EU (Greece). The other PIIGS are still hiding the fact that no matter what they do, their economy is toast. Banks, due to their nature, have international exposure, and they will be affected by what’s going on there. Not to mention that US banks also have problems of their own, including a mounting pressure from the public and the congress.

  • Avoid the Euro like the plague: The Euro is not a permanent currency. It will fall. Every single person living in Europe now hates the Euro. What did it bring other than pain and sorrow to Europeans (on all fences)? Sure it brought joy the first few years, but when the jig was up, all that joy turned into pain. The Euro will collapse in a couple of years, and every country will go back to its own national currency (I think the Euro was a perfect example on how unified currencies are more of a problem than a solution). The Euro is back now to its 2007 price vs the US Dollar. See the chart below:

    Figure 1 Euro vs the US Dollar: 5 year chart (from 2007 to 2011)

    Where do you think the Euro will be next year by looking at the above chart? Figured so!

  • Put your trust in the USD: The USD, the currency that everyone (with the exception of me) was badmouthing for years now, has proven itself as the currency that everyone should trust. Everyone is now buying the USD, and will continue buying it in the next year as well.

  • Avoid gold: Gold may still go up for the first few months in 2012, but will definitely go down afterwards. What people are forgetting is that most of the currencies worldwide are pegged, in one way or another, to the USD, and not to gold. I should probably write a separate post explaining this! Gold is dangerous and the price of the gold ounce may be halved next year.

  • Avoid Chinese stocks: Not only because most Chinese stocks are dangerous (read scammy), but because the whole Chinese economy will slowdown (and that’s according to the Chinese themselves). This will have a catastrophic effect on Chinese stocks. BIDU should be particularly avoided (it’s highly overpriced at the current price of $131.17 – P/E ratio is over 50 – compare that to Google that has a more reasonable P/E ratio of 21).

  • Avoid the Facebook IPO: Don’t think that you’ll be doing the smart thing by buying Facebook shares at IPO. In fact, that you would be the stupid thing to do. What if people don’t like Facebook anymore? Have you ever thought of that? Note that I evaluated Facebook at almost $100 billion myself (well $85 billion to be exact) long before it was officially evaluated at a $100 billion.

  • Stay away from companies that don’t care about their customers: A perfect example of these companies is Netflix. These people increased their prices (for no reason at all other than they felt they can get away with it). Look at their stock right now. It’s less than 25% of what it used to be back in July 2011. I have warned many times about Netflix and I have said that the real value of NFLX is $40.

  • Do not follow the big guys: Warren Buffet probably made the worst investment of his life this year, and that probably translated into the worst investment in the life of many other investors as they followed suit by buying BAC (at probably double the current price). Yes, he’s rarely wrong, but he was wrong.

  • Use contrarian investing: When all the analysts are telling you to sell, sell, sell, then buy, buy, buy (and vice versa). Have you ever thought that these analysts are probably telling you to buy when they (or the big guys) want to sell and they want you to sell when they want to buy?

  • Trade indexes: There’s nothing safer and more fun than trading indexes. They’re very predictable and you can make a lot of money with them. Doomsayers will tell you that it’s the wrong thing to do, but take a look the S&P, was it up for the year or not? Just don’t buy when everyone is buying and don’t sell when everyone is selling and you’ll be OK.

  • Ensure that your portfolio is diversified: Invest in many industries and many stocks. This will protect your investment and will ensure a balanced ROI by the end of 2012.

  • Don’t look back: What was lost in 2011 is lost forever. It’s no use crying over spilled milk. You will wear down your nerves and that will have a deteriorating effect on your health. Oh, and by the way, don’t forget to exercise.

  • Trust companies that have performed well in bad times: There are many companies that have performed very well in bad times, and that were little affected by what happened. These companies include McDonald’s, IBM, and Oracle.

  • Don’t believe the doomsayers: Doomsayers keep on saying that there will be a double dip. Don’t believe that, the worst has already passed and the days to come are definitely better. Except for banks, of course.

  • Focus on pharmaceuticals: 2011 was supposedly the year of the pharmaceuticals, but for some reason, it wasn’t. 2012 will be, because people in developing nations are nowadays spending more money on their health. Pfizer and other pharmaceuticals are definitely a buy.

If you have more investment strategies for 2012, then please share them here!

1 Response to Investment Strategies for 2012

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Worst Stocks to Buy in 2012 « Fadi El-Eter

January 2nd, 2012 at 4:51 pm

[...] my article, investment strategies for 2012, I took a glimpse at which stocks should be avoided in 2012. This article will be much more [...]

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