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To Succeed Tomorrow, Prepare Now


You can never work too hard or be too prepared when the action heats up again... those that have done the hard work in the off-season will shine when it's time to step up and play.

I write often about how traders are inundated with noise from a variety of places. Not only is the noise inconsistent, it often keeps most investors from making their own educated decisions.

Through all the noise surrounding the issues we are facing today, a prevailing question arises for most: Is this an opportunity or the start of something much worse?

It doesn't take a full-time trader to see stocks like Bank of America (BAC) off 13% from its 2006 highs, or McDonald's (MCD) rolling over, down 10% from mid-July, or even recent momentum favorites such as Apple (AAPL) taking a 17% haircut or Garmin (GRMN) plummeting over 7% in one day. While the sell-off has been sharp, the broad market as measured by the S&P remains slightly in the green, which once again bodes the question, are we backing and filling or getting ready to bust and fall?

The problem I see is that unless you have a limitless supply of capital to continue averaging down or a crystal ball telling you when we will bounce, at this point we have no idea what the future holds and committing capital is grasping onto hope.

While one could debate that we never know what the future holds and there is always a level of uncertainty involved, I for one like to have the odds a little more in my favor when I am looking to buy stocks, rather than completely grasping onto hope that I may be catching a bottom. Seeing the broad averages hold support is a basic rule for me, of which the jury is still out on, furthermore I also like to know I am adding stocks in a market that is trending higher and not lower, which is also presently up for debate.

So, assuming an investor has not been scared to do a little selling, what should we be spending our time doing while others are trying to catch a falling safe?

There will inevitably be times such as the one we are experiencing now, where we sit and do nothing. We wait out the action and preserve capital.

However, during that time it does not mean we don't work and prepare ourselves for the good times that will be coming. I remember spending endless days and nights in my youth in the backyard or barn if it the weather was terrible, working on my jump shot or dribbling skills. It was the off-season but I knew that as sure as the sun would rise the next day, the season would quickly be upon us and I would need to be at my best in order to lead the team.

While others were horsing around, I would work, preparing myself for what was ahead. When the season came, it always seemed that others scrambled to get back into shape, or work on their shot, while I was already a step ahead. It wasn't at all about being cocky, it was that I put in the hard work needed in the off-season to be prepared when it was time to step up and play.

I strongly encourage you to do the work needed now so you aren't scrambling when next season rolls around. Review those trade sheets from a few short months ago and see where you went wrong when the market was acting right. Evaluate the fallen to see which ones are really worth giving a second look, when the action settles down. Dig a bit into the fallen financials, such as Citigroup (C), Bank of America (BAC), Goldman Sachs (GS), or even Bear Sterns (BSC). Study past corrections and gain a little more perspective on how far they could fall and where you would start to wade in.

If technology does shine once the dust settles, look into which subsectors may be the best. Does it make sense to scoop up a large cap semiconductor like Broadcom (BRCM) or should you go for a little more beta with an Anadigics (ANAD)?

Consider politics and the upcoming presidential election. Surely they will be pumping alternative energy and health care. Is a First Solar (FSLR) right for you when it finds a bottom or are you more comfortable with a United Health Group (UNH)?

Furthermore, consider shedding any dead weight that you may be lugging around that is keeping you from focusing your eyes on the future. (It always floors me when we enter a new up cycle and I receive questions about some deadweight stock that was hot during last season.)

Finally, after you have done all this, do it again. You can never work too hard or be too prepared when the action heats up again, and I assure you not only will it eventually heat up, but those that have done the hard work in the off-season will shine when it's time to step up and play.
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