The Iconoclast Investor

Here’s another question I received recently. Again, feel free send us any questions you have and keep checking back to see them get answered.

Question: I’ve waited patiently for a new bull market.  Once it arrives, what’s the best way to take advantage of it?  Should I become fully invested immediately?  Buy leveraged ETFs?  A mixture of both?

Answer: There is no one perfect way to play the market … but the key is to have a game plan going in.  For my part, I’m a big fan of taking things slow. I know most investors, especially if they’ve waited out much of the bear market on the sideline (as have my subscribers), are eager to get back in, and make sure they don’t “miss the boat.”

But I’ve got news for you:  Any new bull market is going to last months and years, not two or three weeks.  And my studies of the past have shown that many of the best winners don’t come off the launching pad until a few weeks after the bottom.  That is certain to be the case this time around, as the number of good-looking growth stocks capable of leading this market higher is currently tiny–I would say fewer than five.

Thus, when buy signals come, it’s best to put some money to work, and then observe.  If your stocks don’t go up, don’t buy any more.  But if the market acts well, and your new purchases get off to good starts, you can look to average up on those purchases, or add another stock or two to your portfolio.  And then go from there.

As for what to buy, that’s really a matter of personal preference.  I like to find individual stocks that can double, triple or more at the start of a new bull market.  And I run a fairly concentrated portfolio–usually no more than eight stocks.  But there’s nothing wrong with using index or sector ETFs, but the same principles apply; cut all losses short, let winners run, and only buy more if your portfolio is advancing.