How to Make Money Investing in Stocks in Any Market

I write this with one eye on 2015 and 2016; and the other focused on how to make money

investing in stocks. And I remind myself that there are two market concepts that must be

understood and considered in order to make money investing in stocks in any market.

Nobody can always make money investing in stocks (also called equities), but those who

outperform year after year do so by applying two basic concepts. Here we will use 2015 and

2016 as an example because they promise to be challenging years. We're not talking about

finding tomorrow's glamour stocks or short-term trading here. We're talking about two

important and basic market concepts that many investors either are not aware of, or that

they overlook at their own expense.

Concept #1 refers to the cyclical nature of markets. Prices will always fluctuate, but there

are reoccurring and identifiable price trends that can either make you or break you. A trend

of rising prices is called a "bull market", and just about anybody can make money investing

in stocks in these "good" markets. The good news is that they often last for several years.

The bad news is that they are always followed (sooner or later) by a trend of falling prices

which is called a "bear market', or simply a "bad" market for most investors.

The good news is that bear markets (like the last two) sometimes last for less than two

years. The bad news is that they can be swift and brutal - creating losses of 50% or more

for investors (like in the last two bear markets). The other bad news is that very few

investors ever make money investing in stocks in a bear market. More bad news: if you lose

half your money in a bad market, you then need to double your money in the next good market

in order to simply break even.

As I look forward to 2015 and 2016, I also look back to the years 2000 and 2007. Both years

were the beginning of bear markets that followed good markets. Both created 50% losses in

less than two years and wiped out most of the profits investors earned in the preceding good

markets. As of 2015, the current bull market that started in early 2009 is almost six years

old. The stock market has again hit all-time highs. The challenge now is how to make money

investing in stocks in 2015 and beyond if a new bear market hits in 2015 or 2016.

As we move on to concept #2, note that we are not talking about how to avoid losses in a

bear market, but how to actually make money investing in stocks. You can always avoid losses

by getting out while you are ahead, or you can reduce losses by cutting your asset

allocation to stocks.

While just about everyone knows that you can make money investing in stocks when you buy

them and equities prices rise... most folks do not know that you can also bet that prices

will fall and make money if they do. This is called taking a "short" position. It's legal,

and has been going on for many years. During the Great Depression some people in the know

got filthy rich "going short"; and during the financial crisis of 2007- 2008 you could have

made big bucks betting against the market as well.

This is concept #2 and is the flip side of how markets work. The good news is that it will

be easier than ever to make this bet in 2015 and 2016. The bad news is that it's not for

everyone, because you can take significant losses if you go here and prices move UP, against

you. Actually, I've known people who are repulsed by the concept and some who even think

that it's un-American and should be illegal. That having been said, it's a fact of life and

part of the free-market system we live in.

It's never easy to make money investing in stocks by going "short" because the market trend

over the long term has been up. On the other hand, when the market goes south you won't make

money investing in stocks any other way. You'll lose it along with about 98% of investors.

The easiest way to short the market these days is to simply buy stocks called INVERSE

EXCHANGE TRADED FUNDS (ETFs). Popular examples (stock symbols) include DXD, SDS, and QID. In

order, these allow you to short the three major indexes: the Dow, the S&P 500, and the

NASDAQ.

These (and other) inverse ETFs are designed to go UP in price when the market indexes go

DOWN. In fact, if the index goes down 1% they are designed to go up 2%. If you want to try

to make money investing in stocks in a bad market, inverse ETFs are the simplest way to do

it. They can be easily bought and sold through a discount broker for about $10 per trade.

Above all else, keep the concept of bull and bear markets in mind in your endeavor to make

money investing in stocks in 2015, 2016 and well beyond. While a rising tide lifts all

boats, a falling tide can leave them dead in the water. If you are adventuresome and can

handle the risk, you now know how to make money investing in stocks when the tide goes out.

A retired financial planner, author James Leitz has an MBA (finance) and over 40 years of

investing experience. His complete investor guide for beginners, Invest Informed, teaches

everything you need to know to put your money to work. Review his book, INVEST INFORMED at

http://www.Amazon.com.

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