Next Stock Market Crash: Liquidity, the key to a successful year!

By Joshua Robbins

Not sure if you were involved in the meltdown in February, but if you were, you know the amount of panic a response time of zero can provide. Website after website, analyst after analyst seems to think that the market will not crash again, at least for awhile. But the fact is they are dead wrong. I know, the S & P 500 is hit new highs and the DOW is past 13000 (Oh what a glorious moment), but that fact still remains is that there is a very large pattern involved and this mimics what would look like a crash in the caliber of 2000 and it will happen this year as people cannot grasp the idea of purchasing any stock worth its value!

What to do? Well many believe that 401k’s are the best way out. That is foolish to think as they are directly tied to the market. Mutual and Hedge funds lack the protection because if you want to get out, you need to get inline and also pay hefty fines. The only way to truly avoid the ding of any sort of crash is to A) Know what your buying, B) Make sure this is in a P/E Ratio of less than 10, and C) stay as liquid as possible.

A) It is important that you understand that trends of the equities you are purchasing. What point does it make to purchase Apple (APPL) if you don’t know that they specialize in computers or have an IPHONE about to be released? Thus, once you own a sector, I mean know it back and fourth, you will undoubtedly become a safe and successful trader.
B) I always mention this and I will do it again. Any stock that is trading higher than 15 P/E is extremely risky in my opinion. A P/E is the price to earnings ratio and if it is too high, it means that many are betting on the fact that its current price will eventually catch up to its earnings. That is a huge gamble and a large ladder to climb, especially if you look at Amazon (AMZN) and see that it is trader a hundred times what it is earnings is. In reality, Amazon stock is really only worth 0.59 cents but is trading at $ 61.00.+

C) What is Liquidity? LIQUIDITY in the stock market is confused with trading volumes. We normally understand liquidity to mean stocks that have high trading volumes. But that is not always true. So, what is liquidity? It refers to the ability to buy or sell shares quickly. How do you stay liquid? Never go to heavy on your positions. Heavy meaning in the thousands; also it is a good idea to change the face of your portfolio every sixty to ninety days.

In my heart of hearts, I hope that this will not happen, meaning the stock market crash. But it is indeed inevitable. Versus sticking my head in the sand and pretending it doesn't exsist, it is better to be prepared! For information to better prepare yourself, log into www.bluecollarinvestment.com!