How to Beat, or At Least Stay Sane, in a Volatile Stock Market
By Rocco Pendola - 06/22/12 - 10:50 AM EDTTheStreet) --I wish more people would do what TheStreet founder Jim Cramer did the other night on his "Mad Money" television program: Cut Ben Bernanke and the Federal Reserve some slack. As Cramer said, Bernanke can only do so much. Cramer appreciates the Fed's "measured approach" and I appreciate Cramer's calm approach to the market while others wax hysterical. "As long as I can remember, the rain been coming down. Clouds of mystery pouring confusion on the ground," as Creedence Clearwater Revival sang. The sky was falling, big time, in 1975 when I was born. And it's been falling, almost non-stop, ever since. I can hardly count the number of times Bruce Springsteen has covered Credence over the years as a sign of protest, anger and frustration. It never ends. If you have been following the stock market for any length of time, you should recognize this. To generate market-beating or, at the very least, consistent returns and, more important, stay sane during volatile times, you need a plan in place that puts you on the offensive. At the top the list for me is to maximize income.
Buy Dividend Growth StocksSomething Cramer said hit the nail on the head: Because of the Fed's interest rate policy, for at least the next few years ... dividend stocks as the only game in town. That's where I keep about 70% of my money. I don't go after yield as much as I go after companies that increase dividends and continue to grow even in a sluggish economy and uncertain world. That's why I hold so many big media companies. Not only do they keep increasing their dividend payments, but they're pumping revenue consistently higher by licensing no longer advertising-friendly content to outlets like Netflix
Write Covered CallsYes, it's an options strategy, but do not believe the misnomer that long-term investors should not be using options because they're too "risky." If you adhere to a buy-and-hold philosophy on a stock (and even if you do not), you actually hurt yourself by not writing covered calls. For example, I have positions in Intel
At Day's EndLike Cramer says, the Fed can only do so much. And you can only expect it to do so much. We all agree that a long-term policy of low interest rates and printing cash to pump into the economy does not represent sound economic policy. But, don't blame the Fed for appeasing the market and actually keeping volatility down, relative to what might happen without intervention. Direct your angst towards Washington. Until politicians put meaningful programs in place to cut spending and generate more revenue the way sound businesses do, we'll be stuck in the type of holding pattern that creates a lot of necessary and some unnecessary anxiety. Follow @RoccoPendola
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