Wednesday, February 4, 2009

What Happened To The Rally?

Today demonstrated once again that the market does not seem to be able to sustain a rally. Lately, every time we see a rally, the next day the Dow Jones comes back with a 100+ loss. If you are trying to trade stocks, hoping to catch a rally, you probably won't find any luck. Don't invest in stocks because you simply want to trade them, invest in the companies they represent because you think they have business models that will be able to last through the recession.

I wrote about how investors should stay away from Kraft in a post last week because people would flock to generic names over brand names. And surely enough, today Kraft announced that it missed its earnings and the stock took a pretty big hit. Not to mention its poor earnings sunk the market. I see so many "analysts" telling people to invest in recession proof stocks like Kraft, but I want you to be aware, that just because they make food doesn't mean they are recession proof. Not only do you need to look at what their product is, but you need to keep in mind the prices of their products compared to their competitors. Kraft sells macaroni for a much higher price than a generic grocery store brand of macaroni. Sure, in a recession people are going to flock to macaroni, but not the brand name ones.

So when you go to invest in recession proof stocks, remember not all of them are equal, go for generic brands instead of brand names.

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