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A Short But Valuable Commentary Today
Although my commentary is short today, it is an essential read for investors who want to see their investments increase in value. Buying a stock this week, is analogous to catching a falling knife. In most instances, you will be wounded.
To increase the value of your investments, an unbreakable rule is to follow the trend. When the trend is heading positive, you buy. When the trend is negative, you watch and wait. There is always another time to buy.
The market is a funny place. It does not move on logic. It does not move on value. It moves on sentiment and trends. The market has a herd mentality. It goes in one direction until some tipping point is crossed and then for the similar lack of rational reasons that caused the move in one direction, it starts in the opposite direction.
It continues in that direction regardless of P/E ratios, earnings, value, future hopes or anything else. And when it turns, all of these factors have similar relevancy. Or lack of relevancy.
Market Volatility
In the financial news currently, one hears mostly doom and gloom. For the period since the US markets hit their high in the fall, most days have been disappointing. The following chart shows just how poorly the market has done in the USA since the high was hit in November 2015 (DJIA).
Relentlessly, the Index moves lower. There are many days where there is a temporary upward movement, but the trend is always moving lower.
Bucking The Trend
When there is a movement up, many financial writers jump on the bandwagon of advising buying this security or that security. The reader should be aware of the motivation of the writer. There is no advantage to the writer of saying that stocks are moving lower. Everyone wants to hear what the latest and best stock pick is so that they can consider buying that stock.
But, there is an old adage in investing strategy – “The Trend is Your Friend”. If you ignore the direction that the market is moving, invariably you will be buying at the wrong time.
How To Make Money in the Market
The rules are relatively simple.
- Pick stocks or sectors based on logical factors, such as P/E ratios, future values, earnings. dividends, sectors and the other determining factors
- Buy the stocks that you like when the downward trend in stocks generally has worn itself out, and there now is CLEARLY an upward trend
- When the trend turns, sell those stocks, and wait
Commodities
Look at te values of commodity stocks. When they were hot, everyone made money. It was easy. When they are not hot, everyone loses money. Forget about the dividends. When a stock goes down 5%, a 5% dividend does not look so good, especially after taxes are imposed when you file your tax return.
Tech
When tech was hot, every stock looked a winner. Aside from the big 3 tech stocks, none of thse tech stocks have made you money recently, and the big 3 are currently showing a lot of weakness.
Retail
Same story.
Bottom Line
If you did nothing except buying and selling when the trend is favorable or unfavorable, you would be so much farther ahead than picking this or that stock. The Trend is Your Friend.
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