The Artful Approach to Winning the Stock Market Game

Posted on 12/29/2023 by Alan Solomon

Mastering the Art: How to Win the Stock Market Game

We delved into this subject a few years back, using a chart from the now-obsolete company CMGI. Therefore, we thought it apt to present a fresh update. In this instance, we’re using the NASDAQ. The chart below visually represents the thought process the average investor undergoes when embarking on any investment. This principle applies to all stocks, indices, or markets. Hence, GOOG, AAPL, WMT, IBM, NTES, SOHU, MSFT, etc., all adhere to the same rules.

A majority of investors plunge into the markets without adequate preparation. They falsely believe they’re equipped to tackle the stock market after reading a few books, tuning into CNBC pundits, and following a handful of alleged experts. The market is a formidable beast boasting a win ratio exceeding 90%. Only 10% of investors can consistently claim to secure gains.

How to Win the Stock Market Game Tip 1

Regrettably, the everyday person, regardless of their expertise, often falls prey to the harsh realities of investing. This is largely due to their propensity to act impulsively, failing to think things through. Sadly, emotions often dictate their investment decisions, a disastrous approach that clashes with the logical world of investing.

Predictably, those who let emotions steer their investments are destined to encounter financial setbacks. Thus, it’s crucial to disentangle ourselves from emotions and banish them from our investment decisions. In the realm of investing, emotions are an unwelcome distraction, a barrier that needs immediate removal.

The Solution Is Simple

The solution to this quandary is surprisingly simple, yet its simplicity masks its real challenge. As previously highlighted, emotions are the nemesis of the discerning investor and must be dismissed outright. The adage “act now, think later” seems appropriate here, as emotions have no place in investment decisions. Winning in this domain demands that we counter the irrational impulses of our emotions. Any deviation from this norm is a risk that must be avoided at all costs, as euphoria and panic are such deviations that can mislead one.

Bear in mind, dear reader, that the road to success in investing demands discipline and rationality. Emotions are fleeting distractions that must be conquered to reach our investment goals.

The Painful Cycle

This stock is stagnant, showing minimal movement, and its fundamentals are weak. Those who jumped in are simply lucky. This is a false breakout. This stock is poised to plummet to new lows. Incredibly, the stock continues to rise. Earnings are dismal, long-term fundamentals are not promising, and the technical outlook leaves much to be desired. I’m relieved I abstained from buying; I knew it would plummet. Instead of acknowledging the stock is simply letting off some steam and gathering momentum for the next upward movement, the mass mindset only sees what it wants to see. Hold on, what’s happening here? The market was predicted to crash. Perhaps my decision not to buy was a mistake. I was smart to wait until conditions improved before investing; it seems like the markets are ready to soar. What’s happening? Why is the market falling? It’s just a mild pullback; I won’t be tricked by this game again. There we go; I knew it was bound to rebound. I should have invested more into the market. It’s falling again. Opportunity is knocking; it’s time to load up. The market faces a severe pullback following a dose of bad news. If you panic at this point, fear will consume you. Darn it; the market is lifeless. I’m exiting the stock market. The market is slowly bottoming out. Once this phase concludes, a new uptrend will commence. How to Win the Stock

Market Game: Insider Tip 2

In investing, maintaining rationality and analytical thinking is crucial, rather than letting emotions dictate your decisions. Emotions like fear and greed can prompt investors to make irrational calls, leading to substantial losses.

Perceptions and assumptions significantly impact how we interpret information and make decisions, with emotions often muddying these perceptions. Hence, learning to manage your emotions is key to becoming a successful investor.

Attempting to pinpoint the exact peak or trough of a market is mostly a futile exercise. It’s more productive to focus on discerning the subtle signs indicating when the market is peaking or bottoming out. Once you’ve identified these signs, you can establish a position that aligns with your analysis, even if it contradicts the popular sentiment.

Ultimately, successful investing requires a degree of detachment and the capacity to make rational decisions amid emotional chaos. Investors can boost their odds of market success by focusing on the facts, reigning in emotions, and making decisions based on objective analysis.

Intelligent Investment Tactics: How to Win the Stock Market Game

Dollar-Cost Averaging:

Dollar-cost averaging is an investment technique where a consistent amount of money is invested at regular intervals, irrespective of the current stock prices. The primary aim of dollar-cost averaging is to lessen the impact of market volatility and curb the risk of making impulsive investment decisions based on short-term market swings. Here’s how it functions:

Regular Investments: With dollar-cost averaging, you invest a consistent sum of money at regular intervals, such as monthly or quarterly. This method ensures that you continue investing whether stock prices are high or low.
Acquire More When Prices are Low: During market downturns, your fixed investment sum will enable you to buy more shares or units of an investment because prices are lower. This can potentially lead to a larger ownership stake in the investment.
Acquire Less When Prices are High: Conversely, when the market is thriving and prices are high, your fixed investment sum will only buy fewer shares or units. This can help prevent you from investing a large amount at the peak of a market cycle.
Cost Averaging: Over time, as you continue to invest regularly, the varying prices at which you buy shares or units will average out. This can potentially result in a lower average cost per share or unit compared to trying to time the market and make all your investments at once.
Emotional Discipline: Dollar-cost averaging promotes disciplined investing and can help you avoid making impulsive decisions based on short-term market swings. By adhering to a predetermined investment plan, you are less likely to be swayed by market noise or emotions.

It’s crucial to remember that dollar-cost averaging does not assure profits or safeguard against losses. Markets can still undergo downturns, and the value of investments can fluctuate. Additionally, transaction costs and fees associated with regular investments should be considered.

Dollar-cost averaging is a long-term strategy that works best when you have a clear investment goal and a suitable investment vehicle. It may be suitable for individuals who prefer a systematic and disciplined approach to investing and who are willing to invest for an extended period.

As with any investment strategy, it’s recommended to consult with a financial advisor or conduct thorough research before implementing dollar-cost averaging or any other investment approach.

Fundamental Analysis

When conducting fundamental analysis for investment purposes, you evaluate various factors to assess the financial health, competitive position, and growth prospects of companies. Here are some key steps and considerations involved in fundamental analysis:

Financial Statements Analysis: Examine the company’s financial statements, including the income, balance, and cash flow statements. Analyze key financial ratios, such as profitability ratios (e.g., gross margin, net profit margin), liquidity ratios (e.g., current ratio, quick ratio), and leverage ratios (e.g., debt-to-equity ratio). Look for trends, patterns, and any red flags that may affect the company’s financial health.

Industry and Market Analysis: Assess the company’s industry and market dynamics. Understand the competitive landscape, market trends, and potential risks or opportunities. Consider factors like market size, growth rate, barriers to entry, and the company’s positioning within the industry.

Management and Corporate Governance: Evaluate the management team’s experience, track record, and strategic vision. Assess the company’s corporate governance practices, including the board of directors’ composition and independence. Look for transparency, ethical practices, and alignment of management’s interests with shareholders.

Growth Prospects and Competitive Advantage: Analyze the company’s growth prospects and competitive advantage. Consider factors such as product differentiation, intellectual property, market share, and expansion plans. Assess the company’s ability to generate sustainable revenue growth and maintain a competitive edge over its rivals.

Risk Assessment: Identify and assess potential risks that could impact the company’s performance. These risks can include economic factors, regulatory changes, technological disruptions, industry-specific risks, and company-specific risks. Evaluate how well the company is positioned to manage and mitigate these risks.

Valuation: Determine the company’s intrinsic value by considering various valuation methods, such as price-to-earnings ratio, price-to-sales ratio, discounted cash flow analysis, or comparable company analysis. Compare the company’s valuation to its peers and the broader market to assess its investment attractiveness.

Qualitative Factors: Consider qualitative factors influencing the company’s prospects, such as brand reputation, customer loyalty, innovation capabilities, and corporate culture. These intangible factors can provide insights into the company’s long-term sustainability and competitive advantage.

It’s important to note that fundamental analysis requires a combination of financial expertise, industry knowledge, and research skills. Investors often use a variety of quantitative analysis (numbers-based) and qualitative analysis (non-financial factors) to form a comprehensive view of a company’s investment potential.

While fundamental analysis provides valuable insights, it’s crucial to remember that investing involves risks, and no analysis can guarantee investment success. It’s advisable to consult with a financial advisor or conduct thorough research before making investment decisions.

The Permabear Predicament: A Ballet of Bearish Beliefs

Posted on 12/29/2023 by Alan Solomon

Being a permabear is akin to a unique form of folly that even countless harsh lessons fail to rectify. It seems permabears harbour a desire for financial ruin, as this is the only plausible explanation for such myopic thinking. A glance at any long-term financial chart will conclusively demonstrate that maintaining a permabear outlook is a losing strategy. No historical chart can validate the notion that a consistently bearish stance yields long-term profits.

Regardless of the trend line you choose, the above 100-year chart of the Dow Jones Industrial Average unequivocally shows that permabears are misguided in their investment approach.

The remedy is straightforward.

Concentrate on the basic elements that help identify the trend—elements like mass sentiment and extreme patterns (technical analysis) visible on the charts. News is not a critical factor; in fact, it holds less significance than toilet paper; at least the latter serves a practical purpose, which cannot be said about the news.

Anyone who promotes succumbing to fear should be metaphorically expelled from your life and mind; fear never yields profits; only those who peddle fear profit, while the purchasers lose everything.

Marc Faber: The Hazard of Being A Permabear

This individual has been forecasting the most significant market crash since the beginning of this bull market (2009), but the only thing that has crashed so far is his crash predictions. He might have a promising career as a science fiction author, given his penchant for devising scenarios with a minuscule chance of actualization.

During a heated debate, a frustrated nation challenged Faber’s consistent bearish forecasts since 2012. Nations pointed out that those who invested in stocks during that period realised substantial gains, casting doubt on Faber’s precision. Faber defended his predictions, citing a 2012 correction as proof. He remained steadfast, believing that his warnings would eventually be vindicated. Faber shrugged off the criticism, stating he is no stranger to detractors. The confrontation underscored the divergent views on market trends, leaving the question of who will be proven correct.

“I assure you that when all is said and done, people will appreciate me warning them not to invest all their money in stocks,” Faber added. “I’m accustomed to people like you who constantly criticise me.”

“You’re accusing me of being incorrect? I find it amusing,” Faber concluded. –CNBC

Here, he predicted a significant recession in 2018

As it turns out, the only recession was in his predictions—the only thing that has been in a bear market for now. Therefore, it could be profitable if you are a permabear in his ability to predict market direction.

Then, he goes on to state the party will end in 2018. Random Thoughts on Being a Permabear.

Firstly, we hope most of our subscribers begin to understand that giving in to fear is perilous. Life and investing should not be stressful; stress is something that every tactical investor should avoid. Moreover, remember, stress is a matter of perception; change the perception, and one can transition from being stressed to being calm.

Experts often argue that investing is difficult and that mastering this art takes a lifetime. Remember that investing is an art, not a science, and art is meant to be enjoyed. So are the masses starting to jump on the bandwagon after this strong turnaround? The obvious answer would be yes. The not-so-obvious answer would be no. Continue reading. At least in the first half of 2019, the not-so-obvious answer would be the correct choice. The masses are still anxious, and until they start to celebrate in the streets, every strong correction should be viewed from a bullish perspective.

The Current Bull: Unlike Any Other Bull Market

This bull market is unique; before 2009, one could have relied on extensive technical studies to more or less predict the top of a market with a margin of error of a few months; after 2009, the game plan changed, and 99% of these traders and experts failed to factor this into the equation. Technical analysis as a standalone tool would not work as well as before 2009 and, in many cases, would lead to an incorrect conclusion.

In short, there are still too many pessimists (experts, average Joes, and everyone in between), and until they start to embrace this market, most pullbacks, mild to wild, will be mistakenly identified as the big ones.

The results are self-evident; most of our holdings were in the red during the pullback, but now they are in the black, proving that one should buy when there’s panic in the streets. It’s a catchy and easy phrase to utter but very challenging to implement because the masses will choose to be pushed when faced with a push or shove situation.

Stock Market Update March 2023

In times of crisis, such as the current coronavirus pandemic, it can be prudent to nibble at stocks with a long-term perspective. Instead of investing all your funds at once, consider investing in smaller increments to average your entry price and protect against stock market dips.

At the Tactical Investor, we focus on longer-term plays that typically span several months. However, in times of crisis like these, we’re seeing a surge in the potential for huge profits, so our time frames have lengthened accordingly. While the short-term market may seem like a massacre, it’s also a hotbed for exceptional opportunities that can herald the next bull market.

Investing is easy when everything appears to be going well, but unfortunately, that’s when most assets are already overpriced. When times seem grim, that’s precisely when the best bargains can be found. So, consider examining the market more closely during these volatile times, and you may uncover some hidden treasures.

FAQ

Q: What is a permabear? A: A permabear refers to an investor who consistently maintains a bearish outlook on the market, predicting downturns and advocating for a defensive or negative investment strategy.

Q: Why is being a permabear criticised? A: Being a permabear is often criticised because historical data shows that the stock market tends to rise over the long term. Critics argue that Permabears misses out on potential gains by constantly expecting market declines and failing to take advantage of positive trends.

Q: What evidence is provided against being a permabear? The text suggests that examining long-term charts and trends reveals that being a permabear does not pay off. It emphasises that stock market charts demonstrate consistent upward movement, and taking a bearish stance is unlikely to yield positive results over time.

Q: What factors should be considered in determining investment trends? A: The text suggests focusing on mass sentiment, extreme patterns (through technical analysis), and long-term chart trends. It argues that news is less relevant and that fear-based decision-making is discouraged, as fear rarely leads to favourable outcomes.

Q: Who is Marc Faber, and what are his views on market predictions? Marc Faber is mentioned as someone who has consistently predicted significant market crashes, but these predictions have not materialised. The text implies that Faber’s accuracy has been questioned, with critics suggesting his scenarios have a low probability of occurring.

Q: How did Marc Faber defend his bearish predictions? In response to criticism, Faber defended his predictions by citing a 2012 correction as evidence of his accuracy. He expressed confidence that his warnings would eventually be appreciated and dismissed the criticism, stating that he is accustomed to facing detractors.

Q: What is the perspective on investing during times of crisis? A: During times of crisis, the text suggests that it can be wise to take a long-term perspective and consider investing in smaller increments to average the entry price. It highlights that volatile times often present exceptional profit opportunities and recommends exploring the market during such periods.

Q: What is the suggested approach to investing during market downturns? A: The text advises considering investments when the market appears bleak, as it is often when the best deals can be found. It encourages investors to look for hidden gems and emphasises that the short-term market turmoil may present opportunities for substantial gains in the long run.

Harnessing Power: The Dynamic Approach of Small Dogs Of the Dow

Posted on 12/28/2023 by Alan Solomon

For those new to the world of investing, the stock market can appear as a daunting labyrinth of stocks and complex investment strategies. The overwhelming volume of information and choices can easily lead to a sense of bewilderment and apprehension. Amidst this intricate landscape, it becomes crucial for beginner investors to identify a simple yet effective investment strategy that can help them gain confidence and work towards their financial objectives. One such strategy that has found favour among novice investors is the Small Dogs of the Dow strategy.

The Small Dogs of the Dow strategy streamlines the investment process by zeroing in on a select group of high dividend-yielding stocks within the Dow Jones Industrial Average (DJIA). This approach enables investors to make informed decisions without getting swamped by the multitude of options in the stock market. By adopting the Small Dogs of the Dow strategy, beginner investors can leverage a tried-and-tested method that has historically shown robust performance while also enjoying a consistent income through dividends.

So, what exactly is this strategy? The Small Dogs of the Dow strategy is a well-liked investment approach that zeroes in on the ten highest dividend-yielding firms within the Dow Jones Industrial Average (DJIA). The strategy operates on the assumption that high dividend yields indicate undervalued stocks with the potential to outshine the market. Concentrating on these high-yield stocks, the strategy seeks to pinpoint companies that are currently undervalued by the market but possess strong fundamentals and the potential for future growth. Moreover, the strategy is designed to provide investors with a steady income stream through the dividends paid by these high-yield stocks.

The Small Dogs of the Dow approach is relatively straightforward and easy to comprehend, making it an appealing choice for novice investors with limited experience in the stock market. It is also a cost-effective strategy, as it does not necessitate frequent trading or the use of intricate investment vehicles. Instead, investors can invest equal amounts of money into each of the 10 Small Dogs of the Dow stocks or utilize an ETF or mutual fund that tracks the Small Dogs of the Dow index.

Despite the risks, the strategy has historically outperformed the broader market. It can be a valuable investment approach for investors seeking a simple, income-generating approach to stock market investing. However, investors should be aware of the risks associated with this approach and should always seek advice from a financial advisor before making any investment decisions.

The Small Dogs of the Dow strategy involves investing in the highest-yielding stocks within the Dow Jones Industrial Average. A variation of this strategy, known as Small Dogs of the Dow, involves investing in the highest-yielding stocks within the Dow Jones Industrial Average that have a lower market capitalization, typically under $10 billion.

To select Small Dogs of the Dow stocks, you can follow these steps: • Identify the current Small Dogs of the Dow: You can locate the current Small Dogs of the Dow list online or by using a stock screener that allows you to sort by dividend yield and market capitalization. • Investigate each company: Once you have the list of Small Dogs of the Dow, delve into each company to understand their business, financials, competitive advantages, and growth prospects. Look for companies with a history of paying dividends and a sustainable dividend payout ratio. • Assess the risks: Consider the risks associated with each company, such as industry trends, competition, regulatory environment, and financial risks. Evaluate the potential impact of these risks on the company’s financials and dividend payouts. • Diversify your portfolio: As with any investment strategy, it is crucial to diversify your portfolio to spread out your risk. Invest in a mix of Small Dogs of the Dow stocks and other types of investments to achieve a balanced portfolio. • Monitor your investments: Regularly monitor your Small Dogs of the Dow investments to ensure they meet your investment goals and risk tolerance. Reevaluate your investments periodically and make adjustments as necessary.

One of the primary advantages of this strategy is its simplicity. It is an easy-to-understand investment strategy that does not require much time or expertise. Additionally, since the strategy focuses on high-yield dividend stocks, it can provide investors with a steady income stream.

Another advantage of this strategy is its historical performance. According to some studies, the Small Dogs of the Dow have outperformed the Dow Jones Industrial Average by an average of 2% per year over the past two decades. Investors should be aware of the risks associated with this approach, such as changes in interest rates and the financial condition of the selected equities.

This strategy is also a low-cost investment approach, as it does not require frequent trading or the use of complex investment vehicles. Instead, investors can invest equal amounts of money into each of the 10 Small Dogs of the Dow stocks or use an ETF or mutual fund that tracks the Dow index.

Potential investors have expressed interest in the “small dogs of the Dow” strategy. While this approach offers advantages in simplicity and historical returns, it is important for individuals to understand both perspectives on this and alternative options. Here are a few key points regarding risks, performance, implementation and other considerations:

Like all stock market investing, there are inherent risks to consider such as general market fluctuations, concentration in a small number of securities, reliance on dividend yields alone without regard for other factors, and changes in sector/industry returns that could impact portfolio results.
Although backtested performance has outpaced the broader Dow Jones average, past returns do not guarantee comparable future outcomes. Markets and company fundamentals shift over time. For long-term goals, flexibility and diversification are prudent.
Low-cost ETFs provide solid options for accessing the “small dogs” index without significant trading costs. However, individuals should understand underlying holdings, charges and fit within their preferred investment style/objectives.
While the premise of focusing on higher-yielding, “undervalued” Dow stocks has validity, exclusivity to any single approach fails acknowledging diversity of views. Complementary allocations afford protection against unpredictable changes.
Professional guidance enhances implementation, ongoing oversight and adaptation to evolving needs, market climates or preference changes over years/decades. Strict “set it and forget it” routines risk deviations.

Overall, the “small dogs” methodology carries value as one piece within a broader, comprehensively developed portfolio. But regular review of performance against alternatives, consideration of non-statistical priorities and openness to adjustments optimize prospects for each person according to their distinct outlooks and convictions. Does this help provide a balanced perspective on both risks and opportunities with this strategy? I’m happy to discuss any part of the overview further.