As most of you know, I don’t rely solely on Risk/Reward Charts. In fact, Risk/Reward Charts only come into play once I have performed a thorough fundamental analysis.
In other words, fundamental analysis is the primary source of investment decision-making. Risk/Reward Charts are secondary. Keep in mind, there are also tertiary sources that should be consulted. Technical analysis is among the most notable.
After 30 years of studying the stock market, it’s fairly clear to me that the efficacy of technical analysis mainly stems from the fact that so many people follow and believe in it. Like Bitcoin, it would have no value if nobody had faith in it.
Accordingly, it’s important to maintain a technical view of the market. If nothing else, it will help you to understand how millions of other investors are thinking. At present, my favorite source of technical commentary is Lance Roberts.
As I mentioned last week, Roberts has his finger on the sell button, but still has most of his money in the market. This is basically his version of a “Yellow Alert”. This year, his method has been working better than mine. The markets have been as resilient as any I can remember. As a result, following the herd (despite the risks) has been the right strategy (this time).
His latest write-up concludes that the market may continue a bit higher, even though warning signs are abounding. I recommend reading it.
Thankfully, I agree with Jim Cramer’s assertion that there’s always a bull market somewhere. Indeed, despite the risks inherent in the stock market as a whole, I’ve been finding very attractively-priced stocks. Finding stocks that are more attractively-priced than average is the definition of “seeking alpha”.
The 1% Portfolio has been doing an exemplary job of delivering alpha this year. The average 2017 selection is up 15%+ (even though it includes a short pick — which generally don’t do well when the market is rising).
Speaking of which, if you don’t understand or know how to “short” a stock, please learn. Every 10 years or so, the stock market crashes. When it does, shorting is just about the only way to make money. For example, between 2000 and 2008, the NASDAQ incurred major losses in four of the eight years.
During those four years, my personal returns were +54.2%, +49.8%, -11.7%, and +5.6%. Note that only two of those numbers are truly impressive. Nonetheless, it was enough to earn 10-times my money during that period.
In contrast, the NASDAQ delivered losses exceeding 60%.
The difference cannot be overstated. In one case, $100,000 becomes $1,000,000. In the other case, the same $100,000 becomes $40,000. Worse yet, as the market recovered, the investor with 40,000 eventually got back to break-even ($100,000)… but the $1,000,000 became $2.5 million.
One made $2.4 million, while the other made zero.
This is the power of making money through market ups and downs. This is how I was able to “retire” at age 38. So, don’t shy away from learning the skills needed to succeed. Ultimately, you might make millions for the effort.
Also, be sure to keep an eye on the 1% Portfolio and my website, PipelineDataLLC.com. Even though I remain cautious on the market, I continue to make investments in individual stocks when the price is right.
In the days ahead, I’ll provide an update on specific picks. I may also provide a new pick. My team has been working hard on several names. I believe that a couple of them are likely to pass our tests.
The information in this article is for informational and illustrative purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action. The opinions expressed in Pipeline Data, LLC publications are the opinions of Mr. Gomes as of the date of publication, and are subject to change without notice and may not be updated.
All investments carry the risk of loss and the investment strategies discussed by Mr. Gomes entail a high level of risk. Any person considering an investment should perform their own research and consult with an investment professional. Additional important disclosures can be found in the Important Disclosures section at PipelineDataLLC.com.