Market Investing Strategies

Market analysis is not a science, it is an art, using intuition and experience to make sense of evolving data. Past patterns may at times not have their usual relevance for future predictions.

But then markets topped out, Nasdaq crashed, and the war on terrorism gave the media permission to use the word recession, without being accused of talking down the market. Investors were left wondering what to do with stocks that in many cases had already lost a substantial portion of their value in the prior 2 years. Their magic bullet software programs failed them, and they lacked basic market know how, or how to invest in what appears to be the early stages of a protracted bear market.

Simply knowing how to make respectable buy and sell decisions is not enough. Nobody in the history of Wall Street has ever guessed right all the time. Its therefore necessary not only to decide how to predict market direction, but what strategies to use to minimize losses when you guess wrong, and maximize your profits when you are right.

The ultimate decision for your investments is made by you. Over the nearly 4 decades, have been advising clients, there have been many times when, give the same advice to three people, and one would make money, one would break even, and one would lose money. However good the advice we receive, we always inject our own judgment into the equation. Principle of technical analysis is that there are certain recurring patterns of investing behavior that can be charted. But no technical tool works all the time. Though history does seem to repeat itself in a general sense, it never repeats exactly, so no one model of past action, be it a war, inflation, civil unrest, or a bear market, is sufficient to ascertain what the future will bring.

After the September 11, 2001 attack on New York and the Pentagon, advisors rushed to predict future markets, based on what the Dow Jones Averages did in the Gulf War, or the Vietnam War. But the war on terrorism is unlike any war in the past. The recession of 2000 seems likely to have variations from a number of past recessions. The best way to use the past for future projections is to have as much history as possible of past events: market averages, individual stock groups, technical indicators such as Confidence Index or advance/decline lines, wars, government monetary intervention, etc. Then check for similarities to what is happening today. With this data, we can then build a mental big picture for possible future market direction based on elements of as much history as possible, which taken together form a totally new paradigm.

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Abuse Of Bull Market History

History never repeats exactly. When we look to history for indicators of what the future might bring, we need to take a little of this model and a little of that in order to create a new composite model that is unlike anything that has happened before. This lesson has been forgotten after 20 years of an almost unbroken bull market.

The possibility that we could get a protracted multi-year global bear market and recession is outside the comprehension of most investors. Most floor traders and fund managers today began their careers after 1980, so have no personal experience of the massive inflationary bear market of the 1970s. And when it began in 1966, many of them were not yet born.

Technology Foster Lazy thinking

Since the introduction of stock market software, it has become increasingly fashionable to compare todays stock market patterns with past models, without taking into consideration that what created those particular patterns were not just market related but caused by cultural and political factors as well.

Technology has made our lives infinitely more comfortable. But it is a double-edged sword. The more we rely on technology, the less we think for ourselves. And making informed judgments on the future of securities markets, based on an inner sense that comes from working with market data over many years, has become a lost art. Yet, there are so many factors that affect market behavior that cannot be reduced to a software package or a computer-generated predictive system.

In Europe, where capital preservation is of a higher priority than a quick profit, they are in the habit of taking a view. While they may trade the intermediate and short-term swings of the market, they do it within the context of a multi-year concept of where the world in general economic terms is heading. This creates a difference between the two continents in how bear markets are defined. In America, all bear markets tend to be given equal ranking, with no consideration to the bigger picture. But that limited view is not particularly helpful for the longer term investor, particularly in todays investment climate.

In the last 70 years, there have been two major occasions when taking a view enabled you to see a different, more accurate picture of events, than simply treating every uptrend in the market as a bull market, and every down-leg as a bear. These periods are 1929 to 1942, and from 1966 to 1982. Both periods were times when there were major economic and monetary problems that took well over a decade to resolve. Both periods were mirror images of what we have experienced between 1982 and 2000.

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Stock Market Record Book

1973 This one was scary! From a high of 1067 in January 1973, the market slid relentlessly down to its final low of 570 in December 1974. Its catalyst was the oil crisis. For the first time in American stock market history, a foreign power, or group of powers, were able to precipitate an economic slowdown. We had entered a new level of globalization after which the world would never be the same.

1977 DJIA fell fairly gradually, though gathering some momentum as it went from just over 1000 in January 1977 to a low of 736 in March 1978. Nothing dramatic caused it; rather more of the same of the past decade: increasing oil prices with dollar stability problems steadily worsening.

1981 This bear snuck up on people. DJIA made a rare quadruple top that convinced most investors it was building strength to break through. DJIA fell from 1025 in April 1981 to a low of 770 in August 1982, or 255 points. A mere 17-month-long bear, it led to a recession which was more severe than the stock market fall would indicate.

1984 Though this is not even considered a bear market by most, it scared a lot of investors because it broke below a giant support area and appeared to be heading back to the 1000 level, whence the bull market of late 1982 and all of 1983 had come. It fell 16%, from 1295 to 1080 in 7 months.

1987 This was a heart-stopper for the very reason that there was no apparent economic reason for it to occur. There were two catastrophic days of multi-hundred point drops, with one of those days being the largest one-day point drop in history. It came about because of computer programming (explained earlier), computer insurance schemes, and the globalization of markets. It was historys first simultaneous global bear market where all major world markets were hit badly at the same time. Australia was among the hardest hit, Japan among the least, but all had considerable damage. DJIA fell from 2747 to 1616 (i.e., 36.1%), in less than 2 months. It took nearly 2 years to surpass its prior high.

1990 This was the direct result of Iraq invading Kuwait, and was halted when the US launched Desert Storm. DJIA declined 17%. Duration: 4 months. This bear market, along with that of 1987 are the shortest bear markets in history.

2000 By October 2001, the Nasdaq was down a whopping 72% though the DJIA was only down around 25%. But most worrying, well before the September 11, 2001 terrorist attack, was that the underlying economic health of the US and most world economies showed increasing signs of weakness. It is already clear that this bear market has damaged the broader economic health of all major economies, more than any other bear market in the last 60 years.

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bear market, stock market, stock market history

Stock Market And Investments

Provided you know a few of the basics, investing can be a fun and safe way to make extra dollars whether in real estate or stocks and bonds. This is a long term strategy which a number of people are now learning to adopt when planning for their future financial needs. While the subject is very large, the information listed here is for guidance only and further information should be sought before you jump-in with both feet.

Research on how to invest is as important as in the areas you plan to invest in, especially when stocks are concerned as this can be one of the more risky areas to invest in particularly for first timers. While this is the traditional place to make money, there are many areas where a novice investor can stumble; let’s face it even the professionals get it wrong here sometimes. The safer option, and also one that can be used for long term profit as well, is real estate and buying a house can increase in value considerably. Buying a run down property can be considered a project and make a handsome profit when re-sold, if approached in the correct way and not with the lick-of-paint attitude which many fall foul of.

There can be many pitfalls involved with real estate investment but the next area is not as bad. Probably the fastest growing way is through trading online and it’s amazing how easily you can work your finances online, and make money without even leaving the house. Anyone trading online can first check the companies they are interested in, their growth and performance for example before they decide to invest with them, all of which can be done quickly and easily. It is not uncommon for people to become addicted to this in the same way a gambler does so you must stick to your limits and not go beyond them.

While some people may depend on luck, they are very few as most rely on ‘old fashioned’ graft by studying what it is they need to know about investing to make the money they have set out to achieve. Whatever field you find most interesting, the key to long term success is research, plain and simple. As usual, there is a huge amount of free information on the internet if you really want to learn more; remember, successful people do not use luck all the time! Always be aware that investing can be fun but it is easy to get caught up in the excitement and forget exactly how much money you are, in effect – gambling with.

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