I wanted to identify a few themes I am weighting on the longer term.
My basic thesis is that the market will remain bullish until uncertainty around the 2020 election causes a profit taking opportunity. I have not looked at this quantitatively: however, I think the top is likely to be around September 2020. This is not a formal prediction but it is just a general theme I am tracking.
One hypothesis is that that there might be a shakeout in gold as stocks rally to new highs. That shakeout could lead to next bull in gold: it is a very tentative formulation because I have not looked at a gold chart or studied it, yet.
As for specific stocks, I think companies that act as safe haven places to park money may do well.
I am parking some money in, for example, in Microsoft (MSFT) because I think it can act as a safe haven and still has value potential as a cloud provider upset in the future. Microsoft is known for producing crappy products but improving them beyond the competition.
I have also parked a little savings in UBER (UBER). My thesis for bullish UBER is the brand-value and belief that they can turn a profit easily if they set about it. However, I am more cautious as the near term looks more bearish as failed to hold above IPO support.
Other potential investments are REITS because of prospect for falling interest rates.
I have been watching also the Nikkei/Japan since the beginning of the year as what is bad for China may end up benefiting Japan and other Asian trading partners. There are also other trends, i.e. robotics, which might support Japanese strength in the coming years to decades.
As for beat down opportunities that are worth watching but too early/risky to consider might be Chinese stocks and the oil services sector. I suspect many hedge funds were buying oil related stocks early this year. It has not really payed off for them. I would like to see a shakeout leg lower to get involved.
Transports and rail stocks can be monitored for signs of slowdown. Several of the ones I checked were very rich and not seeing much value there.
While both investing and trading have commonality, I do think there are significant differences. Averaging down with highly leveraged, short-term trading will almost always lead to disaster.
On the other hand, for lower leveraged investors with longer time horizon, averaging down can work great because short of bankruptcy or a company going to zero, you can always win.
Why is timing less important? Let us imagine you are a young investor and you invest 6 months worth of your savings today. Next, let us imagine that over the next 3 months, the markets lose 50% in value. But, if you continue to save at the same rate, you now have 50% more savings to invest plus any dividends.
This is another problem I see new traders making: comparing their returns to benchmarks or averages. It is pointless to compare a highly concentrated portfolio in a couple stocks or active trading to a well-diversified portfolio because the risk is completely different.
As for other thoughts, I think the news cycle is not giving enough attention to the situation and risk in Hong Kong.
Disclaimer: Not a recommendation to buy or sell. I do not provide investment advise. I have long positions in some of the names mentioned.
The author is passionate about markets. He has developed top ranked futures strategies. His core focus is (1) applying machine learning and developing systematic strategies, and (2) solving the toughest problems of discretionary trading by applying quantitative tools, machine learning, and performance discipline. You can contact the author at email@example.com.
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