You may have to copy and paste the link onto your web browser to see this.
Looking at past 10 previous Dow outcomes when Dow experienced a correction in the early months of the year, it is usually followed by another correction months thereafter within the same year. If such trends were to repeat itself, we could possibly see another Dow correction as early as April-July 2018 timeframe or September-November 2018. In the interim until we see that correction, the market IMO will be choppy and volatile and as a result we could see a lacklustre and subdued market sentiment across the board especially in the speculative space.
Given that, I believe the “Buy and Hold” strategy is over with exception of proven growth stocks that can continue to beat market expectations. The Buy and Hold strategy will not be as effective during a bearish trend because the market will not be kind to companies that either has only minimal revenues and/or have large losses or cash flow negative – the same accommodation that the market provided during the exuberant days of mid to end 2017 will no longer be there because the bear would have taken over control (buyers have no forward reason to push up prices). Any short term upside experienced will be met with selling (into strength) resistance. Recognising this is a way to limit losses and/or preserve gains made earlier.
It is always easier to buy than to sell. And you know why? Because selling is like betraying your personal conviction about the stock you bought, let alone selling for a loss (“I didn’t buy to lose”). But reality is that a lot of the more speculative stocks that we buy believing the story or have conviction are not really what we thought they are (actually we don’t need to cite GSW and BIG although they are recent examples, if you look back in history, the ASX has been littered with quite a number of them in the past). Perhaps only 5-10% of stocks become the multi-baggers (only reason to stay long) that prosper to be a dominant business in their own field of specialities. The obvious dilemma now is that selling after a stock has just experienced a 40-50% fall in the speculative tech space seems rather ridiculous and that if we were to sell, we should have done so much earlier. People can look into the Rent.com case study I posted earlier (see in thread) and make their own judgment. Maybe better late than never? Personally I don’t buy the wisdom that you have not lost money until you sell i.e if you are having paper losses, it’s not a loss. While that is true, in a lot of cases especially in the speculative end, you could be on false hope. If the stock could not generate revenues to have the hope of eventually making money after a period of time, it is more likely it could never get there and when everyone realises it, it would be trading at a small fraction of what it used to worth when everyone had the belief. Flip it another way, you can also say that until and unless you sell, you have not made any gain or gain you have on paper but no one seems to say it. But ask the holders of GSW who bought at 50c and held till $4.60 and did not sell and now left with 55c. Bottom line : the ledger remains open until the sale is effected (and this is what I meant by ‘doing nothing is doing something’).
I also believe post the mid to late 2018 correction (if this does not turn into something uglier), a substantially more adverse market environment awaits us within 2019-2020. A higher cash allocation in portfolio would enable investors to capitalise on the market malaise that lies ahead.
