And I add that against the backdrop of my morning post comments today, it is once again important to be sectoral focus and being in the Right Stocks in the Right Sectors, rather than being indices focus.
CNBC revealed last night that the two worst performing sectors in the US have been energy and financials , they are cyclicals and value stocks not growth. Even with tech growth punished, so were the financials and energy. Value has so far eluded everyone and growth is now back in play. But CNBC also showed something interesting, the best performers within financials were those dealing with financial data not those involved in the lending business.
So this suggests that market participants should be discerning in their choice of stocks within the preferred sector. For example, within the tech growth space, you would not want to be in those that have nose bleeding valuations but little to no traction despite very good price action to date (e.g BRN, YOJ) or that have been overextended e.g the BNPL sector , you may instead want to focus on e.g a AI media tech play like AIM which is still under the radar and has more room to the upside. For techs, under the radar growth plays offer best risk-reward , i.e dont jump the bandwagon after the popular names that everyone clamoured to get onto, the upside is limited the downside risk greater and at best they trade sideways. In the gold sector, gold producers will surely come under pressure with a declining gold price but undervalued promising gold juniors offer a better longer term risk-reward proposition that is more resilient in the short term especially with promising mineralogy results to boot.
As I did mention, a more discerning market participant will know not to throw the baby with the bathwater out.
And the key success in a more challenging market environment would be to invest in the high probability knowns that is still way undervalued and steer clear of high probability longer term risks. High probability knowns are like the large growth European EV market and where still undervalued stocks like EMN and VUL (both companies are in Europe and will benefit from Europe) sits to benefit from this phenomenon in the years ahead. High probability knowns like COVID increasing the trend towards online purchases/activity boosting RBL's marketplace, MMM subscription meal kit franchise, Ao1's virtual property inspection app prospect, FGL's mobile retail price comparison app amongst others. High probability knowns like prospect of diminishing China purchase outlook and their longer term negative ramifications for our iron ore stalwarts, milk companies, education sector etc to steer clear before they happen (Be Ahead of the Curve).
In short, know the sectors and know the companies within the sectors and why or why not (to invest).
When in good times, every stock rises and traders want to get into those that rise fastest but in more challenging times, it is easy for traders to lose money using charts and short term trading approaches timing market movements which could be hit or miss but if the stock being traded is at lofty valuation or offer little basis for continued interest there is no foundation to lean on into the longer term, because such stocks can retrace back significantly in the absence of fundamental underpinnings. A measured investment at the right price for the right stock in the right sector over a longer term horizon based on the sector's longer term fundamentals would IMO provide the best approach to success in the stock market. Because the right stock will still perform admirably well no matter what the market does. The right stock that ultimately delivers the goods will always prevail. This is why that is more important than being fixated at price watching and associating price action with fundamentals because they are not the same- yes market participants, in irrational exuberance can be completely myopic (something I told the BIG forum in the months leading to its administration).
