Those of who have only just recently followed this thread would be thinking that I am just a fundamental sort of investor, who dislikes trading and technical analysis. It is actually far from the truth. I look at all aspects.
Far from being a Buy and Hold investor who only buys but never sell, I am always advocated nimbleness because since that downturn in Feb18 we have been living in uncertain times, that only got worse over the last 6-9 months (much of that blame we can attribute to POTUS dysfunctional administration). And I have always cautioned Buy and Hold investors for the better part of the last 9 months, as I do now.
If you recall what I wrote a few days back, I look at the macro investing environment as well as the micro aspect (micro relates to the company and the sector it is in). I said that when both are positives, it would a great period to be long and that is the time to make a lot of money (it didnt matter if PE was high , you could buy high and sell higher because exuberance and momentum was pervasive in a low volatility environment). During the tech boom from 2H of 2017 until it ended in Feb18, the macro investing environment was good- economy was doing well on the back of optimism of a new President , market had low volatility and bullishness was pervasive across all sectors i.e great market breadth and small and micro-caps were doing gangbusters so the micro side was also a great positive. That all ended with the Feb18 correction at which point I started this thread to caution tech microcap holders to exit , but most did not and only faced substantial erosion in their stock values thereafter up to this very day for a majority of those microcaps (Falling Knives stocks). But after that, we had an opportunity period to invest from the end of that shortlived Feb18 correction but in better quality stocks when I suggested Flight to Quality - at that time we had neutral to positive macro and positive micro for the better classed stocks. And then we had the Dec 18 mini crash when the Fed raised rates and then U-turned, once again both macro and micro turned negative. From early 19 to mid 19, macro was slightly positive and micro was stable positive (that was time when I introduced Opportunity Stocks) but after the yield curve phenomenon from Aug19 to the big rally that ended in Jan20, it was an unstable macro environment which was negative for me and micro positives were confined to a handful of stocks (WAAAX, CSL and others). That wasn't enough and smelled trouble to me.
So my point in the last para is to say that I would be prepared to trade and do short term investing when I get positives for both macro and micro. What we have at this point in this bear rally is a highly risky macro environment while on the micro side highly volatile with a positive bias, so at best it is just 1 of 2 positive , which isnt good enough for me. I could be buying a stock at the start of the day which turned out to be the highest intraday trade price and hold overnight to face a large Dow decline for all the gains to be wiped out the next day or even worse at a loss because I got onboard at the highest on the day before. When this bear market rally ends and goes into the final Phase 3 bear onslaught, it would be a grinding loss on most days , volatility will swing only to the down side as the tussle between bull and bears disappear as few would be prepared to buy once everyone knows the "score". At this point, no one can safely say what the score is because we have no clarity, the bulls believe it will be a short lived crisis resulting in a V shaped outcome while the bear remain pessimistic that it could more likely be a dire protracted outcome and that the economy may well be so structurally impacted that it could never recover in the fashion most currently believe. By the time you get to know the score, the market would have either gone a lot lower or conversely a lot higher. We must therefore make our educated guess based on observations and insights and act accordingly ahead before the score is known to all.
Now an example I can give you is a decision over buying CAT (Catapult) when it was circa 50-60c- on the basis of its price and level of retracement, yes sure I found it compelling but I didnt buy. It last traded at $1.07 so in hindsight it was a missed opportunity. I could have jumped in and out by now and made money like many probably would have. But I didnt because I told you to avoid company specific risks and the macro/micro environment at this stage does not stack up. CAT may be a great stock but if sports cannot be conducted for yet another 6 months or more (despite re-opening), that could change the equation a fair bit.
So when can we possibly have both positives for macro and micro once again? It may be some time more , it will be the time when we see despair and widespread pain and stock valuations are trading in single digit PE and concerns abound about whether some big quality companies can survive the tragic recession that follows. If the central bankers win again, this may not eventuate and we could rue missed opportunities but at least you have not lost anything.
Stock investing at the end of the day is a risk reward proposition- there is no free lunch- it is not without risk as many have been told if one were to invest over a longer horizon. At this point, a 20% discount over the peak levels hardly stacks up in the risk reward proposition. Stay safe and choose wisely!
