Investors Column – Is the Market Going Up?

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Money Matters

February 20, 2023 by Scott Crosby - Views: 66

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Investors Column – Is the Market Going Up?

The S&P 500 has been trending up since its low-point in October – albeit in a series of fits and starts.  How can an investor make the right investing choices?

S513-1.jpgCertainly there is money to be made.  While many experts and pundits warn of a deeper recession in late 2023, others are saying they have made plenty of successful investments in the past several months.

What kind of investments are making money right now?  

Investors who “buy the company” or “buy for the long term” are hardly losers.  Their ultimate success is as sure as investments can be.  But right now, their net worth is undeniably down.

Buying for the short term may be a good choice for a fraction of your portfolio.  In periods that often last for hours, days, or weeks, to a large extent the market has been cyclical – moving up and down, but staying more or less within a range.  

Your goal is to take advantage of that cycle, buying at the low end, and selling at the high end.

Market conditions at times like these are when your research and tracking of a number of specific companies really pays off.  If you track 20 or 30 companies that you think are likely to be good candidates for investments, consider buying small amounts of several at a low point in their individual cycles (which will not occur at the same time).  

Instead of buying 500 or 1,000 shares, buy 50 or 100.  Spread your investing over a variety of categories:  sales, manufacturing, tech, transportation, health, defense, etc.  

Almost all stocks have days when their price will spike unusually high; at that point sell, and take the profit.  Then wait for that stock to bottom out in its cycle once more, and buy the stock again.

If you buy a stock, but the price falls, you may choose to hold on and wait.  The strategy and judgements you make are the same as those for buying stocks for the long-term – except that your perspective changes to cyclical stock prices.  

This approach can be nicely profitable, but it takes a lot more time and attention.  It carries with it the same danger of losses, but in general, if you wait long enough, if you bought the stock of a good company, it will ultimately be profitable.  

The same caveat must still be kept in mind:  if you see bad news about a company that causes the stock to drop in price, you may decide that the wait will be too long.  Accept taking a loss, and use the money to buy something that shows better promise.

However, a word of caution:  it is not uncommon for a stock to fall on bad news, but regain some of that loss on the following day.  If selling at a loss, it is often best to avoid selling when a big sell-off is in progress.

Also, study the general pattern of changes to stock prices in a normal day.  Often prices will start out low, rise into a mid-day hump, and then taper back to a price virtually unchanged from the price when the day began.  Buy at the low points, and sell on the hump.

Watch the “Futures” market before the trading day begins at 9:30:  if Futures are generally down, expect the day’s stock prices to start below the prices of the previous day.  More often than not, prices will then rise in the mid-day.

If the Futures market is up, expect prices to be higher when the market opens at 9:30.  Usually, the market will then taper downwards.  The exception is when the Futures prices are up due to some major news, which everyone believes indicates an improving economy.  Good news can cause the market to go up for several days, followed by a new leveling-off that aligns with investors’ revised expectations.  

Buying and selling for the short term will never make you rich, and doing so can result in more-frequent stock market losses.  However, some people enjoy this approach, buying a stock on a day when its price is down, and selling it when it is up.  This kind of investing can help hone your judgement skills, even if once in a while you have to “pay tuition” at the “University of Hard Knocks”.  Too, it is encouraging to buy and sell stocks profitably in the short term, particularly when the market is in the doldrums.

This kind of investing also requires you to stay alert for news and trends affecting the stock market as a whole.  If there is a downturn later this year, as many experts still warn, then there should be some precursors and indicators that can give an alert investor notice that it is time to sell stock he does not want to keep for the long term.  

Caveat emptor.

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