…and welcome back. Wow, doesn’t time to fly so quickly. We are already into the 2nd week of January of the new year and 2018 is all but a distant memory. So how was your Christmas and New Year? Good, I’m glad to hear that…now let’s continue with that wonderful warm, fuzzy feeling of joy and happiness and make 2019 fantastic too.
This new tone of mine may seem a little bizarre to you. You may even think that I am still a little tipsy from too much festive-fuelled Sherry. And especially given the intense pessimism with which I have written my recent stock market articles, it may be difficult for you to believe me if I was to tell you that I am actually a very optimistic person. This is absolutely true; the glass for me is almost always half full, never half empty. So that’s what I want to begin this article, and more importantly this new year with; with optimism and some brilliant news.
And the brilliant news is that I am expecting some fantastic investment opportunities in the coming months. Yes, really, I am. I am convinced of it and as I write my articles I will share those opportunities with you as they present themselves.
That is because more and more investors are finally catching up with what I and the stock market has been screaming at them for months, that we are in a downward spiral, bearish trend.
Take HMV for example. I have been saying for as long as I can remember that this company is a disaster, and despite my cries, very few people took notice. Now look at what has happened; lo and behold, this near 100-year old home entertainment retailer has filed for administration (again!). The first time was actually about six years ago before it was saved from the clutches of bankruptcy at the 11th hour. However, this time there is unlikely to be any such last-minute reprieve.
So why is this good news I hear you shout?
Well you see, there is a certain kind of magic which underpins a falling stock market that is lost on most investors. Even some of my own clients who read my articles will often miss completely the intended message that I am trying to get across. They are amazed that I talk of a falling stock market and yet I am recommending to purchase certain companies. But then I explain the method behind the apparent madness and all becomes clear. And so, allow me to also explain this apparent nonsensical position to you; so that you can make sense of investing even though you believe that the market is going down.
The mere fact that I believe that the stock market is going to fall, does NOT mean that you should not be investing, for two reasons.
Firstly, I might be wrong. I don’t think that I am, and thus far I have proven the doubters wrong throughout the whole of 2018. Whilst other well-known writers, researchers, analysts and traders have called the market higher I have consistently stood out like a sore thumb in my negative stance, earning me some criticism amongst my own peers which has now turned into well-deserved credit for which I am being applauded. I don’t care to much about the praise but I do take a lot of pleasure in knowing that I was able to help a whole bunch of people who followed and believed what I was telling them.
Secondly, even if I am right and the market is heading south this does not mean that the best strategy is not to invest. In fact, it’s rarely a good idea not to invest, especially with interest rates so low; you should always think about where you can at least earn a modest return on your capital. Instead of just sitting on cash and hoping for a market fall you should be looking for the priceless opportunities of companies which are significantly undervalued and where you can make a quick turn.
You see there comes a point where the general investor public catches up with the market place and that is what is happening now, and that’s exactly why I am beginning to get excited for this year. Because unassuming investors are panicking which means that they are making bad, ill-informed decisions. In some cases, I am seeing investors sell their whole portfolios in desperation and fear of losing everything. In fact, it happened to me just last week. A client who had a perfectly robust portfolio and who simply needed a little hedging protection to give it that extra bit of security, decided that because he didn’t understand how hedging worked, that he would cash everything in.
Whilst this was crazy and I told him so, it is of course his money to do with whatever he wishes. But this type of reckless decision means an opportunity for another person. In fact, the more reckless somebody is, the bigger the opportunity for somebody else.
So, you see, if more and more investors are making these bad decisions, and panicking (which they are), this means that prices are being driven down artificially which in turn means that there will be some fantastic buying opportunities.
Now obviously you need to know what you are doing and have a strategy to follow and you can’t just buy without an understanding of how to protect against a market fall, but get it right and you could make more money this year in a falling market than you ever did when the market was going up – and how wonderful might that be. Could you imagine that?
Whilst everybody around you is losing their mind and their shirt (in that order), you are as calm as can be, and actually end up making a healthy profit this year. It does mean looking for shorter term opportunities which some investors are uncomfortable with, but if you can get yourself over this internal, mental block there’s a whole new world of opportunity just waiting for you.
But there is something even more important than identifying undervalued companies which is to have a sensible strategy with regards to ‘asset allocation’. The problem at the moment is that share portfolios are not materially different to what they were two or even three years ago, and yet the market conditions are very different. That’s the biggest single mistake that I see right now. It’s like driving your car at 70mph when the sun is shining and still trying to goat the same speed even though there is clearly traffic ahead. It’s not a good idea.
You have to change, adapt and recognise the dangers ahead. Most people failed to do that last year and just as many will fail this year. And therein lies your opportunity. Some people will put the brakes on completely which is just as bad an idea.
So, let me put my money where my mouth is and tell you what I predict is going to happen in the coming weeks This isn’t investment advice by the way in case you are wondering but feel free to monitor the outcome and let’s see if I am right.
This is what I think will happen. I think that the stock market will experience a short-term recovery in the first instance. I’m not going to give you my golden formula as to how I know (or at least strongly believe) that this will happen but I will share this with you – the Santa Rally never happened as I correctly predicted and as I wrote about in my previous articles and so the ‘January effect’ will have extra momentum than it did last year.
This in turn I believe will catch some heavy institutional short positions unaware which will result in a short squeeze where long stop loss positions are triggered. During this time, you need to be careful and not to invest but in fact do the opposite. For me this is an obvious opportunity to start taking profits by selling into strength where you can and to prepare yourself for the next downward wave which is inevitable.
It also makes sense to introduce hedging strategies including buying put options if that is part of your investment strategy as the reduced volatility should translate into more cost-effective premiums. This means that it won’t cost you the Earth to insure against the downside risk. It’s the equivalent of taking out home insurance – you want to take it out when things are calm, not just after a thunder storm which has flooded your house.
You could if you were feeling particularly brave actually buy over the next few weeks with a short-term view, but that would mean having excellent timing and a little Lady Luck on your side, to know when to get out and not to get too greedy by holding on for too long (not the easiest thing in the world to do). And that’s why I wouldn’t advise it unless you are confident of pulling this off.
Make no mistake though. Either by the end of January or not much longer after, the red on the screens will surely return with a vengeance. That’s why you should now use this time wisely to regroup, and consider your strategy for 2019.
The FTSE100 was down over 6% from the start of 2018 to the lowest it has been for 2 years, and the S&P500 lost a sizeable 15% whilst other major global indices including the Hang Seng and the Nikkei, and the European bourses are all struggling.
Tomorrow I have an interview on CNBC Europe where I will be discussing my thoughts on the European equity indices for the year ahead. Well, you heard it first. Yes, we are going down. We don’t have the boosting power that would be fuelled by a Donald Trump styled massive tax cut, we no longer have easy money that can printed via QE, and dare I say it, we are just around the corner from the trouble that lies ahead with Brexit.
But that’s not all, the trade war between the US and China is heating up again, the Italian deficit problem is not going away any time soon and investor confidence is as low as it has been since the financial crash of 2008.
This would also explain why gold, which has had its own mixed fortunes in recent years, jumped up by more than 5% in December to nearly $1,300 an ounce and silver trampoline-somersaulted by nearly 10% during the same period to $15.50 an ounce. But you would be forgiven if you had missed this move because it was concentrated on those few days between Christmas and New Year’s Day. And again, that comes as no surprise because nobody was expecting it which is why prices could be driven up so quickly due to a lack of trading liquidity.
Which brings me back full-circle to my original point. This will be a fantastic investment year for you if you know where to look. If you are stuck in the wrong equities then you need to get out. If you are stuck in cash you need to invest and find those undervalued opportunities (which are more abundant now because of the panic sellers). If you are in commodities like gold then you need to know when to exit (don’t just buy and hold because that won’t work). If you have no hedging strategy in place, then you need to get something in place quickly and now is the time to do it. And so on, and so forth. There is a lot to consider but it’s worth taking the time for that consideration.
If it all still seems too daunting, don’t worry. Just before Christmas I held a webinar on the single most important strategy that you need to know which is the asset allocation process, where I explain my exact blue-print strategy that I am implementing for my clients in 2019. If you would like a copy of the one-hour recording I will be making it available for a short period of time so just email my team and they will send it over free of charge. Have a watch and see for yourself the possibilities available even when (not if) the stock market crashes.
Simply email firstname.lastname@example.org and we will send it out to you.
Until next time, a very happy New Year to you and your family and may 2019 bring you much health, happiness and prosperity (in that order).
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