Trading & Investing

Entering what is going to be our worst week in the US from the pandemic, there is finally some light at the end of the tunnel.  Stocks, Bitcoin, Gold all rallying into the positive news that things are looking better.  So seems appropriate to buy some stocks here right?

Sure there are some stocks that are still at tempting prices, but emotions are superseding reality and the extent of the damage has yet to set in.

Easy to get caught up in the emotions of the daily price action and think this market is just going to push back to highs in a couple weeks.  Maybe it does, who knows, and though we might be winning the battle, we are coming up on earnings season and that may be the catalyst for a pullback to reality.

To think companies are going to be reporting “we are back to normal” is far stretched.  Likely to see more layoffs, bankruptcies and a test of our financial system once again.  It is still to early for a damage assessment and one thing lost in the good news is an exit plan for the stay at home orders that have shut down our economy.

Remember economies are complex and there is a domino effect to sectors like the airlines, cruises and hospitality taking a hit for months if not years. So take the current rally with a grain of salt.  Over 5% of the US population is in hospitality and leisure.  Tourism and Travel account for 2.8% of the GDP, and Boeing alone accounts for 0.5% of the economy.

This does not include automotive, boats and other discretionary ticket items for which companies are likely to start laying off.  After all who is buying a new ski-doo here?  All these industries are at risk and it trickles down to other industries implying further layoffs.

Less people going out to eat, going to movies, and spending on discretionary ticket items which boost the economy during good times..  Who right now is looking at a new car a $1400 phone or a pair of $200 Nike’s?  This is where the consumer gets frugal and this prolongs the economic pain, and it is not just the hospitality, leisure and discretionary markets.

Who right now is building a new restaurant or opening up a new retail shop in a strip mall? How many new construction projects are going to be put on hold, or completely abandoned? Start to see a layoff in construction and then who is buying a 60k dollar truck? Sales persons get laid off, real estate starts to take a hit, the domino effect has just started, not ended.

Of course markets are forward looking but do not ignore there is still a lot of risk to the markets here, and though we may have printed a low, this is not to say we can’t retest it or even attempt to push a lower low.

Now if you are under 40, this is an opportunity of a lifetime to pick some quality stocks for the long term buy and hold.  We have done that with our AI and IoT portfolio, but have also kept a good cash position in our active portfolio of 25%.

The strategy is simple, sell into strength and not to succumb to the emotional swings of the market.  Those days when all hope is lost we buy, those days when it seems like roses and green pastures we sit aside or trim out a little.  The toughest thing with investing is discipline to stick to your plan, be patient and wait for opportunity.