Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
UK Population Growth - Latest ONS Immigration Statistics and Consequences - 24th Mar 19
The Fed Follows Trump's Tweets, And Does The Right Thing - 24th Mar 19
Yield Curves, 2yr Yield, SPX Stocks and a Crack Up Boom? - 24th Mar 19
Risk/Reward in Silver Favors Buying Now, Not Waiting for Big Moves - 23rd Mar 19
Similarities Between Stock Market Today and Previous Bull Market Tops - 23rd Mar 19
Stock Market DOW Seasonal Trend Analysis - 23rd Mar 19
US Dollar Breakdown on Fed Was Much Worse Than It Looks - 23rd Mar 19
Gold Mid-Tier GDXJ Stocks Fundamentals - 23rd Mar 19
Which Currency Pairs Stand to Benefit from Prevailing Risk Aversion? - 23rd Mar 19
If You Get These 3 Things Right, You’ll Never Have to Worry About Money - 22nd Mar 19
March 2019 Cryptocurrency Technical Analysis - 22nd Mar 19
Turkey Tourist Fakes Market Bargains Haggling Top Tips - 22nd Mar 19
Next Recession: Finding A 48% Yield Amid The Ruins - 22nd Mar 19
Your Future Stock Returns Might Unpleasantly Surprise You - 22nd Mar 19
Fed Acknowledges “Recession Risks”. Run for the Hills! - 22nd Mar 19
Will Bridging Loans Grow in Demand and Usage in 2019? - 22nd Mar 19
Does Fed Know Something Gold Investors Do Not Know? - 21st Mar 19
Gold …Some Confirmations to Watch For - 21st Mar 19
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

Investment Analysis - Simple, Simple, Simple... but powerful?

InvestorEducation / Learning to Invest Apr 23, 2007 - 01:27 PM GMT

By: Investmentscore.com

InvestorEducation

The objective of this article is to illustrate a powerful investment analysis technique by first examining a simplified hypothetical scenario.  We will then explore this concept on the markets of today.  To do this we will:

1)    Outline some basic investing rules to be used as guidelines.
2)    Present a hypothetical scenario for analysis.
3)    Guided by our rules, form a conclusion for the purpose of understanding the markets.
4)    Explain how we think this analysis applies to the markets of today.


1)  Rules to guide investment analysis:


A.    All markets are cyclical.   No investment is constantly a good or a bad investment.  Where a particular investment is in its cycle is what is critical.

B.    There is always a bull market somewhere.  When one investment class is at an extreme high, we believe there is always an investment at an extreme low.  The trick is to invest in the investment class which buys the most of that asset for the least amount of money. 

C.    All major macro market trends will not end until an extreme is reached in the direction traveled.  Once that extreme is met, like a pendulum swinging, the new trend will start and will not end until the extreme is met in the other direction.  Bull markets start when public sentiment towards an investment is extremely pessimistic following a major bear market and end during extreme public optimism.

2)  Hypothetical Scenario for Analysis:


For this hypothetical scenario we ask the reader to ignore previous investment understandings and simply concentrate on the word problem below:

For this scenario assume there are only four major investment classes: Stocks, Bonds, Real-estate and Commodities .  It is the year 2000 and as a general rule:

a)  Stocks have been in a bull market for about twenty years, and public sentiment appears to be at an extreme high.
b)  Bonds have been in a bull market for about twenty years, and public sentiment appears to be at an extreme high.
c)  Real-estate has been in a bull for about ten years and public sentiment appears to be aggressively climbing.
d)  Commodities have been in a bear market for about twenty years and public sentiment appears to be at an extreme low.

QUESTION:
Based on the rules in section one of this article, of the four investment classes outlined in this scenario, what investment is most likely to be starting a brand new, long term bull market? 

3)  Hypothetical Scenario Conclusion


ANSWER:
The answer is obviously (d) commodities.  If we consider the above rules we know that all markets are cyclical and Stocks and Bonds are likely at the end of their bull market after a twenty year climb while public sentiment is at an extreme high.  We also know real-estate is heading into its more aggressive growth phase as public enthusiasm picks up steam.  However, considering our rule that bull markets are cyclical, the real-estate market is likely maturing rather than starting at an extreme low.  Finally, commodities have been in a major bear market for twenty years.  This asset class is practically hated as an investment opportunity and as a result ready to start a new long term bull market.

You may be wondering, since we are in the year 2007 and not 2000, how does this hypothetical scenario apply to our understanding of the markets today? 

4)  Understanding the Markets Today


The answer to that question is simple.  The same rules expressed above can be applied to the markets of today.  Why?  Human behavior as a group is very predictable.  Individuals can be unique but given a certain set of circumstances people as a collective will behave in a predictable manner.  If a group of people outside are rained on, most will seek cover from the rain.  Some individuals may enjoy the rain but most will predictably seek shelter.  When dealing with an emotional topic such as money and finances this predictability is especially true.  For example, if an investment is rising in value our excitement and greed tends to make us want to buy more.  As a group we bid prices up until they are too high, the extreme is then met and the trend quickly corrects. We believe this is the predictable behavior of markets.

So if we apply the rules above to the markets of today how can we profit from this knowledge when we invest?  We know that since 2000 until now:

a)  Stocks had a major correction starting in 2000 and have since bounced.  However, public sentiment has remained high.  We believe brand new long term bull markets do not typically start in these conditions.  Additionally, in our opinion it is highly unusual for a major twenty year bull market to end and then start with only a two year correction in between.  This is not nearly enough time for public sentiment to diminish and set the ground for a new prolonged bull market.

b)  Bonds typically follow the same pattern as stocks and in our opinion bonds are in the same situation as stocks in this scenario.

c)  Real-estate by our calculation hit an extreme high in price, public optimism, excitement etc.  The indicators of the publics extreme "can't lose mentality" towards real-estate are simply too many to list in this article.  Recently we have witnessed a correction, however in our opinion this is not nearly enough of a correction to offset the imbalance of the massive bull market advance.  

d)  Commodities have been in a bull market for about four to six years depending on how one determines the bottom.  We believe overall public sentiment towards commodities remains negative but awareness of this market is very slowly making it to the consciousness of the general public.  In our opinion this is extremely bullish for commodities.  The market is rising yet it seems most investors are not aware of the potential mega bull market.


In our opinion the commodities bull market is just getting started.  As the general public realizes the commodities bull has been roaring ahead, they will likely jump on board and push up prices to dizzying, unsustainable heights.  We think commodities are a long way from being overvalued and the time to invest in commodities is before the public becomes aware of this mega trend. We believe fortunes will be made in this bull market as early comers grow their wealth and late comers try to catch the trend, but fortunes will be lost for those who overstay their welcome.

Having a set of rules, understanding market behavior and incorporating a trading system around these principles helps an investor ignore the day to day noise and misinformation of media hype.  Having a system helps an investor reduce common investor weaknesses such as emotional trading decisions. 

We encourage readers who enjoyed this common sense approach to the markets to visit our website at www.investmentscore.com .  Here you will find free commentary, learn about our unique system for investing in the markets and have the opportunity to subscribe to our free newsletter.  You may also learn how we plan to determine when we will sell our precious metals investments.

 

By Investmentscore.com

Investmentscore.com is the home of the Investment Scoring & Timing Newslette r. Through our custom built, Scoring and Timing Charts , we offer a one of a kind perspective on the markets.

Our newsletter service was founded on revolutionary insight yet simple principles. Our contrarian views help us remain focused on locating undervalued assets based on major macro market moves. Instead of comparing a single market to a continuously moving currency, we directly compare multiple major markets to one another. We expect this direct market to market comparison will help us locate the beginning and end of major bull markets and thereby capitalize on the largest, most profitable trades. We pride ourselves on cutting through the "noise" of popular opinion, media hype, investing myths, standard over used analysis tools and other distractions and try to offer a unique, clear perspective for investing.

Disclaimer:No content provided as part of the Investment Score Inc. information constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers, including the staff of Investment Score Inc. or their affiliates will advise you personally concerning the nature, potential, value or suitability or any particular security, portfolio of securities, transaction, investment strategy or other matter.  Investment Score Inc. its officers, directors, employees, affiliates, suppliers, advertisers and agents may or may not own precious metals investments at any given time. To the extent any of the content published as part of the Investment Score Inc. information may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Investment Score Inc. does not claim any of the information provided is complete, absolute and/or exact.  Investment Score Inc. its officers, directors, employees, affiliates, suppliers, advertisers and agents are not qualified investment advisers.   It is recommended investors conduct their own due diligence on any investment including seeking professional advice from a certified investment adviser before entering into any transaction. The performance data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that such calculations are not guaranteed by these sources, the information providers, or any other person or entity, and may not be complete.   From time to time, reference may be made in our information materials to prior articles and opinions we have provided.   These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current.  As markets change continuously, previously provided information and data may not be current and should not be relied upon.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules