""Investing for dummies""": Follow The Trend

“””Investing for dummies”””: Novel Trend Following Techniques

Updated Feb 23, 2024

Regarding “””Investing for dummies”””, following the trend can be a valuable strategy, but it’s also essential to understand the value of a contrarian perspective. A contrarian investor often looks for opportunities to buy or sell assets contrary to the prevailing market sentiment. This approach can be efficient when combined with mass psychology (sentiment analysis) and technical analysis (TA) to fine-tune entry and exit points.

Mass Psychology and Contrarian Investing:

Mass psychology involves understanding the collective behaviour of market participants. When most investors are fearful, they may sell off assets, sometimes irrationally, leading to undervalued market conditions. Contrarian investors see this as an opportunity. For example, during a market panic where investors are “throwing the baby out with the bathwater,” a contrarian might observe that the fear has led to an oversold condition. If key technical indicators on the monthly charts also suggest that the asset is trading in a highly oversold range, it could be a signal to buy, even though conventional trend analysis would suggest selling.

Technical Analysis and Contrarian Signals:

Technical analysis provides tools to identify when the sentiment has reached an extreme. For instance, the Relative Strength Index (RSI) is a momentum indicator that can signal overbought or oversold conditions. When the RSI falls below 30, the asset may be oversold. A contrarian investor might interpret this as a buying opportunity if this aligns with a period of high fear or bearish sentiment in the market.

Examples of Contrarian Opportunities:

When discussing the value of following the trend from a contrarian perspective, it’s insightful to look at examples where this approach has succeeded. Here are two instances where contrarian strategies, backed by sentiment analysis and technical analysis, have proven effective:

1. The Dot-com Bubble Burst: In the late 1990s, the technology sector experienced a significant bubble, with stock prices soaring to unprecedented levels. As the market peaked, sentiment was overwhelmingly positive, with investors pouring money into tech stocks regardless of their fundamentals. However, contrarian investors who recognized the unsustainable nature of the trend and the extreme optimism in the market began to sell their tech holdings before the bubble burst. When the market eventually crashed in the early 2000s, these contrarians avoided significant losses and could buy back into the market at much lower prices.

2. The Financial Crisis of 2008: Leading up to the 2008 financial crisis, the real estate market was booming, and mortgage-backed securities were highly sought after. The majority of the market was bullish on these assets, but a few contrarian investors noticed that the housing prices were inflated and that the quality of the mortgage loans was deteriorating. By analyzing sentiment and technical indicators that suggested the market was overbought, these contrarians bet against the housing market. Their contrarian view was validated when the market collapsed, leading to significant profits for those who had positioned themselves against the trend.

In both examples, contrarian investors used sentiment analysis to gauge the market’s mood and technical analysis to identify overbought or oversold conditions. By doing so, they could make informed decisions that went against the prevailing market trends, ultimately leading to profitable outcomes. These cases highlight the potential value of a contrarian approach, especially when market sentiment reaches extreme levels.

“””Investing for dummies”””: Mass Media Lies

In mass media, there’s a notable pattern where sensational narratives often dominate the landscape. This phenomenon can be likened to a chess game, where each move is calculated for immediate impact and its psychological influence on the players and spectators. In many instances, the media has been criticized for playing the role of the “Master of Lies,” crafting stories that instil fear and uncertainty rather than presenting unbiased facts.

The Psychology of Media Narratives:
The media’s influence on public sentiment is akin to a grandmaster’s foresight in chess. Just as a grandmaster anticipates reactions and plans several moves, the media often projects narratives that shape public perception and future behaviour. The propagation of fear, mainly through dire predictions about significant political or economic events, can be seen as a strategic move to control the masses’ reactions.

Historical Misdirection and the Truth:
Time and again, the media has been accused of inverting the truth, with experts making apocalyptic predictions that fail to materialize. The forecasted chaos following Brexit or the US-China trade tensions often leads to a skewed perception of reality. In chess, this is equivalent to setting a trap on the board, waiting for the opponent to make a mistake based on misinformation.

Independence and Rational Analysis:
Just as chess players value the freedom to make independent decisions on the board, individuals generally prefer autonomy over being led by misleading narratives. True independence in thought and action is rarely the precursor to chaos unless it infringes upon the sovereignty of others. The narrative often suggests otherwise in the media’s chess game, but a discerning mind seeks to look beyond the presented moves to understand the actual strategy.

Strategic Entry Points and Mass Sentiment:
Investors and observers can apply a chess-like strategic approach to analyse market trends and media narratives. By understanding the underlying sentiment and psychological tactics, one can identify strategic entry points that go against the grain. For instance, when the media narrative reaches a fever pitch of pessimism and technical indicators suggest an asset is oversold, it may be an opportune moment to invest, contrary to the prevailing sentiment.

In conclusion, navigating the media landscape requires a strategic mindset similar to that of an advanced chess player. By analyzing the moves made by the media and understanding the psychological impact, one can discern the truth from the sensationalism. This approach allows for a more rational and independent analysis of events, free from the influence of fear-inducing narratives.

“””Investing for dummies”””- Crises = Silent Opportunities

During times of crisis, such as the current coronavirus pandemic, investing in stocks with a long-term perspective can be an excellent opportunity. However, it is essential not to invest all of your funds at once but in small increments to lower your average entry price in case the stock drops further.

1. Take advantage of low prices: Crises bring about dramatic stock price declines, giving investors a chance to acquire shares at discounted rates. To mitigate risks associated with volatile markets, consider investing in small increments to decrease your average buying cost if share values continue falling.

2. Adapt and stay agile: Chess players know that adaptability is vital to success, and so do investors. Be ready to modify your strategies in response to shifting market dynamics by trimming expenses, allocating resources wisely, and possibly lessening exposure to risky investments.

3. Keep sight of the endgame: Short-term turbulence can cause anxiety, but maintaining a long-term view is critical. Black Swan incidents—uncommon, unprecedented developments with grave repercussions—have recurred historically. Many sell-offs have proven fleeting, while markets have mostly recuperated over several years.

4. Draw insight from past experiences: Like successful chess players who recognize anticipating everything is impossible, investors should examine prior crises to glean valuable nuggets and tactics that worked well.

5. Leverage technology: Computers can crunch massive volumes of data and reveal patterns beyond human perception. By utilizing technology, investors can improve their comprehension of market trends and make better choices. Nevertheless, combining people, machines, and procedures surpasses machine-only solutions.

6. Reflect and assess: During crises, taking a break and reviewing your objectives and approaches is crucial. This pause offers an opportunity to develop fresh routines, conceive innovative methods, and prioritize matters. By staying receptive to novel techniques and ready to abandon obsolete ones, people can become fortified and better equipped for the crisis.

Historical Backdrop

Now, let’s examine the situation through a historical lens, recognizing that those who learn from history are less likely to repeat foolish mistakes.

Forever QE

Forever Quantitative Easing is here to stay, and until it ends, every backbreaking correction must be treated as a mouth-watering opportunity.

The term forever QE has just started to come into play recently, and mainstream media will most likely embrace this term and weaponise it. However, we first addressed this phenomenon back in 2015 and here is the link that details what was said at that time https://bit.ly/2CILKGi

The outlook has only worsened since then; the new tax breaks corporations got will be used to purchase more shares, and the reason is simple: it pays more in the short term to boost profits by reducing share count than investing in the company. Corporations will continue down this path until new laws are enacted, and they will become more emboldened with time. Gone are the days when there was a semblance of caring for the investor; insiders are only concerned with how much they can make and don’t care if they destroy the company. Share buybacks are rising and have continued to grow since we first posted that article.

“””Investing for dummies””” Tip 3

Forever Quantitative Easing Fuelling Buyback Binge:

Buybacks, a popular method for companies to return value to their shareholders, have reached a record high in the U.S. According to Michael Schoonover, the portfolio manager of the Catalyst Buyback Strategy fund, the total U.S. stock repurchase announcements crossed the $1 trillion mark in mid-December 2018. This is the first time it has ever happened. Additionally, there has been a significant pickup in recent weeks as markets have been in a downdraft.

Nearly half of the $1.08 trillion in buyback announcements are concentrated in 19 companies, accounting for $460 billion. Despite the record-setting buyback authorization levels, 2018 has been unusual because fewer companies account for the total buybacks. Buybacks signify that companies are confident in their prospects and have excess cash on hand to return to shareholders. However, they have also been criticized for prioritizing short-term gains over long-term investments in the company. Full Story

Take this as an early warning that should the media jackasses start pushing another B.S story, instead of panicking, one should break out of a bottle of champagne, and as the masses panic calmly sip on that champagne and build a list of strong stocks one always wanted to purchase. For those allergic to work, the option is simple; sit back and relax, for we always view crash type events as opportune moments when the trend is positive. Market update Feb 28, 2019

Perception Vs Reality

Regarding the stock market, it’s crucial to treat the news with scepticism or a humorous lens, as the media’s attempts to create a new narrative have consistently failed. Sharp corrections should still be seen as buying opportunities, especially if they’re deemed “once-in-a-lifetime events” if the overall trend remains positive. Our role is to inform investors of the trend’s upward or downward direction.

Additionally, the desire for constant action, regardless of market conditions, leads to losses among professionals who believe they must earn a daily income instead of viewing trading as a long-term strategy. Speculators must be both students and practitioners; studying general conditions is essential to anticipate probable outcomes. Brands communicate their personalities through packaging, visual imagery, and descriptive language, and consumers are drawn to certain personality traits similar to those they find appealing in people.

Emotions drive purchasing decisions, and effective marketing campaigns appeal to customers’ feelings. Neuroscience studies indicate that individuals lacking emotional capacity are unable to make decisions. Ultimately, emotions lead to actions, compelling humans to choose between fighting or fleeing in response to danger.

However, it’s worth mentioning that the stock market has never ended in a state of fear or anxiety during a bull run. News, in general, should be approached with caution or humour. Companies considering charging admission fees for events to increase customer preferences for their products or services should first imagine what they would do differently if they did charge admission. Their answers could guide them towards moving forward into the experience economy.

Finally, it’s crucial to remember that chess players and Machiavellian strategists recognize the significance of adaptability and flexibility in responding to changing circumstances. Investors must also be willing to adjust their strategies in light of market conditions, including cutting costs, increasing expenditure in certain areas, and potentially reducing exposure to high-risk assets.

The world will witness a Fed that has decided to make a cocktail of Coke, Heroin, Crack and Meth and take it all in one shot. Imagine what a junkie on this combination of potent drugs is capable of doing, and you will have an idea of where the Fed is heading in the years to come. Market Update Feb 28, 2019

“””Investing for dummies”””: Lesson 4

When uncertainty is running high, the markets are likely to trend higher.

The masses are still uncertain, and we find uncertainty adorable; nothing is more bullish for the markets than an undecided crowd.

The best time to buy is when the masses are in panic mode, and when one feels far from certain about the future of the markets; certainty is the secret word for failure when it comes to the stock markets. Market Update Feb 28, 2019

According to recent readings, the number of individuals in the Neutral camp has remained relatively stable and is gradually increasing. In 2019, the Neutral camp consistently outnumbered the Bullish and Bearish camps, indicating a long-term bias among the masses. This could be due to the political landscape, which may interfere with people’s ability to perceive reality accurately.

Until we have a feeding frenzy stage, this bull market will not end.

It’s important to remember that many factors influence the stock market, including economic data, geopolitical events, and investor sentiment. While the neutral sentiment of the masses may be a bullish indicator, it’s essential also to consider other factors that could impact the market.

Additionally, assuming that the masses will react with a “feeding frenzy” and then face a “sharp guillotine” is inaccurate. While market corrections and downturns can and do happen, predicting the timing and severity of such events is complicated and often unreliable.

Investors should approach the market with a long-term perspective and a well-diversified portfolio to mitigate risks and take advantage of potential opportunities.

Masses will eventually embrace this bull.

The number of individuals in the neutral camp has hardly budged over the past several weeks and is trending upwards. This indicates a long-term bias among the masses and shows that the political landscape messes with their ability to distinguish reality from fiction. However, this development is bullish, so the market will eventually experience a “feeding frenzy stage.”

Contrarian players who mistake the initial bullish surge as a sign that the markets are ready to top out will shed tears. The article recommends not adopting a position that opposes the masses until the crowd is in a state of ecstasy, and the bandwagon of joy should be ready to collapse before betting against the masses. As we are far from the “feeding frenzy stage,” the bull market is unprepared to die.

This bull market is unlike any other; before 2009, one could have relied on extensive technical studies to more or less call the top of a market give or take a few months; after 2009, the game plan changed and 99% of these traders/experts failed to factor this into the equation. Technical analysis as a standalone tool would not work as well as it did before 2009 and in many cases would lead to a faulty conclusion. Long story short, there are still too many people pessimistic (experts, your average Joes and everything in between) and until they start to embrace this market, most pullbacks ranging from mild to wild will falsely be mistaken for the big one. Market Update Feb 28, 2019