Intelligent Investing: Harnessing the Power of Data

Intelligent Investing: Navigating the Stock Market with Confidence

Updated Feb 2023

To win, you have to have a stake in the market; it does not matter whether you are right or wrong if you have no stake. You will walk away with ZIP; if fear is your primary driver, you know nothing about investing. Investing is about focusing on the Forest and not the individual Tree. You look at the entire picture instead of concentrating on short-term aberrations. History clearly illustrates that FEAR PAYS POORLY. We have compiled a list of intelligent investing strategies.

While the Bears win, their moment of Glory is short-lived, and if they don’t move fast, all those gains can quickly evaporate. On the other hand, a long-term investor only needs to focus on the trend, and the odds are above 90% that he will win.

Pessimism is one of the best buy signals. But everyone forgets this because they want things to turn around rapidly. Sometimes they do, but usually, they don’t. The concept of investing is easy but putting it into practice is hard for most investors who lack patience and discipline. No bear market, no crash, no recession, etc., has marked the end of the financial market. So why do you think it will be different now? The only thing that fluctuates is the duration of the correction and one’s personal opinion.

Contrarian Investing equates to less emotion.

For the record, investors are currently more bearish than they were during the COVID crash. During that time frame, the highest bearish reading was around May 9 2020, and it came in around 53. The SPX tacked on more than 25% after the high of 53 in May 2020. And it continued to trend higher, putting in a series of new highs. If you were a bear, you would have lost everything and more.

In Dec 2018, bearish sentiment hit 51%. While there was some volatility, 180 days later, the SPX was trading almost 20% higher.

Bearish sentiment In April 2013 also traded past 50 briefly, and once again, the bears got hammered. Six months later, the SPX was up almost 7%

The record so far for bearish sentiment is around 71 in March 2009, arguably one of the worst corrections in modern history. Shortly after that, the markets bottomed, and 26 weeks later, the SPX was up almost 42%. This also turned out to be one of the most potent bulls in history. Remember, the equation must balance, and the upside action is more decisive and always lasts longer.

In contrast, on May 1, 2022, bearish readings soared to 60. Interestingly, the highest readings in 2020 and 2022 both occurred in May. History does not repeat itself, but it tends to rhyme. Hence, the odds are above 90% that the markets will recoup their gains and plenty more. It comes down to the question of when and not if. If you are short, you are running against the clock. Time is on your side if you buy the right companies and wait.

Formulating an intelligent investing gameplan

Build a wish list or use our wishlist. Deploy more capital into green colour-coded plays. Once the bottom is in ( you will only know this later), you can deploy more into speculative or higher-risk plays.

Enable DRIP. This is an excellent way to speed up your rate of return

Learn how to sell covered calls (SCC). In the worst-case scenario, your upside profits are limited. But you can always repurchase the calls and sell new ones. Or you can let the shares be called away, purchase new shares, and start the process all over again. Google and Youtube can help turn a novice into a Pro on the SCC and SCSP.

Options can help generate investment income.

Learn how to sell cash-secured puts (SCSP); this is a very safe strategy, provided you don’t mind owning the shares. It is as safe if not safer, than placing a limit order, and you get paid while you wait. If the shares are not put into your account, you get paid for putting in a limit order. If understood correctly, these strategies can help generate a steady income stream. You can use this income stream to purchase even more shares. In our opinion, it is worth allocating several weeks to master these simple strategies. In all honesty, You can learn the basics of SCSP and SCC in a few hours if you are a fast learner.

So if you have time, are not using the money you need for your daily expenses, and more importantly, if you don’t give in to fear, your odds of success are close to 90%. Investors lose because they give in to worry, forget what they are investing for, and even forget what investing is all about. If you only focus on the short term, you are not an investor; you are a gambler and gamblers, like bears, will lose 90% of the time.

Probably the most crucial intelligent investing strategy would be to follow this one strategy

Buy – when there is blood in the street. Buy even more when some of the blood happens to be yours.

Additional Insights

Investing in the stock market is often seen as a straightforward path to financial success, with many people jumping on the bandwagon without considering the potential risks and downsides. However, a contrarian approach to investing suggests that this conventional wisdom may be misguided and that investors who take a more sceptical, critical, and unorthodox approach can achieve better results.

Recent research supports this idea. A study by Barclays found that stocks that are out of favour and under-researched by the market tend to outperform the market in the long run. Similarly, a report by AQR Capital Management showed that a value-oriented investing strategy, which goes against the crowd by seeking out undervalued stocks, outperformed growth-oriented strategies over a 20-year period.

In addition to these studies, a contrarian approach to investing can also help mitigate the impact of emotional decision-making and market volatility. Conventional wisdom often leads to herd mentality and irrational investing decisions, while a contrarian approach encourages investors to take a more measured, long-term view of the market and resist the temptation to follow the crowd.

It is important to note that contrarian investing is not simply about betting against the market or taking reckless risks. Rather, it involves a careful, critical analysis of market conditions and a focus on undervalued, overlooked, and under-researched stocks.

A contrarian approach to investing can lead to better results, especially for those who are willing to challenge conventional wisdom and embrace a more critical and unorthodox approach to the stock market. So, be a contrarian, think outside the box, and enjoy the fruits of your unique perspective on investing.