Investment Pyramid: Valuable Concept Or ?

What is an investment pyramid?

This is what Investopedia has to say on this topic:

An investment pyramid, or risk pyramid, is a portfolio strategy that allocates assets according to the relative risk levels of those investments. The risk of an investment is defined in this strategy by the variance of the investment return, or the likelihood the investment will decrease in value to a large degree.

The bottom and widest part of the pyramid is comprised of low-risk investments, the mid-portion is composed of growth investments, and the smallest part at the top is allocated to speculative investments.

Individuals mistakenly pay too much attention to the structure of the pyramid. The focus should be on developing a system to identify the strongest stocks in the strongest sectors. If you invest in stocks that are in the early stages of breaking out and or in the strong uptrend phase, the odds of success are over 80%. However, if you just focus on the nonsensical ratios most investment pyramids push out without developing a sound strategy you will not fare well in the long run.

Tactical Investor Investment pyramid

 Investment pyramid

Our Investment pyramid is simple. A large percentage of funds should be allocated towards strong stocks/ETFs and these positions should be held until the trend ends. At the Tactical Investor, we use the Trend Indicator to spot new trends.  20% to 30% of one’s funds should be allocated to swing trades. Here the focus is on shorter time frames, though one should not confuse this strategy with day trading. Day trading is generally for fools as 90% of these chaps leave with a lot less than they started out with; plays under the “swing trade category” should typically be held for 3 to 6 months.

The next level is options investing; believe it or not, options investing can help deliver stellar returns and or provide a stream of steady income if utilized wisely. The first rule should be never to allocate more than 20% of your portfolio for investing in options. These funds should then be divided into 6 to 10 lots and equal amounts should be invested in each play.  The same holds true when investing in stocks; the total amount of money to be invested should be divided into equal parts. For example, 100K is divided into 10 parts of 10K. Each of these parts is then divided into 3 lots and each lot should be invested one at a time. Utilizing this strategy, one has the opportunity to purchase the same stock or option at a lower price if it should pull back. This minimizes the risk and maximizes the profit factor.

Instead of focusing on Investment pyramids, focus on the trend

So where is the market headed too? First, take a look at what we said back when the markets crashed in March of 2020.  We are in a new paradigm and with all this chaos around us, one has to understand that the investment pyramid concept is not the most important area to focus on. One has to be on the right side of the fence, before thinking about putting the investment pyramid or the risk pyramid strategy into play.

Long before this pandemic hit, we stated that central bankers, especially the Fed, was on a mission to take rates towards zero. Imagine if the Fed had lowered interest rates by 150 bases two weeks ago, how people would have reacted.  When the Fed cut rates before the coronavirus attack, experts were quick to label them as being reckless, but now after a 150-basis point cut, they say more has to be done. Notice the ploy here; to do that which the masses abhor, one has to create a situation that distracts their attention. Then offer a solution that is three times as damaging as the previous one and in their desperation to seek safety, they will agree to whatever course of action is laid out.

The system is going to be flooded with so much liquidity that the markets will melt upwards when the media starts to report the data more accurately.  Right now, they talk about the mortality rate without breaking the data down and informing the masses that older individuals are the ones that fall into the high-risk category. Even then, most of them appear to have some other complications already.  Market Update March 18, 2020

There is no doubt that we are experiencing one of the most challenging times since the financial crisis of 2008.  Hysteria has gripped everyone, especially in the U.S. and its feeding on itself as everyone from the top of the rung to the bottom is running around like headless chickens.   

Everyone at the Tactical Investor is freeing up all the available cash they can. We have spoken of living below one’s means in the past, and we all intend to drop down and live 1 to 2 standards below our means temporarily and direct these savings towards the market. Don’t take this as a sign to throw caution to the wind; we will deploy capital in a disciplined and controlled as we have always advocated.  Market Update March 24, 2020

Bearish sentiment equates to Strong Rallies

We almost have a “mother of all buy signals”, another small downward move and our indicators will be in place to trigger this signal.

We are dangerously close to hitting the upper limit of the madness zone.  Bear in mind that before this pandemic, the gauge never even hit the extreme end of the hysteria zone. So, this is an unprecedented development. Given this massive move in the anxiety gauge, neutral readings would now need only to dip down to 10% to trigger the “father of all buy signals” provided our technical indicators move to the extremely oversold ranges, and the Trend indicator remains positive (bullish). Market Update March 30, 2020 

Our current outlook

What is even more remarkable, and would fall under the category of “unimaginable” only a few months ago is that the bullish sentiment is trading below its historical average. Consider this for a moment, the Nasdaq is trading at new highs, the Dow has recouped most of its losses and will take out its old highs sooner or later and yet the bullish sentiment is at levels one would associate with a severe correction. It’s time to keep notes, for this is the only way one will be in a position to understand what is yet to come.  The “market of disorder” is going to drive everyone insane; by everyone, we refer to those that refuse to accept that the old way of doing things (90% of players) is dead. We are warning all our subscribers early on in the cycle, the cycle of insanity has just begun, so be prepared for things you would have once deemed unimaginable to come to pass.

Bullish sentiment is low because the Masses Think they know better

However, the Fed knows better, and there’s only one reason for this; they control the strings to the purse, and anyone that has that kind of power can alter and redefine reality. Regardless of all the rubbish, the experts might claim as to the Fed overplaying its hand, and that the Fed is running out of power; take those statements with a barrel of salt and jar of whiskey. For at best, they are worthless and at worst a  member of ward 12 could come up with a better projection.  Remember this statement.  Oppose the Fed and wind up dead; in this instance, dead refers to dead broke.

Until the world is ready to give up on fiat and our analysis reveals that at best only 3 to 6 per cent of the populace is willing to do this, fiat is here to stay regardless of the misery it inflicts on humanity. Hence the TI saying, misery loves company and stupidity simply demands it.

Articles of Interest

Define Fiat Money: The USD Is A Great Example        (Aug 13)

Deflation Economics: The Art of Twisting Data     (Aug 12)

BTC vs Gold: The Clear Winner Is …     (Aug 11)

Cash is king during Coronavirus Pandemic Based Sell off   (Aug 10)

Russell 2000: Great Buy Signal In the making    (Aug 9)

Strong buy stocks: Use the sell-off to load up on Top Companies       (Aug 8)

Best Chinese Stocks: Focus on America Instead of China       (Aug 7)

Strange Weather Pattern’s Set to Plague the Planet  (Aug 7)

American power: The War Against China    (Aug 5)

Strong Buy Stocks: Focus on The Trend & Not the Fear Factor  (July 20)

Smart Money Acting Like Dumb Money   (July 27)