Trend Trader: Success Comes To Those That Follow The Trend
Successful investing is based on taking the long term view and the best time to invest in stocks, if one adopts this view is when the markets are in turmoil. If one looks at our portfolios, one will see that from a historical basis, the most significant number of buys were triggered during moments of chaos. It’s when the masses are panicking that one has the opportunity to get into quality stocks at a considerable discount.
Even if one is stopped out, the overall gains from taking such an approach are huge, and this is easily verified by pulling up any long term chart of the market. Long term does not imply ten years. It generally falls in the 6 to 24-month category. Take the 2008 correction/crash; even if you were stopped out several times from the same play, you would have still walked away with huge gains, as long as you were not dumping money into some speculative or poorly run company.
Trend Trader: Panic based selling equates to Opportunity
We have seen this panic selling at play many times in the past, and the theme is always the same; create whatever crisis you want to create, but once the panic subsides the masses (always) regret their decision, vowing that it will be different the next time. When the next time approaches, they act precisely in the same manner as they did the last time, proving the mass mindset is programmed to panic at precisely the wrong time.
One could almost go as far as to say that the mass mind-set has a secret desire to lose, for it does the same thing over and over again, virtually guaranteeing a negative outcome. Doing the same thing over and over again and hoping for a new result is the definition of insanity.
The most significant factor we see at play here is not the coronavirus but hysteria. The hysteria is building up, and everyone from the janitor to movie stars has suddenly become an expert on the topic. Like the flu, a considerable number of individuals will not go to the doctor or seek medical attention unless the conditions worsen.
Hence, the individuals going to hospitals or to visit doctors are generally the ones that are feeling the worst, which means the current fatality rate could prove to be too high. What is true is that the current strain of coronavirus is more virulent, but its mortality rate is far from certain. For the record, the coronavirus has been around for a long time; the only difference is that this strain is different from the previous strains.
The masses are far from bullish and they were far from bullish when this correction started; hence all pullback should be viewed through a bullish lens.
Let’s look at the situation from a rational point of view
To put things into perspective, consider this: If cancer were a virus, it would be one of the most lethal viruses of all time, yet no one blinks that we lose 9.6 million people a year to this insidious disease. Until mass-scale testing is underway and the data is broken down into categories such as age group and other pre-existing conditions, all the massive death projections experts are issuing amount to faulty science.
It appears that the only course of action on the table is to give in to panic and flee for the heels. Well, that’s true if you are part of the herd; such action brings short term relief at the expense of monumentally large gains for the long-term player. Nobody knows the inner workings of a company better than the insiders and these chaps are doing something that can only be described as unprecedented, further confirming that this sell-off represents opportunity instead of a disaster. Insiders are buying stocks hand over fist; the sell to buy ratio stands at 0.32, which suggest these guys are devouring these stocks. Hence a trend trader should not back down just because the masses are giving into fear, instead, the trend trader should view this massive correction as a once in a lifetime buying opportunity.
Huge amounts of liquidity are already being added to this market, but you have seen nothing yet. Helicopter money is about to become a reality and regardless of the mantra it’s different this time, nobody can fight a fed that is determined to unleash the mother of bailout packages
Right now, the real problem is the hysteria the media and medical experts are creating out of this issue. Once mass testing gets underway, which should happen a lot faster than most expect, the masses will find out that this virus while more contagious is not that deadly. When that realization finally sinks in, the masses will change their minds just as fast as they panicked and the markets will mount a stunning rally that will catch 90% of the players off guard. Until that moment expect wild bouts of volatility.
When the panic subsides, it will create a feeding frenzy of the likes we have never seen before. When you combine zero rates, two trillion dollar injection by the Feds and several more billion-dollar packages designed to stimulate the economy, the result is going to be a market melting upwards. The markets will be driven to heights that are unimaginable by today’s standards. Zero rates are also going to force a large portion of individuals on a fixed income to speculate, and these guys have a lot of cash sitting on the sidelines.
Despite all this doom and gloom, we see no reason to panic, and we are not even one inch closer to changing our stance. The trend as per our “trend indicator” and not from drawing trend lines is positive, and the masses are far from bullish. Hence, individuals should stick to the original plan. The stronger the deviation, the better the opportunity
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