How You Should Be Playing the Market in 2019
This year I’m going to…oh, what’s the point!
Two days ago, hundreds of millions of people made promises and resolutions. Most (in the US at least) wished to save more money or lose more weight in 2018.
I’ll bet two days ago, people were hoping for similar outcomes in 2019.
But like I said, what’s the point?
Research says only about 8% of people that make New Year’s resolutions actually keep them. For the remaining 92% it’s a quick count down to 12 January.
This is the date, according to researchers, when most people give in and break the promise they made to themselves.
What happens after those 12 stressful days? 92% of people feel like losers. They feel like investors felt as we saw the tail end of 2018.
Stocks were down. Bonds were down. Aussie real estate continues to fall.
Maybe your New Year’s resolution was to make money from stocks.
And unlike the 92%, today I’m going to tell you how you can be a stock market winner in 2019.
New year, same problems
You don’t have to make money to be a stock market winner.
Actually, let me rephrase that. You don’t have to make money immediately to be a stock market winner.
Banking on returns in the next five days or three months might leave you extremely disappointed. That’s because any number of things can happen to mess with short-term returns.
Stuff like an intensifying trade war, a surprise in US inflation or heated tensions between the US and North Korea. It all creates volatility, but most of it has no real effect on most ASX-listed companies.
But this is a new year. Investors want to hold onto the problems of 2018.
The clock has reset. The game starts again. Prices are low and investors are gearing up to find the best picks for the 12 months ahead.
But the problems of 2018 haven’t gone away. And 2019 will come with its own set of new problems. One of which could be the re-emerging of heated US and North Korea relations.
‘Kim Jong Un used his New Year’s address to issue a pointed warning to President Donald Trump, saying North Korea would take a “new path” in nuclear talks if the U.S. didn’t relax economic sanctions.
‘While Kim affirmed his willingness to meet Trump again, his nationally televised speech offered no new initiatives to advance talks that have sputtered since their first summit in June.’
Guessing which new event will pop up next and how it could affect stock prices is a mug’s game.
If you want to make returns immediately, you’re far better off moving with the crowd. Momentum rules in the short-term. Yet those momentum investors usually end up with terrible performance over the long-term.
Of course, that doesn’t mean you can’t look for long-term trends and use that to help you find seriously profitable investments.
One thing I’ll be watching this year is globalism and trade in reserve. I believe, in time, trade will decline and countries will be far less connected (in a business sense).
Goods will be manufactured locally. Services will be local. Companies with dominant local market positions will be the winners (long-term).
The rest will endlessly tread water until they no longer can.
I don’t believe you’ll see such a world where local demand and supply meet equilibrium this year. But businesses and trade should move in that direction.
The US-China trade war will have some affect, although very tiny. What’s really causing all this is technology improvements, automation and efficiency gains.
Soon, China’s cheap labour will no longer be an advantage. And it’s because those manufacturing workers will become redundant.
The end effect is less trade, businesses focusing on local markets and a globalism in reverse.
It will be a long drawn out process. But it’s already happening. And I believe you’ll continue to see trade recede and local manufacturing output increase in 2019.
Question is, can you side step all these problems pushing stocks up and down to be a winner in 2019?
What stocks you should be betting on in 2019
The losers of 2019 will likely be the same losers of 2018.
They will be the extremely active investors. The investors that believe there is always something to do…a stock to buy, another one to sell.
Momentum rules in the short run. But it’s also a method that very few can get right over long periods of time. It’s why most investment managers who follow a momentum approach do so poorly over time.
A winner in any single year is not the investor that makes money in those 12 months. The successful investor is the one that only buys what they understand, learns from their mistakes and sets themselves up to make money — not just in the immediate future, but years down the line.
The investors that look two to five years ahead usually ask better questions and that usually leads to better results.
They’re willing to buy the cheap stock that continues to fall. They block out all the noise of the market and buy what makes sense.
What makes sense might only be a few stocks in 2019. But really, a few good ones are all you need to be a winner this year.
Editor, Money Morning