2018 was one for the bears…
Stocks took a beating around the globe. There were few places to hide.
From the year’s highs, the S&P 500 was off 14.8%, the British FTSE 100 lost 12%, Chinese stocks took a 30.9% hit, Japan was down 12.4%, and local stocks fell 11.9%.
The bears have been forecasting a big sell-off for years. They’ve said record debt and high valuations were unsustainable. In fact, some say the recent falls are just the beginning.
Yes, the bears were on the money. Many will say the sell-off vindicates their negative view.
But do you know what?
I can’t remember a time when there wasn’t bearish opinions. If you sold-up and went to cash whenever stocks were potentially vulnerable, you’d never be in the market.
They say stocks climb a wall of worry. And you know what? They do.
The Dow Jones hit rock bottom at 6,443 in 2009. That was 10 years ago.
Last year it traded at a record high of 23,176 — a gain of 259%.
Do you know the common theme during this time?
It was the bears. Year in, year out, they said the rally wouldn’t last.
I remember the same thing happening when starting my career in the 1990s. Sure, the 90s had its share of panics. There were scary headlines, and plenty of reasons to worry.
But the worst of the predictions never came to pass. They rarely do. Life went on, and the markets continued their centuries climb up the wall of worry.
I learnt an important lesson during this period. It’s something I always remind myself of during worrying times: Don’t let uncertainty stop you from moving forward.
You see, it’s easy to find an excuse to do nothing. I know. I’ve done it myself. I held off buying real estate in the 1990s. I was waiting for a crash that never came.
Hunkering down may feel safe. But historically, it’s a risky strategy. Most of the time the world moves on without you — all the opportunities go to those that stay in the game.
What the bears miss
Last week I showed you Quant Trader’s best 20 signals from 2018. Most were for small- or mid-cap stocks — many traders only learn about these types of companies after they’ve run.
This week I’m going to show you two of these trades in more detail.
You see, even in a tough year, some stocks will often do well. It’s all about having a strategy to find them. And you’re not going to do that if the bears have you on the sidelines.
The two stocks you’re about to see are not unique…
At year end, 19 of the system’s signals were up by at least 50%. These are the type of opportunities the bearish voices could cause you to miss.
OK, have a look at the first stock:
This is the share price chart for Bravura Solutions Ltd [ASX:BVS]. Quant Trader’s buy signal was at $1.88 on 15 January 2018. There was also an unsuccessful entry in the stock.
BVS closed 2018 up 96.8% from the initial signal. It’s been a good trade.
Now check out this chart. It’s the All Ordinaries over the same timeframe.
The market lost 7.7%…whereas Bravura rose nearly 100%.
Yes, the bears were right about 2018 being challenging.
But look at the opportunity they missed. You won’t get trades like this sitting in cash.
Not every signal has done this well — a falling market will naturally lead to numerous losses. That’s why we have exit stops. This is our escape path when things don’t work out.
Let’s move on to the next stock:
This is the share price chart for Aurelia Metals Ltd [ASX:AMI]. It’s an exploration and development company in the ASX 300, yet many people won’t know its name.
The first entry was on 9 April 2018 at 42 cents. Quant Trader identified AMI as it was transitioning from a low price stock. It was then a case of placing a trade and letting the market do its thing.
The initial signal finished 2018 up 61.9%.
Bearish voices are part of the market’s fabric. I’ve been listening to their forecasts since the early 1990s. Sometimes they get it right, but often they’re wide off the mark.
I can’t say if we’ve seen the final low. But it doesn’t feel like the early stages of a GFC style crash to me. In my opinion, it’s a correction of the bull market (which is technically still intact).
Of course, I could be wrong — things can always get worse. That’s why I don’t anchor myself to a particular viewpoint. Fighting the market is a sure-fire way to go broke.
Instead, we trade with the trend. My strategy is to buy stocks that are going up, and sell those that are falling. That’s the best way I know to keep climbing the wall of worry.
Until next week,
Editor, Quant Trader
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