The investment world is great at producing favored picks that become “sure winners” just as they tire and fall. April and October are popular months for old trends to die and new ones to begin.
Trend changes often involve 180-degree turnabouts, not only in the previous leading and lagging investments, but also in investors’ thought processes (a combination of reasoning and emotions).
So, how do we set our investment clocks forward now?
First, by realizing that current beliefs attached to winning ideas are no more than what was. The key realization is that past performance is meaningless in determining prospects. Instead, the view should be wariness of high past performance based on enthusiastic visions.
Note: This issue brings up the odd investor reaction to high flying performers: A higher level of assurance that more is yet to come. The proper view is that big gains can mean increased risk
Second, by looking towards the future with reasonable expectations and common sense
Third, by viewing the past “non-winners” as potential coming winners. No investment approach lasts forever, and often it’s the lagging investments in one period that move to the front in the next period. (This viewpoint is the source of “contrarian” investing that can produce good gains with reasonable risk.)
The current example
The media happily report the stock market making new highs practically every day. However, compared to the ruckus in the fourth circus ring, the market action looks uninspired. (See “Stock Market Upsetting Professionals – Don’t Worry” for discussion of stock market’s “crazy” fourth ring.)
The “craziness” in the fourth ring is beneficial because the actions there make the overwrought beliefs obvious. And those beliefs are wrapped up in three investments: GameStop
TSLA
and Bitcoin. This graph shows the cumulative performance from just before the pandemic hit (January 1, 2020) through Friday, March 12, 2021.
Performance comparison: GME, TSLA, Bitcoin, SP500 and GOLD
John Tobey (StockCharts.com)
There’s no arguing with those results. Everybody would be thrilled to win those lottery-payoff type returns. Note that the stock market’s nice 24% return is barely visible compared to these barn-burners and others like them. And that’s why so many investors have gravitated toward the day-trading-for-riches investment approach. What’s not known is how many of them are being burnt.
Misunderstanding the zero-sum game
Periodically, we read about the stock market being a zero-sum game. That is a mistaken view because stock prices are valuations based on company fundamentals and outlooks. They can rise and fall independently from demand and supply volume. A common example is during the earnings report period. Results are released when the market is closed, and any unexpected revelations show up as a “gap” between the previous close and the next opening. Thus, if positive, every shareholder is a winner.
However, that does not apply to a gambling game. And that’s what GameStop-type stocks have become. Valuation is irrelevant as investors attempt to beat out one another, buying low and selling high. Obviously, there is someone on the other side of those trades, hence the zero-sum label.
But there is a much worse issue involved: Zero-sum does not mean gains and losses are split equally. That’s because Wall Street traders are active, possessing ample funds, superior experience and a natural savviness in game-playing. They even hone their skills trading against one another. Therefore, when a boatload of newbies offload onto the trading room floor, they are fair game. Yes, there are media stories about a few winners, but there are thousands of losers who don’t want to talk about it.
So…
In the end, fundamentals will win out, as will Wall Street traders. That will leave many (most?) individual investor-traders high and dry. Most importantly, it will leave all those “meme” stocks in the tank.
Therefore, turn to future reality and investigate those overlooked “non-winners” of the past. The could be hidden gems, and that’s where Barrick Gold enters the picture:
Barrick Gold – A potential winner for tomorrow
So, what about the Barrick Gold 11% return? Why is it even on this graph?
It’s there, not because of what it has done, but because of what it could do. There are four reasons for considering this boring looking investment:
First, inflation (more accurately, “fiat money inflation”) will increase. The huge expansion of the money supply relative to the economy plus the eventual expansion from bank lending growing again will foster growth of the economy and the price level.
Second, gold will become popular again when two conditions happen: Inflation rises and gold’s price rises
Third, Barrick Gold, as a company, can produce added earnings growth beyond gold’s price rise through sound business management.
Fourth, as discussed above, gold has lost its luster in the recent investment period. Therefore, it has the potential for playing catch-up as investors return.
The bottom line: Now is the time to make a new investment strategy
The extreme gyrations and the popular press accounts mean it is time to avoid the highly popular, fast-acting investments. Instead, refocus on less exciting but more fundamentally sound investments.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
