Slow Trader

Tag: long term investing

  • Long-term, what does the S&P chart suggest

    The S&P 500 is, I think, a reasonable guide for us when considering our long-term FTSE 350 top ten.

    The chart we are considering is the monthly chart, and this snip covers the last few years. The month just gone finished with what is known, technically, as a doji. This is an indecision or a trading range bar.

    The chart has been strong, having now completed a measured move up from the last pull back at about 1800. Also, the chart is currently at a big number, being 2400.

    The big number, completion of a measured move and finishing the month as a doji all point to a probable pull back at this stage. Albeit a small (in monthly chart terms) pull back; what the technical analyst would call an anticipated bear flag.

    Any small pull back will, in all likelihood, be bought and the chart pushed back up to 2400 or higher. However, if the pull back is stronger than anticipated (…the possible government shutdown crisis and the congressional fight over the continuing resolution that expires on April 28 is a factor) then we could see the chart coming back down to the 1800 level. As we’re on the monthly chart such a scenario would take one to two years.

    The bottom line is that the chart is at a measured high with a doji and significant news on the way. I would hold for a time and see where this leads. A pull back to 1800 would provide a good buy point – but, of course, in holding we may miss (and possibly the more probable) further move up.

  • How to invest

    I have written about investments before. But it is worth going over again.

    The problem is the medium term investment area. Where most of us have our investments. Mutual funds, pensions and the like. This is the near term to 25 year investment timeframe.

    The investment area that works, if done correctly, is following Warren Buffet’s example of investing in undervalued stocks and holding for more than 30 years, indeed he doesn’t sell.

    The other area that works, but is difficult to master, is the very short-term stuff. I cover this every week in this blog.

    Okay, we have only two time-frames that we can invest with confidence: the very long and the very short.

    Why does the middle investment area not work? because of market volatility and the probability of a market crash within that time frame.

    A market crash for the Warren Buffet model, the very long-term investors, is just a blip in the big scheme of things. Not a problem. In the Buffet model we go through many crashes and use them as opportunities to add more stocks.

    A market crash for the day traders and daily chart readers (like myself) is not normally an issue because the signals of a crash will show on the day and get out stops are very tight for these type of investors. Actually, for these guys, if they’re good, a crash is a big payday. They’re taking it all from the mutual funds.

    For the Warren Buffet followers among us we need excellent fundamental information which we review annually. This information we’ll cover in another blog.

    On the other extreme, the short-term investors, day trading and daily chart reading, is not for everyone.

    So that leaves us back with what to do about the middle timeframe investing problem.

    If we have to be a middle term investor then avoid the traditional, heavily biased towards stocks, mutual funds.

    Watch carefully where the mutual fund invests. Few funds balance investments between cash, stocks, bonds and commodities. Funds that do this, and not being more than 25% invested in stocks, are extremely steady funds and good medium term investments.

    If we do have to go the mutual route then costs are a big factor. For every 1% that we pay a mutual fund will result in 20% to the fund managers over the medium time frame. Look for a cost of around 0.5%, no more. Same goes for pension funds.

    The majority of mutual funds, however, invest more heavily in stocks and most don’t beat the index. These mutual funds are in the danger zone. When a stock crash happens the fund profit and much of the capital is wiped out. Allow several years to get back to neutral. Not a lot of fun.

    So, if we have to invest in the middle term investments then look for: a fund (mutual and pension) that has low fund costs; and an investment portfolio that balances bonds, cash, commodities and stocks – and is particularly light on stocks.