MigraineCall wrote: Sound advice Experienced.
As you say, a well diversified portfolio across many sectors is widely known as the key to long term investing, securing consistent and modest returns over time. Sectors have their ups and downs, and if one may drop, it's overall impact on the overall portfolio is minimized. For the many reasons and concerns you have described so well in detail, a market retracement may indeed be on the horizon.
For me, I share your concerns as well, and I also see high overall market risk going forward, which causes apprehension for me to have money at risk in all other sectors. The only place I feel secure is in energy.
My view today is that the energy sector is still quite significantly undervalued relative to all other sectors, and may likely not be impacted as severely long term as one would think in such a case of market retracement or a levelling off. It has already had a significant beat down over the last years, and due to improving balance sheets and FCF generation, and may be the few remaining lifeboats of refuge still remaining afloat that market cash will swim to, if the Titanic hits the iceberg.
Future demand/supply imbalances and global underinvestment going forward point to higher prices, but even if oil remains at current levels, energy producers will soar as the stock prices catch up to normal valuation metrics.
Now, I must add a warning to others as a disclaimer to my bullish outlook, that I have been to the slaughterhouse 3 times on far less conviction, so that says something about my past risk history.
But, but, but.... 'This time, its different'.
Regarding TA, I didn't believe in technical trading much in the past, and I thought it was similar to lying on your back on the grass on a nice summer day as kids and seeing shapes of animals in the clouds.
However in today's market that is mostly and increasingly driven by computer algos that observe and trade within a set of programmed complex indicators and rules in nanoseconds, one should not underestimate it's relevance, especialy movements on short term timeframes. Oil and Gold are the most manipulated out there, and difficult to trade. I find some things like Nat gas are easier, has large moves, is liquid, and is one of the most TA compliant commodities to trade (HNU, HND).
In the end, I finally came to the realization that TA does in fact have an influence. Even an atheist must consider the influence that god has on him, not whether or not he believes in god himself, but because there are so many countless others that do believe and each of them react accordingly. It turns out to be a self fulfilling prophecy. With so many involved, the behavior exhibited is similar to that of a school of fish, and you often see the ones that don't comply being eaten.
The market is a complex orchestra playing, where the horns sometimes are louder than the string section.
To fully appreciate it, one must be open to consider a balance of technicals, fundamentals, sentiment, outlook, and the news of the day to hear the entire symphony. The beauty, and understanding of it only becomes clear when you look back at the chart, when you exit the auditorium for the day.
Otherwise it is all just noise.
Experienced wrote: A long time ago I read a book by these university professors who examined about 200 technical indicators and did a statistical analysis over a 50 year year period to determine if any of them had an real predictive value.
Their conclusion?
All but two of them had no predictive value accuracy of any significance. In simple terms - they don't work most of the time.
My own observations over decades of investing dating back to 1969 is that whenever I tried to rely on technical analysis, it was usually wrong.
So what beyond fundamental analysis and careful reads of Q reports to do I rely on which has worked for over the years?
1.....The Stomach Test
When I am feeling realy really good about the market and a particular stock, I sell some of my stake. When I am feeling sick about the market, I buy.
2.....Investment Discipline
Most of my investments are long term holds and I set a limit on how much of my portfolio is in one particular company. If that company is doing really well and goes up a lot and crosses my percentage limit, I take some profits.
3....Observe the World Around You
Years ago I did a lot of travelling on business. Everywhere I went I saw Home Depot Parking lots full. So I went in and talked to the people who worked there and asked how it was going and what they thought of management. They had nothing but good things to say and so I bought a bunch of it in the mid 80s. You would be surprised how much valuable information is sitting right under your nose by just looking around.
In the 90s, one of my sons and his friends were watching this cartoon called Pokeman. They told me that every kid was watching it. I found out how to invest in it and thanks to my son and his young friends I made a few bucks on it.
4....Understand Who Is and Isn't Your Friend
As a general rule I do not rely on analyst reports from investment houses - they are part of the sales organization of their firm and sole responsibility is to generate trading activity. This is especially true of the pundits on TV like on BNN or CNBC or the likes Cramer.
5.....Learn From Your Mistakes
Don't beat yourself up if you make a mistake, they are your tution fees. Keep track of the lesson learned and then apply that knowledge going foreward.
6.....Most Importantly
Don't be greedy. As the old adage in the stock market goes - pigs get slaughtered