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How To Read Stock Charts?

Stock charts will provide you the information about the stock’s past trading prices and volumes. This is a remarkable advantage when it comes to technical analysis.

By Guy Avtalyon

How to read stock charts and what they are trying to tell you? How can you use them in making your investment decisions? So let’s see the importance of price action and technical analysis. Because that’s it.

We are 100% sure you’ve already had the opportunity to see the stock charts, for example, Yahoo Finance is one of those places. If you want to get some experience with outlook and parameters, it is the right place. Also, you could see the stock charts when you examine the company’s stock you wanted to buy.

And what can you see?

There are two types of charts: line and candlestick. It looks so simple and a small graph but contains a lot of very important data. For example, you can see the opening and closing price, the lowest and the highest price of the stock, and plenty of other information set in that small image.

What trading charts can tell?

You must know, a chart is a visual illustration of changes in stock price and trading volume. They are not magical or scary. In essence, the charts do one easy job: They want to tell you a story about the stock. Stock charts will give you an objective picture without hypes and rumors. They will neglect even news and tell you the truth and what is really going on with your stock.

For example, when you learn how to read stock charts you’ll be able to notice if institutional investors are heavily selling. That will quickly provide you valuable info on what you have to do. The charts literally tell you that. If you see in the graph the investors are massively buying, what are you going to do? What do the charts want to tell you? They want to tell you: buy too. Or if you see they are selling: sell too. Those investors are heading the exits.

The institutional investors’ buying or selling will shift your stock up or down. And the charts will tell you that on time. So you’ll be ready for action. That is extremely important in the stock markets that are volatile and stock price can change in a second.

How to read stock charts

Reading charts is one of the most important investing skills. Stock charts will tell you if the stock is depreciating or appreciating because they are recording the stock price and volume history. Well, when you grow your skill in chart reading, you’ll be able to find more. You will notice some small, often indirect signs in the stock actions such as whether the particular stock showed some unusual activities.

You choose the type of chart that best suits you, a line chart or a candlestick. But the charts will show you the price of daily changes in its price area.

Let’s breakdown all these bars and lines

You will notice the vertical bars. They record the share price span for the chosen period. The horizontal dash that intersects within the price bar shows the current price. Also, it shows where a stock closed at the end of the day. If the color of the price bar is blue that means the stock closed up but if it is red the stock closed down.

In the volume area, below the horizontal line, you will also see bars but volume bars that represent the number of shares traded in some period, day, week, month, etc. The color of the bars tells us the same as price bars. Also, there you will see the average volume for some stock over the last 50 days.

Charts will tell you all about the average share price over the last 50 days and the last 200 days of trading. But by reading stock charts you will have the info about how the stock price moved compared to the market. It is a so-called relative strength line. When this line is trending up, we can say the particular stock is outperforming the market, the opposite means the stock is lagging the market.

Changing the time period

You can do that and have a look at the daily, weekly, monthly charts.

Daily stock charts will help you to measure the current strength or weakness of a stock. These charts are very useful for identifying the precise buy points and creating a short-term trading strategy.

Weekly stock charts will help you to recognize longer-term trends and patterns in stock prices. The weekly charts use logarithmic price scaling. So, you can easily make comparisons between stocks or the major market indexes.

Indicators in the stock charts

All the charts will come with them. Indicators are tools that provide visual representations of mathematical calculations on price and volume. Well, they will tell you where it is possible for the price to go further. The major types of indicators are a trend, volume, momentum, and volatility. Trend indicators show the direction of the market moving. They are also known as oscillators because they are moving like a wave from low value up to the high and back to low and high again as the market is changing.

Volume indicators will show you how volume is developing over time, how many stocks are being bought and sold over time.

Momentum indicators show strong the trend is. They can also reveal if a reversal will happen. They are useful for picking out price tops and bottoms.

Volatility indicators reveal how much the price is changing in a particular period. So, volatility isn’t a dangerous part of the markets, you have to know that. Without it, traders would never be able to make money! In other words, how is it possible to make a profit if the price never changes? High volatility means the stock price is changing very fast. Low volatility symbolizes small price moves.

Some traders don’t use indicators because they think the indicators can smudge the clear message that the market is telling. Well, that’s obviously an individual approach.

What are Support and Resistance Levels

Stock charts will help you to identify support and resistance levels for stocks. Support levels are price levels where you can see increased buying as support to stock’s price that will direct it back to the upside. Resistance levels, as the opposite, shows prices at which a stock has presented a trend to fall while trying to move higher, and switched to the downside.

Recognizing support and resistance levels is extremely important in stock trading. The point is to buy a stock at a support level and sell it at a resistance level. That’s how you can make money. If some stock has clear support and resistance levels, the breakout beyond them is an indicator of future stock price movement.

For example, you have in front of you the chart and you notice that the stock didn’t succeed to break above, let’s say $100 per share. And suddenly, it makes it. Well, in such a case you have a sign that the stock price will go up. You might see, as an example, that some stock traded in a tight range for a long time but once when it broke the support level, it will continue to fall until a new support level is established.

Bottom line

Knowing how to read stock charts will give you a powerful tool while trading. But you have to know that charts are not perfect tools. Even for the most experienced analysts. If they are, every stock trader and investor would be a billionaire.

Nevertheless, knowing how to read stock charts will surely help you. That may increase your chances of trading stocks. But you will need a lot of practice. The good news is that everyone who spends time and gives an effort to learn how to read stock charts can become a good chart analyst. Moreover, good enough to enhance the success in stock market trading.

Try to learn this. It can be valuable. We’re doing smart trading.

19th February 2020
Earnings Per Share The Meaning and Formula

EPS is important when investors look at historical or future EPS numbers for the same company. Or when they want to compare EPS for a few companies in the same industry.

Earnings per share actually mean a measure of how much profit a company has made. It is regularly for companies to announce their earnings per share quarterly or yearly. Earnings per share or EPS is a powerful metric in a company’s earnings estimates since it shows how much of a company’s profit is allocated to each share.

EPS helps to determine the value assigned to each outstanding share of a company.

Earnings per share is a very important part when examining a business’s fundamentals. It is a ratio for profitability or the company’s market prospect. It is always better when this ratio is higher. That indicates the company is profitable and able to distribute more profits to shareholders or to reinvest in the business. In both cases, the shareholders will win.

Despite the fact that this measure is important, a lot of investors never pay attention to the EPS. That could be wrong because the higher EPS can increase the stock price. And that is strange because EPS can cause stock prices to grow and investors are profiting. So, we think that paying attention to EPS is important for making investment decisions.

On the other hand, so many things can influence this ratio, so investors do look at it but don’t let it change their decisions radically.

How to calculate EPS

For example, a company has a net income of $40 million. Preferred stockholders are getting, let’s say, $4 million in dividends. Also, we found that the company has 20 million shares outstanding for the first half of the quarter and also, 24 million for the second half. That would mean the company has an average of 22 million shares.

So, let’s start to calculate earnings per share. We have to count the difference between a company’s net income and dividends paid for the preferred stockholders. The next is to divide that number by the average number of shares outstanding. And here it is:

$40 million – $4 million = $36 million

$36 million / 22 million shares = $1,64/share

So we can conclude this company’s earnings is $1.63 per share.

Diluted EPS

You can see that this basic formula only takes a company’s outstanding common shares into account. But the diluted earnings-per-share calculation takes all convertible securities into consideration. A company might have convertible preferred stocks, warrants or stock options that could theoretically become common stock. If this happens, the result would be a reduction in earnings per share. A company’s diluted earnings per share will always be lower than its basic EPS.

Basic EPS uses net income, deducts preferred dividends, and then divides by the average number of shares of common stock outstanding during the chosen period.

Diluted EPS doesn’t apply the number of shares outstanding. Instead, it takes into account the number of possible shares outstanding. We already mentioned that the companies can issue stock options (for employees, for example), convertible preferred shares, etc. As they theoretically can be turned into shares of stocks, diluted EPS shows us how EPS would look if all convertible securities are converted into stock. The logical consequence is that there will be more shares and diluted EPS is lower than the basic EPS.

Math is important

Imagine you are a stockholder and suddenly the number of stocks rises. Prior, let’s say, you were holding 5% (this a great portion, indeed) of the company but with an increasing number of stocks, your holdings will be smaller and your part in the company’s earnings shrinks. It is just like you have to cut one apple (ouch!) into 8 instead of 6 pieces. You will get a smaller piece.
If our company mentioned above decides to issue for example 8 million convertible preferred shares, the EPS will be lower using the formula we have. Let’s do some math:

$36 million / (22 million + 8 million) = $1.20/share

Diluted EPS is just $1.20 per share. Compare this figure of $1.20 with $1,64 per share.

Where is the point?

Investors have to calculate both EPS and diluted EPS if they want to know when a company is issuing a lot of stock options or other convertible securities. That may have a great impact on shares when the options are exercised. The stock price will fall and shares will dilute.

Of course, it isn’t a sign of weakness if the company is using options to hire experienced employees or to overcome current salary problems, for example. By issuing convertible stock options the company will have more money to support its growth.

It is important to know that when we are calculating EPS for some well-established company the difference between EPS and diluted EPS can be very small or there will be no difference. But smaller companies, for example, some green and growing, may issue a lot of stock options to hire educated staff and experts. So, take it into consideration when estimating the company’s value and making a decision to invest or not.

Weaknesses of earnings per share

As always, even EPS has some drawbacks. It is really good when the company increases its earnings, there is no dilemma. It is a sign that the company is financially stable and it is worth investing in. But if you want to know about the company’s financial health, EPS isn’t the right metric.

Knowing basic and diluted EPS isn’t always simple. We pointed just two examples but some factors may make it more complicated.

For example, the company may issue additional stock shares or buy back some of its own shares or all of them. Also, it can increase its EPS by reducing the number of shares outstanding. In this case, the net income will not increase. So, we can say that companies can direct investors to believe that they are in better shape than they are in reality. The other drawback is that EPS never takes into account a company’s outstanding debt. Also, data about earnings per share doesn’t provide you info about the capital needed to produce the earnings. To put it simply, you are estimating two companies with the same earnings per share and the same income. One operates with less money to reach those earnings. The other company uses more capital. What do you think? Which one is worth investing in? One company is managing its resources better, it is obvious. But you cannot see that in their earnings per share. That’s the problem.

Bottom line

EPS data is a measure of a company’s profits over some time. You have to compare that data to the previous period’s data and if you notice a positive development, meaning increasing earnings, it is a good indicator. Contrary, you will need additional information and explanation to decide what to do with that stock.
Well, there is always a measure against third-party expectations and it can be very useful since it is transparent.
EPS is good when a company’s profits outperform similar companies in the same sector. But even when EPS is good investors sell stocks. The sell-off is caused by something called the “whisper number.” That is the investors’ consensus, based on beliefs about a stock’s future performance. Anyway, EPS and diluted EPS are important measures that every investor should know to calculate and pay attention to.

11th February 2020
The 60/40 Portfolio is Dead – How to Replace It

Bonds and stocks have only interacted negatively in the past 20 years. Their average correlation throughout the previous 65 years was positive. When this correlation isn’t negative, the 60/40 portfolio is weak in protecting your investment.

We all had believed, for a long time, that the ideal is a 60/40 portfolio, which consists of 60% in equities and 40% in bonds. That excellent combination provided greater exposure to stock returns. At the same time, this mix gave a good possibility of diversification and lower risk of fixed-income investments.

But the world is turning around and markets are changing too.

Experts recently noticed that this 60/40 portfolio isn’t good enough. Portfolio strategists claim that the role of bonds in our portfolios should be examined. They argue we need to allocate a bigger part toward equities.

Strategists report

Bank of America Securities (a.k.a. Merrill Lynch) published research last year named “The End of 60/40”. The strategists Jared Woodard and Derek Harris wrote:

“The relationship between asset classes has changed so much that many investors now buy equities not for future growth but for current income, and buy bonds to participate in price rallies.”

That note by Merrill Lynch caused great turbulence among investors. The point is that your conventional sense of investing 60% of your portfolio in stocks and 40% in bonds is no longer so smart.
Merrill Lynch strategists explained that there are grounds as to why the 60/40 portfolio will not outperform portfolios with more stocks versus bonds in it. Therefore, investors have to allocate a bigger percentage of equities to their portfolios instead of bonds.
This is the opposite scale compared to what investors used for many years. They were investing in equities for price rallies and buying bonds for current income.

How did the 60/40 portfolio die?

For the last 20 years, the golden rule was a portfolio of 60% stock and a 40% bond. Everything was good with that: investors had the bonds in portfolios, a 60/40 portfolio provided them the upside of equities, their investments were protected from downturns. But they gave evidence to investors as to why this ratio should be changed and why they have to add more equities than bonds.

Here are some. Data is for the markets globally. During the last year, $339 billion were in inflows to bond funds but almost $208 billion were in outflows from equity funds. So, we now have a tricky situation. Bond yields had fallen. The consequence is that we have about 1.100 global stocks that pay dividends higher than the average yield of global government bonds.

The global economy slows

We must have in mind that the global economy lags due to the aging society and there were rallies in bonds almost all over the world. It was like a bubble. Hence, the investors who manage a traditional 60/40 portfolio are in a situation that threatens to hinder returns.

“The challenge for investors today is that both of those benefits from bonds, diversification and risk reduction, seem to be weakening, and this is happening at a time when positioning in many fixed-income sectors is incredibly crowded, making bonds more vulnerable to sharp, sudden selloffs when active managers rebalance,” said strategists from Merrill Lynch.

The 60/40 portfolio canceled

The popular rule of thumb: investment portfolios 60% in stocks and 40% in bonds, is smashed. The finance industry did it. Moreover, financial advisors urging investors to hold riskier options since, as they claimed, bonds no longer offer diversification. Hence, bonds will be more volatile over the long run. Further, the 60/40 portfolio has sense in the market conditions when stocks and bonds are negatively correlated. The stock price falls – bonds returns rise both serving as a great hedge, bonds against falling stock prices, and stocks as a hedge against inflation. According to strategists, no more.

This will completely change the portfolio management.

The benefits from bonds, diversification and risk limitation, seem to be missing. The bonds are more vulnerable to unexpected selloffs. The mentioned rule of thumb was accurate for 20 years but not for the past 65. Also, it is noticed that this period of negative correlation between bonds and stocks is coming to an end.

Also, Morgan Stanley warns that returns on a portfolio with 60% stocks and 40% bonds could drop by half in comparison to the last 20 years. Earlier, the analysts and strategists from Guggenheim Investments, The Leuthold Group, Yale University, also prognosticate distinctly lower returns.

How to replace the 60/40 portfolio?

The 60-40 portfolio is dead and it is a reality.

Be prepared, you have to replace it. Some experts suggest keeping 60% in stocks but to hold a position shorter, as a better approach.

But you have to hedge your portfolio. Experts suggest single-inverse ETFs and options for that purpose.

The others think the best way is to replace the 60/40 portfolio with some hedged equity portfolio. This actually means you should have more than 60% in stocks since the stock market is more liquid in comparison to the bond market. For this to implement, it is necessary to have tools. Also, the knowledge on how to use them. From our point of view, it seems that time to forget the 60/40 portfolio is here. All we have to do is to change the mindset and stop thinking about the mix of stocks and bonds. Instead, it looks like it is time to think about changing the net equity exposure.

Maybe it is the right time to hold more cash, which can be a tactical defense. For example, cash can be a part of your 60% holdings when you are not fully invested in stocks. Or you can hold cash in the percentage that previously was in bonds. Also, you can combine it. You MUST build a hedged portfolio to avoid the 60/40 portfolio hurricane that is likely coming.
For example, build a portfolio of, let’s say 75% stocks and 25% your hedge combination. This range can be tighter also.

Honestly, it is so hard nowadays to fit the excellence of the 60/40 portfolio.

Bottom line

The 60/40 portfolio was really good but it had a wild side too. The stock portion was down over 25 years of its 91-year existence. Over those 25 years, the average loss was above 13%. But there were bonds with a gain of above 5%, which reduced some of the losses. This portfolio was stable and reliable and you could use it for a long-time.

The other problem with the disappearance of the 60/40 portfolio is diversification. Is it dead too?

Peter L. Bernstein said, “Diversification is the only rational deployment of our ignorance.” Investors have to figure out different access if stocks and bonds no longer balance one another. This great portfolio will miss everyone. Maybe, one day, we will meet again. But some conditions have to be fulfilled. The interest rates should be 6% again, the stock market valuations shouldn’t go over 15x the previous 10 years’ worth of average earnings. That is hard to achieve now.
R.I.P. the 60/40 portfolio.

10th February 2020
Expect More Volatility In the Stock Market This Year

This year could be a volatile period for investors given the fact that a global financial crisis could be in the offering in the next several years

Last year showed the best look and we are not here to destroy the joy. Yes, we all can expect more volatility in the stock market this year. But don’t be afraid. The volatility in the stock market can be a stimulus. How is that? If you expect more volatility in the stock market that is the sign you understand the market’s behavior. The volatility of the stock market is normal and part of investing. When the market shows the volatility means the market is operating logically. You are not sure? Let’s say this way. The volatility runs both ways. It gives kicks to the downside and successes to the upside over the short-term periods. When volatility occurs, experts advise it is best to stay calm and let the volatility proceed its way. But you have to prepare your investments for that. Even more, you have to learn how to profit from stock market volatility.

Why do we think we can expect more volatility in the stock market in 2020?

We can’t neglect history, for example.

Look at the S&P 500 over the last 38 years. You can see that the market corrections were so frequent that they became the norm. The average yearly correction is -13,9% over the last 30 years. The historical data shows that there were only a few years when the Index didn’t drop at least -5% for one year. Actually, it happened the Index had a decline of 5% only two times, 1995 and 2017. Last year, it was -7%, it was below average for market volatility.

The second reason to expect more volatility in the stock market this year is that high volatility always comes after low volatility. If you look closer to the S&P 500 Index, you will not see any move more than 1% in any direction during any single trading day since October last year.

Such a low volatility period wasn’t seen in the last 50 years and it marks the constant move higher. All data shows that these long periods of low volatility are followed by periods of high volatility.

The last time we could notice similar before January 2018 and October 2014, both were followed by sharp corrections.

How to prepare investment for stock market volatility?

When the stock market starts falling, we are all faced with bad news on a daily basis. We may feel anxiety, uncertainty, fears. The downside is that it triggers drastic decisions. Even the most experienced investors may panic. Is panic a strategy? Not at all. You must stay calm when expecting more volatility in the stock market. There are some techniques and strategies to use when volatility appears.

It’s absolutely true that short-term losses can cause anxiety. But the worst decision is to let emotions drive you, it may cost you a lot of your money. So, stay invested, don’t pay attention to daily impacts, stay focused on your long-term goals. Yes, it can be difficult but you may have more choices with that.

The short-term volatility fluctuations can be hard to look at, but it’s essential for long-term investors to continue. Even if you want to pull out of the stock market and think it is the best choice, just think, what if you miss out on a market rebound? Such a great opportunity! The gains while you are on the sideline.

The historical data for the S&P 500 Index shows positive total returns for 24 out of the last 30 years.

How to survive market volatility

Advanced investors know that the best way to survive volatility is to stay with a long-term plan and a well-diversified portfolio. Yet, it is easier to say than to do, we know that. But can you find a better way? Diversification is the essence of investing. Hence, when the markets shift, you might have to rebalance your portfolio. So, market volatility could be a great time to mix your assets. Just don’t be lazy. It is your money in the play. Of course, you have to know your risk tolerance.

Day traders can profit from the stock market volatility

The coming back of volatility is bad news for some, but day traders can profit from market volatility. If you are one of them or want to try your hand just start small, big games are not suitable for volatile conditions. Day traders should limit the size of trade to limit the size of losses. To be honest, if you want to learn how to be a good player in this game, you have to experience the pain. What we want to say is, you have to lose some money to be able to be happy when you make a great gain. Don’t you agree?

Further, never place too many trades per day. You have to think about each trade separately. Too many trades mean the bigger potential for losses and more headaches with empty accounts. Trade only a few stocks per day. This doesn’t mean you are without confidence. Contrary, this means you are a reasonable trader. Modesty isn’t IN today, but with this approach, you may have constant profit for a longer time. Just stick to your strategy and always plan your exits. Moreover, now you have this app to check them even before you open the position.

You know very well the trading is risky, especially if you trade for a living. That’s why you have to develop a strategy, with the possibility to test it now and follow it.

What long-term investors have to do while the market is volatile

A normal reaction to market volatility is to reduce any exposure to stocks. Will it make any sense? Long term investors must stay calm when stock market volatility comes. Don’t make radical changes to the portfolio. It can be harmful to your wealth. Meaning, don’t invest more in stocks because the exposure to more stocks could be risky for your investments as a whole.

You have worked hard to build your portfolio. Just stick with your plan and stay calm. Market volatility is usually a temporary event. Don’t panic.

Bottom line

Expect more volatility in the stock market this year but, to repeat, volatility is completely natural and expected. The S&P 500 could experience a correction this year in the –10% to –15% range. That is the average correction. Stay focusing on economic indicators and be patient if you are a long-term investor. If you are a day trader just trade a few stocks daily. Until the volatility goes. Eventually, it will, sooner or later.

9th February 2020
Stock Market Bubble How to Recognize It

What is a stock market bubble? How a stock market bubble is created? What is the definition?

We are talking about a stock market bubble when the prices of stocks rise fast and a lot over the short period and suddenly start to drop also quickly. Usually, they are falling below the fair value.

A stock market bubble influences the market as a whole or a particular sector. A bubble happens when investors overvalue stocks. Investors can overestimate the value of the companies or trade without reasonable estimation of the value.

How does this thing work?

Let’s say investors are massively buying some particular stock. They become overly eager to buy. How does that affect the stock price? The stock price is going up. The traders notice the growing potential and believe that the stock price will rise more and they are also buying that stock with an aim to sell it at a higher price.

This trading cycle has nothing with the usual criteria related to trade. When this cycle lasts long enough it can extremely overvalue the stock or some other asset, generating a stock market bubble that will burst.

Because a stock market bubble is a cycle defined as speedy increase, followed by a decrease.

We would like to explain this in more detail. When more and more traders enter the market, believing that they also can profit and perhaps go on the double, but we have a limited supply of some stock, it isn’t unlimited. So, on one side we have an enormous number of traders willing to buy a stock, and on the other side is a limited number of particular stock they are interested in. The consequence is that the stock price will rocket. That sky-high price isn’t supported by the underlying value of the company or stock.

Finally, some traders realize that the growing trend is unsustainable and start selling off. Other investors start to follow that and catch on and start draining their stocks, in hopes to recover their investments. And here we come to the main point.

The declining market isn’t investors’ darling. The stock prices are dropping, traders who enter the market too late have losses, the stock market bubble bursts or in a better scenario, deflates.

Actually, we can easily say that behind the stock market bubbles lies a sort of herd mentality. Everyone wants a piece of high returns, it’s logical, right? Well, it continues with a downward run.

What causes it?

When eager investors are pushing the value of the stock, much over its proper value, we can say that we have a bubble. For example, the stock proper value is, let’s say $50 but investors boost it at $150. You can be sure the price will go back to its proper value, soon and extremely fast. The bubble will pop.

A good example is the dot-com bubble of 1999/2000. The markets were cut from reality. Investors accumulated dot-com stocks so wildly. How was it possible when they knew that a lot of these companies were worthless? They didn’t care.

That pushed the NASDAQ to over 5.000 points in a short period. That was the bubble and everything got apart very fast and painful.

One of the most famous market bubbles took place in the Netherlands (former Holland) during the early 1600s. It is the Dutch tulip bulb market bubble or ‘tulipmania’.

What happened?

The speculators pushed the value of tulip bulbs sky-high. The rarest tulip bulbs were worth six times more than the average yearly salary. Today, tulipmania is in use as a synonym for the traps due to extreme greed.

That can happen when someone follows some investor and notices how good it is and suddenly that one decides to do the same. But such copycats are not single individuals in the stock market. There are millions doing exactly the same thing. In a short time, everyone is plunging the money and the market reacts respectively by inflating prices. And eventually, the bubble will burst.

A stock market bubble as positive and negative feedback loops

Whatever has begun to shift stock prices up to become self-sustaining is a positive feedback loop. For example, investors hunting higher growth. When prices increase, investors are selling stocks. The others are buying them to profit on the growth. Someone will ask what is wrong with that. Well, new purchasings are driving the prices up higher and more investors are seeking those profits. The cycle is starting. And it is good but only when this positive feedback loop, as economists call this, comes as a reflection of reality. But when the feedback loop is based on fake data or questionable ideas it can be very dangerous. A great example is the Stock Market Crash of 1929. That was a time of blooming speculators in the markets. Speculators are trading stocks with borrowed money. The loan is paid from profit. When speculators have good trades they can make a fortune. In a different scenario, when they try to limit losses on debt, they can lose the shirt.

The stock prices will go down, the other investors will quickly sell with the same hopes to mitigate losses. The prices will go down further and create a “negative feedback loop” and poor market conditions will bloom. This is exactly what happens when the stock market bubble bursts. The stock prices are going down further as investors try to sell their stocks to cut losses.

Bottom line

As you can see, a stock market bubble happens when investors are buying stocks neglecting the value of the underlying asset. It is caused by a kind of optimism, almost irrationally, despite the rule of thumb: avoid impulsive trading.

The crucial nature of a stock market bubble is that trading can go in a direction that is not in your favor. Optimism can fade. Investors seeking higher profits easily can see their own disaster when the growth starts to slip. Why should they stay in positions any longer? They will not, of course. It is opposite, the selling off will start and the stock market bubble bursts. And it can do it for random reasons. Be careful, you can recognize a stock market bubble when everything is done. Only rare investors are able to anticipate it is coming. Well, that’s why they are successful and rich.

7th February 2020
Black Swan Investing Strategy To Reduce The Risk

Predicting when the next black swan event will happen is the mission impossible. But you can create a portfolio created to reduce the risks related to black swans.

Black Swan investing isn’t quite a strategy, it is more a trading philosophy. Actually, it is a method of predicting the occurrence of black swans. The black swan is an unplanned, unexpected event in the markets. Such events come as a sudden blow and may influence the market. But black swan also can have both a positive and negative impact and we are going to discuss them here.

An example of a negative black swan is the crisis of 2008.

Black Swan investing is a trading philosophy based completely on the probability that some accidental event will hit the markets. To avoid losses caused by a black swan, traders who are trading based on black swan strategy always are buying options, never sell. They never estimate will the market go in one or another direction, up or down, they are buying. These traders are actually betting on the chance the market will move both up and down.

Protection of investments

Behind that behavior is investors’ need for insurance for their portfolio to protect against another black swan event like it was financial crisis 2007-2009.

They are afraid of is losing money as they did at the time of the crash. But losing money is a risk that you have and can determine. The black swan is a risk that you can not determine or predict. How can you plan some sudden and hidden events ahead? Hence, we can’t hedge out the risk of secret and unknown events. All we can do is analyzing past events.

The black swan investing theory is based on an old saying that presumed black swans did not exist. Nassim Nicholas Taleb developed black swan theory but in his book The Black Swan he also recommended traders to fire their advisors claiming that they don’t know enough or know a bit about investing. Brave claim indeed. His belief in the incompetence of financial advisors is based on their disregard for Black Swans.

Is it possible to predict the next event?

It sounds like an impossible task because it is. As we said, how can you predict something unknown? But what you can do is to build a well-diversified portfolio to reduce the risks. Also, now you have this tool to determine when to exit your trade and avoid money losses. Moreover, you can determine when to do that in profit.

Yes, your portfolio can be structured to reduce risks linked to black swans.

Positive or negative black swans

Okay, you would like to know how to invest for positive or negative black swans. So, first of all, you have to understand how not to depend on catastrophic predictions. Let’s say, you invested with the belief that the stocks will grow forever. Also, you are pretty much sure that the financial crisis will never come, or the company will never bankrupt. Well, something has to be changed in your beliefs. The truth can be very painful for you at this very moment. Stocks will not rise all the time. Not even in the next 20 years or even five. They will go up and down.

The main point of black swan investing is to profit from unpredictability. But such events come suddenly, they are surprising, so how can we invest in it? We cannot do it directly. All we can do is to be ready for them, meaning to be exposed to such exceptional but extremely impactful events.

How to expose to a positive black swan

How to do that? How to take advantage?

If you follow Taleb’s definition it is quite clear what to do to positive events. If you can seek exposure to something you can not predict, then seek out exposure that is unrestricted to the upside. Well, there is no need to know will some event come or not, or when it is going to happen. All you have to do is to detect exposures that have the potential to blast if meet the proper conditions.

Exposure to positive black swans may sound a bit esoteric. Some investors that are practicing a black swan strategy like to say that it is necessary to build a portfolio that is able to “invite” positive events, amazing and unexpected. We don’t have material proof that it works.

Their idea is to give a portfolio a chance by setting up limited sums of money or scale it up. If it works, it’s okay. If it doesn’t work, just give up and risk later.

This stands in firm contrast to traditional investing advice.

Behind this idea

For any trader who wants to implement the black swan investing strategy, it is necessary to create a barbell portfolio. This kind of portfolio was created by bond traders. This strategy requires owing safe short-bonds on one side of the barbell, and on another side to balance the weight of investments, riskier long-dated bonds.

By building a barbell portfolio, you’ll have very safe investments on one end and notably risky investments on the other end. The safe investments virtually don’t have risk. They will survive even a black Swan. The risky side of the portfolio opens it up to the endless upside. This kind of portfolio advances despite any circumstances in the market. That’s according to Taleb.

Black Swan investing

Since black swan traders never sell and they are counting on the crash, they are buying out-of-the-money options.

But one question arises. Can any empirical evidence account for black swans? We are afraid the answer is no. So, we cannot predict the market. Why there are still people trying that? Because we all need progress in this field. Yes, we have algos, AIs, learning machines, automated trading, etc. But yet, no one can predict the market. And it is a great challenge. By fair, that moment isn’t so far from us. One day someone will find some formula for that. Frankly, how many people were able to predict all possibilities of the internet? A very small number. Today it is part of our daily lives.

Yes, we truly believe that one day, somewhere, someone will find a way to predict market movements. Meanwhile, there is no need to give up from investing because of the lack of unreachable knowledge. Just work with what you have and know. That would be enough. At last, it was enough for the past 200 years.

Pro tip: Develop an efficient portfolio on a demo account first; (1) Examine how well it guards you from random Black Swans (2) optimize (3) only then risk real funds.

Bottom line

Banks are a negative black swan business. The upside is inadequate and the downside is complete. The examples of positive black swan investing biotechnology stocks, venture capital, publishing, etc.

The venture investor that invested in Uber in its beginning was exposed to a positive black swan, but today would be more exposed to a negative black swan with the same investment.

The key principle in black swan investing is to find extremely aggressive as unreasonable as possible assets. Hence, when you find that chance, take it.

26th January 2020
Diversification Is Important to Your Investment Portfolio

When stock prices drop, bond prices increase. A portfolio that holds stocks and bonds plays better than the one that holds only stocks.

Diversification means to spread the risk across different types of investments. The main purpose of diversification is to enhance your chances of investment success. In other words, you are betting on every one.

Diversification is very important in investing because markets can be volatile and extremely unpredictable. If you diversify your portfolio, you will reduce the chance to lose more than you are prepared to.

And that is exactly what you would like in investing: to spread your capital among different assets. So you’re not relying on a single asset for all of your returns. The key advantage of diversification is that it provides you to minimize the risk of losing the capital invested.

What is diversification?

Diversification means building a portfolio of your investments in a way that the majority of the assets will have a different reaction to the same market performance. For example, when the economy is growing, stocks will outperform bonds. In opposite circumstances, bonds could play better than stocks. Hence, if you hold both stocks and bonds, you will reduce the risks in your portfolio from market swings.

Let’s make this more clear. What do you have in your pantry? Only beans? Of course not! When you went to the grocery you bought everything you need for the week or month ahead. The same should be with your investment portfolio. It should consist of various assets. But not too many. Too many assets mean you will not be able to follow their performances. If you are fresh in the stock market, maybe a two-fund portfolio is a good choice for you. More about this you can read HERE.

Think of these various types of groceries as the different areas, techniques, and areas available to you as an investor. If you have a variety of assets, you’ll be better protected. In the situation when one of your assets is hit by the risk you will still have the others that can give you a profit.

Reasons for diversification

Even the explanation is so simple you can still find so many investors that play on one card. You may ask how some really smart guys could avoid diversification and put all eggs in one basket? We couldn’t find the proper answer because the benefits are so obvious.

By diversification, investors lower the overall risk. It is logical how this works. When you spread your investments in various classes (diversifying them) you have more chances to avoid the negative influence in your portfolio. For example, let’s say you invested in stocks only and you hold a stock of just one company. Yes, we know you like it, it is a good company, famous, well-run. But if suddenly something unpleasant hit it and the stock price drops, let’s say, for 30%, how that occasion will influence your overall portfolio? You will lose 30% of your portfolio. But let’s consider the other situation. Let’s say that stock makes up a modest part of 5% in your portfolio. So, how much of your overall portfolio you will lose now? Can you see where is the benefit of diversification? It lowers the risk. Even during economic downturns, you will still have good players in your portfolio. Hence, if you have bonds and stocks added to your portfolio, it is more likely that even one of them will run well during particular circumstances. Bonds will play better when the economy is decreasing, but when the economy is growing, stocks will outperform bonds.

Diversification and investment strategy

You can find various investment strategies but two are most popular: growth and value investing.

Value investors tend to consider the strength of a company and its management. They would estimate if the company’s stock price is undervalued based on its true worth.

On the other side, growth investors would estimate how fast the company is growing, could its new products stimulate future earnings, etc.
By taking just one strategy you can miss out on the benefits of the other. But if you spread your investments on both of these strategies, it is pretty sure that you’ll be able to enjoy the benefits of each.

Influence of “home country bias”

Well, it is completely natural that investors are more attracted to their own state markets, the national industry. That’s how we come to the “home country bias” in investing. Of course, it is a natural tendency. But it can be a problem too. “Home country bias” can limit your investments to the offer from domestic markets. But what is needed for profitable and successful investing is to step out of your comfort zone. Foreign markets can be profitable also. What you have to do as an investor is to add some international fund or company to your portfolio. It is good protection and well-done diversification. Diversification across international markets will protect your investments if the domestic economy downturns (no one wants that, of course) or during the recession in your country. Several years ago we heard one of the investors saying it isn’t a patriotic gesture. Well, we have to say, investing isn’t an act of patriotism. It is all about profit.

Produces more opportunities

Eventually, diversification produces more opportunities if you make smart choices that deliver balance to your investment portfolio.

For example, you only invest in stocks. But suddenly some great opportunity occurs to invest in, for example, bonds. What will you do? Refuse to invest in bonds because you are not comfortable with them and risk to miss potential profit? We don’t think it is a smart idea. Never miss the opportunity to earn more, that isn’t in the nature of investing. Admit, you will never miss this opportunity to invest in bonds if you have a diversified portfolio. So, diversification gives you more opportunities to invest.

Protect and improve your finances

It is important to understand all the benefits of diversification. It isn’t hard to do. Actually, it is very simple. You have to read more, learn and be patient. If you diversify your investment portfolio you will have a chance to build stable finances over time.

How to diversify your portfolio

Firstly, never be too much invested. You will not be the winner if you own hundreds of assets. Okay, let’s say this way. Your portfolio is your team. And, as in every team, each part plays its role. No coach will put all players in one position. It’s stupid. Plus, how such a team will win anything? Of course, zero chances!

The point of diversifying is to hold investments that able to work separated tasks on your team.

Every single part of your portfolio should have a different role. For example, if you prefer stocks, diversify your portfolio to S&P 500 (that would provide you exposure to large-caps) and add some small-caps.

If you have a bond portfolio diversify it across short and long bonds, or higher-quality bonds, etc. That will reduce the risks. Or just add alternative investments in your portfolio. For example, private equity, hedge funds, real property, venture capital, commodities, etc.

Bottom line

How will you know you’re diversified? A well-diversified investment portfolio will never move in the same trend and at the same time. You must have one thing on your mind: you are the manager of your portfolio. Also, it is almost impossible for all investments to grow all the time. It is 100% sure that some of your positions will be lost, will lose you money. When that happens you will need the other holdings to balance that fall.

Diversification guards you against producing an undesired risk to your capital. Anyway, it is too risky to put all your money into one single investment. The key to diversification is to spread your money across asset classes and to allocate within classes. That is a smart approach.

23rd January 2020
Is Coca Cola Overvalued – Trick Or Treat

Coca-Cola has performed very well in 2019. The stock isn’t cheap but also, not overvalued. The increasing margin and investors seeking yield couldn’t be a problem for the company to continue great performing.

The question Is Coca Cola overvalued could be a trick. Why do we think so? If we take a cash flow at a consideration we can see that Coca Cola is trading at 24.4 times operating cash flow and 31.3 times earnings. Further, the forward price-to-earnings ratio is at 24.6%. and the latest price is $54.69 (data from January 3th, source Yahoo Finance). Although, the company is not expensive.

Further, if you have in your mind that most government bonds are trading under 0% yield, the negative interest rate in the EU, currently inflation is low, KO that provides a 2.9% yield, you must understand that it isn’t expensive.

Of course, it will be better if the stock can provide a higher yield but for that, we have to wait for additional dividend increases. On April 9, the stock traded at $55.77, the current price is at $54.69 but we all have to admit it isn’t a sharp decline in the stock price. Coca Cola management may reinvest the company’s operating cash in capital expenditures (CapEx) to get, improve, and keep the property, improve technology, or equipment. Further, the company can reinvest in development such as innovation to improve the product portfolio, marketing or M&A to maintain the business like it was in the past 20 years or more.

Also, Coca Cola can use the operating cash to further improve profitability. That would influence its P/E ratio.
Having all these indicators in mind it is easy to conclude that Coca Cola isn’t overvalued stock.

It has a high debt

Coca Cola has raised debt levels. The company has a slightly low liquidity position as the current ratio is at 0.92. The sustainable level should be 1.00 but the current debt levels are not something to be worried about. Boosted debt came from the fast increase of long-term debt and falling sales. But as we said, the company plans to improve sales and operating cash flow will likely grow. That could easily cover the debt. Moreover, the company’s bonds are doing very well.

Why do some investors think that Coca Cola is overvalued?

Some investors avoided this stock due to its valuation. But try to be honest, it isn’t expensive. The company is paying a stable dividend yield and, according to its statements, it plans to have strong sales in the future. Coca Cola isn’t in the phase of low operating cash flow. Experts’ opinion is the stock hasn’t sell signal. It is contrary, with 31.3 earnings it has “hold” or even “buy” signal. Moreover, some estimations and predictions show that stock may hit over $60 (close to $65) this year. Well, Coca-Cola is a solid dividend-paying stock and it will likely continue to produce stable profit for its shareholders.

The profitability of the company

Let’s see is Coca Cola overvalued. Over the last four years, the company had a total revenue drop of $10 billion to $34.3 billion. Operating margin was improved by 560 points up to almost 29% and income dropped to about $10 billion which is a difference of just $400 million. The good sign is that the company increased cash by almost $10 billion from its operations while dividend payments hit a new record of $6.74 billion.

This year, Coca Cola has got back $3.4 billion through dividends and distributed stock worth $233 million. Yes, it is lower than for the same period last year due to several factors and the dividend increase of 3% may not be so visible. But the stock has had a great play in 2019 with a return of over 16%. So, what do you think, is Coca Cola overvalued? We think it isn’t. The company has a great product portfolio that could boost sales. So, KO could be one of the best investments in the next year since, as we can see, there is still a lot of potentials. Maybe the better question could be is Coca Cola undervalued rather that is Coca Cola overvalued stock.

Coca Cola through the history

After 133 years of existing Coca Cola isn’t a woman-body-shaped-bottle. More about the company you can find in its fresh statements updated for Q3 earnings result for 2019.

The Coca-Cola Company is an American corporation established in 1892. It is primarily recognized as a producer of a sweetened carbonated beverage. It is a global brand not only the US trademark. The company is also focused on producing and sells soft and citrus drinks. Its product portfolio consists of more than 2,800 products available all over the world. That makes it one of the largest beverage producer and seller in the world and, also, one of the biggest corporations in the US. The company is headquartered in Atlanta, Georgia.

Almost 55% of its sales come from carbonated soft drinks. The rest 45% goes to juice, dairy, tea, coffee, etc. The interesting part is that Coca Cola is a market leader in almost all of these areas selling its products through over 28 million customer stores.

Speaking about its stock, Coca Cola could be everything but not overvalued. Moreover, it is a growing brand after 133 years. And the company still has great ambitions to meet consumers’ demands. Respect.

And don’t be worried if this famous producer is able to meet them. Despite the increasing competition, the company has transformed into an asset-light company. It manages to improve supply chains and modernize its packagings, the concentration of sugar and modern tastes.

Don’t ask is Coca Cola overvalued. It isn’t.

Bottom line

Coca Cola is consumer staples stocks. It provides goods that people need on a daily basis. That fact makes it an excellent investment in practically every economic condition exceptionally winning during economic slowdowns. People will always need these products no matter what economic or financial status is or if there is inflation or market downturns. The whole industry’s total return in 2019 was 27.3%. Compare this data with the 12-year average annual return of 10.4% and you will understand why it is still a good investment choice. Yes, it is 3% points below the S&P 500. Nevertheless, if the market gets rough, and especially if we will face the market correction, this industry will shine.

In the face of this context, Coca Cola is one of the best consumer staples stocks to buy in 2020. This pick should be proficient if the market is turbulence in 2020.

So, KO could be a good addition to investors’ portfolios.

5th January 2020
Buy More Stocks, And Here Is Why

Your money should stay in stocks as bond yields and savings accounts interest rates are being held down

by Guy Avtalyon

Let’s explain why should you buy more stocks in 2020. The first stock market rally this year started with a lot of momentum. The S&P 500 index had its best year in 2019. The last such good year was 2013.

2019 was really an active year. For all investors, the end of the year was a great opportunity to figure out what happened and how well they were doing. Well, it’s normal to make some mistakes but the point is to find any that has had a great influence on your investments. The most important is that these mistakes didn’t hurt your long-term investing goals and when you figure out what you did wrong you’re able to avoid repeating them.

So, you will be prepared for new investments which is very important.

The beginning of the year is the right time to make plans on how to position your portfolio. Since no visible or specific cause could cause the stock market downturn it is the right time to buy more stocks in 2020.
Actually, buying great stocks at reasonable prices should let us build our wealth firmly in the future.

Let’s take a look ahead to 2020 for stock picks

Many analysts are skeptical about the stock market’s gains will proceed with two-digits percentage, that’s true. So, we can conclude they are expecting volatility. This means the stock prices could go down.

And here is where the opportunity comes.

Cheaper stocks represent a buying opportunity and some investors are waiting for that. Some companies are ready to outperform and continue to grow despite the economy slows.

According to analysts from Wall Street, some well-known companies and brands could be the right choice.

Buy more stocks in 2020 to get profit

Picking stocks can be difficult so let’s see what is our choice for potential opportunities.

Kohl’s (KSS)

Kohl’s has over 1.100 stores and represents the largest U.S. department store chain. For some investors, its stock may look too cheap after the company posted the last quarterly results. KSS trades 20% under its five-year average and 25% below its average price-sales ratio. But the company is expected its revenue to grow 1.8% to $19.3 billion. The earnings would stay at $4.88 per share. But Kohl’s performed something else really great: it generated $10.81 per share in free cash flow last year. Its annual dividend payout is $2.68 per share. Just compare these two figures. The current yield is 5.3%.

Visa (V)

It is one of the most powerful payment companies in the world. The company processed 180 billion in transactions worth $11.6 trillion. Net revenue was up 11% in 2019, and net income increased by 17% year-over-year and is about $12 billion. Remarkably, this large company reported two-digit growth both top and bottom line and a free cash flow yield of 3%.
Some new initiatives should provide steady growth for Visa in the future and allow the company to take advantage of and beat competitors. This stock isn’t cheap but the high-quality is costly.

Apple (AAPL)

It is expected that the demand for Apple’s 5G iPhone will boost the company in 2020. AAPL stock price, according to some analysts could reach $300 in the next 12 months. Well, some are expecting the price to climb up to $440 in the year ahead and after 5 years to increase up to $1427.148. Even if you think the price is “overrated” Apple is confirmed as a good investment. Buy more stocks if you have enough capital to invest in.

Amazon (AMZN)

Amazon’s stock could be a top bet fort he next year. Strong growth in its cloud-computing and advertising businesses is expecting. The analysts are rating the stock as a “buy”. The predicted price could pass a $2,000 target this year. Shares could rise by 34% over the year, which is the experts’ opinion.

Walmart (WMT)

Walmart has been modifying. It has been investing in online. The company could take advantage of the growth in the middle class in China. Yes, Walmart’s market value is 40% of Amazon’s, but the difference is lowering. At the end of last year, the price of WMT stock was $120.440 but the price has been in an uptrend for the past 12 months. The future price of the stock could increase by 23%, said analysts, and predicted to be worth over $200 this year.

Kronos Worldwide (KRO)

This company from Dallas (Texas) produces and sells titanium dioxide pigments for broadly used in auto-industry, traffic paint, appliances, interiors, and exteriors. But the investors’ attention is focused on its revenue. It is expected to grow by 3.4% this year or to $1.8 billion. The earnings should rise $0.88 per share or by 14%.
Despite this growth, Kronos shares trade nearly 40% under its five-year average P/E ratio. The quarterly dividend has increased by 20%. The stock yield is 5.4% at $0.18 per share.

Tesla (TSLA)

Tesla Inc will present its first Chinese made Model 3 sedans publically on January 7, reported Reuters. The deliveries came a year after Tesla build its only plant outside the US. The target is 250,000 vehicles a year. Tesla’s China General Manager Wang Hao said the plant had achieved a production target of 1,000 units a week, which is the production of around 280 per day, and that sales for the China-made vehicle had so far been “very good”. If Tesla’s earnings become firm, thenTesla’s stock could rise amazingly. Right now, Tesla stock trades at $418.33 but analysts are expecting to raise over $720 this year.

Starbucks (SBUX)

Starbucks has a great performance last year. Its shares increased by 37.5%. The company has reported revenue growth, an increase in total net revenues to $26.5 billion and net income grew to around $3 billion. Starbucks ended the past year with 31,256 stores in 82 markets. The company continues to grow in China as well as in the US. Starbucks has clear goals for its expansion. That provides a great level of certainty to investors and they could recognize Starbucks as favorable stock to buy.

Why buy more stocks in 2020?

For stock investors, this year already appears like a happy new year.
Investors buy more stocks for many reasons. For example, capital appreciation could be one of them. Also, dividend payments or the ability to vote and control the company.
Several reasons are behind choosing to buy more stocks in 2020. In this stock market condition, stocks provide the best potential for growth as always.
The beginning of the year is an amazing time to decide where to invest. Since there is no 100% sure way to predict the stock market movements why not invest in assets with the greatest returns?

What could we do instead?

All we should do is to create diversified portfolios and adjust them to the market’s movements, to save a value in down markets. The general suggestion is to not look often at your portfolios. Take your time and read books about investing. You can find plenty of them packed with wisdom.

Traders-Paradise wishes you happy investing in the stock market this year.

2nd January 2020
What to Expect From the Stock Market in 2020?

Create portfolios that will work no matter what the next year is going to bring. The recession will come or not, but your investments have to be protected.

By Guy Avtalyon

What to expect from the stock market in the year ahead? The stock market could correct itself during the early days of 2020. But, despite some dark predictions, the stock market may keep rising over the long run.
This is the last day (at the moment of writing) of the year during which the market was so unpredictable. At least, it was surprising.
For example, Uber’s IPO was followed by fanfare, and what happened? Great disappointment.
But many other stocks hit their highest-ever highs and quickly dropped to the lowest lows. The only truth in the stock market is that there will always be shocks.

Okay, that year is behind us so let’s take a look at what to expect in the stock market for 2020.

The stock market will rise more

The stock market boomed in 2019. The S&P 500 recorded a gain of 29.2% in 2019. Some analysts already told us the market will be down in 2020 but, to be honest, they could be wrong. Since the stock market rose over 20% in 2019 it is more likely in 2020 to see even greater returns than it was in the previous year.

What you have to do? the answer is simple. If you had good returns in 2019 and your investment portfolio was doing well, just stay with it. Why would you change the winners?

But…

Nothing related to the stock market is for sure and forever. There is always something to worry about. It’s our money. If you hold cash and not invest in stocks or somewhere else, your money will go anyway. So, don’t be frightened, come back to the market, and invest smartly. The year ahead could be promising. Build your portfolio, mix the assets, and avoid emotions. Yes, the stock market could be more volatile in the next year could since 2019 was much less volatile than the prior year.

Some unpleasant occasions may arise over the coming year.

Firstly, in January due to the January Effect. What is this? The January effect is an increase in stock prices during that month. But is a seasonal increase. Usually, In December, the stock market records an increase in buying, and the stock price is dropping. In January, stock prices will increase as always.

In fact, the January effect is a theory and calendar-related effect. Some small caps could be affected more than any other. But according to history, it was a case until several years ago. Since then, markets seem to have adjusted for it.

What to expect from the stock market

The stock market is pretty much unpredictable, we can only guess. Maybe the right question is what to expect from the investors. So far the majority showed spectacularly bad timing when it comes to stocks. They are selling and buying at the wrong time. Many of them are selling just before rallies or accumulate stocks when they have to sell.

If you believe that the market is increasing and that it is a predominant trend, adjust your portfolio for the ups and downs in 2020. But it is the same as always. Your actions will depend on what your expectations are toward the stock market in the next year. Maybe, you will invest more money when the markets are more volatile with the expectation that pullback is temporary, who knows?

The value stocks will come back

Yes, stocks are growth or value type. Growth stocks are so attractive and popular. Everyone is talking about them, they are in the headlines, media are paying a lot of attention to them and burn our brains too. The whole world is watching the stocks of Amazon, Facebook, Uber, and many others because the growth stocks are giving great returns, they are well-known companies, famous brands.

On the other side, we have value stocks. They are mostly companies form the utility industry, or energy or something else less attractive. Such stocks don’t have spectacular prices, the companies are not fast-growing.

Yes, the growth stocks are performing better results in growing markets but the value stocks will always do better in down markets.

To be told, the growth stocks are increasing their value year-to-year and some experts are expecting a reversal in 2020. So, growth stocks may change their prices and decrease.

A diversified portfolio will be helpful as always. If you hold any of these great players just sell part of it if you follow the experts’ estimations. At least, your portfolio will be less volatile.

What to expect from the stock market: The bear market is coming for sure

This prediction was wrong for many prior years. But, maybe the next year may confirm market bears’ expectations. We have a bull market and it showed a great strength over the year. It was faced with a yield curve inverted, trade war, Brexit, the possibility of a recession. Well, to add more pain into your lives, the bull market has to end at some point. Some experts expect that 2020 is that time.

So, what investors have to do is to hedge the risk and take some profit, of course. As the market motto advises “you will never go broke taking profits.” Maybe it is really time to take some profit from your investment. If you believe the downturn in the stock market will come for sure, be ready to reinvest big gains. What different could you do when the important selloff comes in 2020?

Will the recession surely come?

Recession is an element of any business. So, we can expect it to come at any time, sooner or later. It may happen in 2020 or 2021 or 2022, literally anytime. Many circumstances have an influence on it, we are witnesses of some, that’s true.

Investors shouldn’t adjust their portfolios based on guessing. However, it is smart to analyze your allocation. Maybe some stocks are out of balance. Let’s say you wanted to hold 50% in stocks but you noticed that suddenly you hold 70%. That would be a clear sign that is clever to exit some positions. Just adjust your portfolio with your risk tolerance and investment goals.

We all know that the stock market forecasts are useless. No one can predict how the market will perform. But still, we click on them to see and compare them with our opinions. The reduction of difficulties is in the essence of human nature.
However, investing in the stock market certainly includes difficulties and risks. Seeking out for expert opinions about what to expect from the stock market in 2020 can be the wrong way to lessen risks or uncertainty.
Investors must do their own examination. If you think the crypto will go up, just buy some of them or parts of them, or if you think Uber is a great investment, just buy some shares of it. A small portion will be quite enough notwithstanding that experts are expecting a big increase.

One is a-hundred-percent sure, you will make at least one mistake. Take it as certain. But that’s life and also, that’s investing, be prepared for that.
Just do your best to secure your right calls overpass your wrong ones.

Happy New Year!

31st December 2019