If you download (and read) my weekly sector summary report, you will see a tab with graphs that show relative sector performance among sectors and among periods.There are so many things that can go wrong in our choosing which stocks to place our hard earned money. In the last year, many of the stalwarts--GM, PFE, C, BAC, MRK, AIG--have fallen mightily. Some sport a nice dividend--but a dividend offers little cushion if your stock has fallen 20 - 30%.
Heres a graph of cumulative sector performance. I believe that being in strong stocks in strong sectors helps to mitigate risk. Some say that sector strength is 50% of a stock's performance and the underlying fundamentals of the stock the other 50%. The difference in the relative performance among sectors is great. If we were to look at money invested over 5 years--Oil and Gas returned 234% while Financial returned 7.26%.
There's been much talk about the "round trip" in the S&P. That has been largely due to the performance of financials which up until recently comprised the largest % of the S&P. I heard recently (forgive my not looking up the reference) that tech has since taken over. The round trip is due largely to the performance of the sectors.
Now, it's important to point out that the strongest sectors often get that way due to euphoric reactions by investors and the "piling in"--generally by retail investors (me and most likely you). I imagine that tech outperformed in the dot.com excitement, cum bubble, cum burst, cum weeping, wailing and gnashing of teeth.
So being in the strongest sectors is not a fool-proof strategy. Frankly, I do not believe that there are any fool-proof strategies. I believe that investing is much like a strategic plan of an organization: you lay out your plan based on the best information you have in hand; you execute that plan; you evaluate actual v. planned performance and identify the gaps; you fill the gaps and adjust accordingly. A strategy without a feedback loop (the place where you review/adjust) is like a bee flying with one wing--lots of activity, but in a terminal loop on the side of the good wing. (I really have no idea if a bee can fly with one wing, but you get the idea).
Meaning? A strategy without feedback and adjustment is no strategy at all.
4 comments:
Leisa
Money has rotated pretty fast this year in and out of sectors hasn't it?
1st into Gold and PM's in Jan.
Then Coal began its move.
After the BSC collapse - a ramp back up in the financials (temporarily) followed by a rotation back into Tech.
And then the recent big move in the Oil sector.
I don't see too many market gurus
talking about the pattern for the stock market for years ending in 8
Typically in years ending in 8 we have weakness in the 1st quarter esp. Jan - followed by a rally into the late spring.
Then comes a pullback followed by a early summer 'ramp up' in July or so.
Then comes another correction into early Fall - often an echo of the 1st quarter.
Then a market recovery -particularly if it is an election year.
.. So far we have been following this script... so worth watching I guess...
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Many talking about bonds...
To me it looks like the Yield curve is going to go flat - with the short yields going up... this could have implications for the commodity markets
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Many long term bears and defensive traders appear to be getting restless and edgy:
Witness the degree to which the discussions at the Bill Cara blog have degraded into discussions about Nazi's, Jews, Mexicans, immigration and anger over the upcoming elections.
All wrapped up in the rubric of 'tolerating' differing opinions.
My experience has been that when traders get restless and comments as these start appearing - we are in for some more surprising moves in the market - moves which are probably going to relieve emotional traders of more of their money.
btw... I recall one guy named Activedollars/niceguy who posted a few harmless quips on the Bill Cara blog - questioned a few of their sacred cows (along with posting some market insights too) - but was run out of town from that blog LOL...
That blog can be a bit of a 'downer' at times IMO..
Anyone recall in 2006 when everyone on the Bill Cara blog was in severe Bear mode - with Bill calling for the drop to 10000 on the DOW? (after the market had already had a severe correction)
That point (August 2006) turned out to be the second BEST buying point of the decade.
... But with us entering a 'split' type of market now - simple contrary investing may not work anymore - sentiment guages probably mean much less now...
And the game will be to find out which sector the money rushes into or out of next - as we chop drop and bounce...
'nice
The BC call was for a top in OCT 2006--I mentioned this to 2nd when he mentioned BC's call on Shanghai.
I was listening to the technical roundtable on FSO: Tim Wood, Frank Barbera, Bob McHugh and Martin Goldberg. Very sobering. It is worth listening too. I may try to transcribe a few points and post here.
nice/leisa- LOL...yes, i've noticed the best traders are astute observers of human behavior, recognize patterns easily, and have good memories...
thanks for the info..(first time i've heard about the market pattern for years ending in 8)...
2nd
Leisa...
I'd be curious what McHugh says...
Also there is an advisor Pat McKeough - has newsletters in Canada and US... someone just gave me a copy of one of his newsletters...
Very interesting...
He is saying something along the lines of what I have been thinking about lately... and I agree with him.
He posits that:
The market as a whole is splitting into two markets...
1/2 the market is going down and will keep going down:
ie: These types of stocks are going down:
-->Companies that have no earnings or little earnings. (junk will be seen as junk - and stay junk)
-->Companies that have no earnings growth (have you seen some of the drug companies lately?)
-->Companies that have no real technical advantage (dot.com is over and won't be coming back)
-->Companies subject to greed (we know who those are now - BSC et al)
The other 1/2 of the market will go up (subject to the usual cycles of course)
ie: money has to pile into what is still doing something useful or where there are real fundamentals:
ie: like Apple, Research in Motion, shortages of Coal, shortages of fertilizer, energy demand from Asia, department stores, DOW industrial stocks etc...)
So, IMO watching and following TA on the broad markets is going to become a waste of time - because 1/2 the market is going down and another 1/2 going up... chop, drop, bounce, rinse, repeat...
Those charts from the 70's may make a comeback after all...
Oil still is a puzzle though:
I was studying some of the ROC charts (rates of change) in the spot oil prices that happened in the 70's crises - and I drew 2 conclusions.
(1) Despite what the media has been saying - the ROC's that have occurred in the recent run in oil the past 18 months - are just as strong or greater than what occurred in the late 70's
(2) The rise now is different than the 70's - in that the rise in the 70's would jump but then stop and plateau after a crisis ---> whereas now we have a sustained and persistent rise...
I surmise that the market (which has not been able to correctly assess and discount risk properly since Greenspan took the interest rate to 1% in 2003) - has not correctly discounted this sustained rise in oil prices.
Further - if one actually looks at a long long term chart of oil going back a century :: the market always returns to the level of the previous spike prior to the existing spike.
The previous spike in this case was the 1991 Iraq war - at around 40$ oil.
So if peak oil is another 'Y2K' event - history says we go back to $40.
Otherwise we stay at these levels - and IMO the market hasn't honestly discounted the recent sustained rise in prices nor discounted a permanently high oil price.
Can't have your cake and eat it too.
nice
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