A quiet dip?
04/13/2006
After some sterling recent market rises, I was going to say in the run up to Easter we may be about to get a quiet dip on some profit-taking. After all we have enough reason: oil, Nigeria, Iran. Yet, you then get from the US increased economic growth prospects. In the UK you get Marks and Spencer delivering bumper results.
Expect US interest rates to continue to be higher than in the UK - an unusual situation. The reason? Stronger sales are fueling earnings at US companies. Consumer spending is growing strongly too. Higher oil prices are not impacting the investor.
Gold and commodities generally continue going through the roof, which is as we would expect. Look, you can say something like commodities or the Indian market is running away and you can decide to sit on the sidelines until you find a dip. But the fact is, if you can extend your time horizon, to say three years, then you can afford to overlook the short-term and focus on the returns coming over a longer time frame.
Sure in the short-term there will be downturns, but looking over the immediate horizon can be a way of getting exposure to the market. Remember it is not just about risk and reward, but also about time. The longer the time frame the greater the chance you will hit the long term average expected return, regardless of the risk of missing that target in any one year.
The problem is most people do not understand risk. They do not understand risk is about the probability of missing a given target in any given year. But if you had a hypothetical infinite time horizon then you would hit the target over the long term, regardless of risk.
Part of the problem is of course knowing what the expected return is. What is the expected return of the FTSE 100 over 1 year? Tough one. But what is it over 5 years.Well up. But will it outperform over that period compared to investing elsewhere?
Still not sure. Well, what you need to do then in your decision making is have exposure to multiple regions. Collectively knowing most will perform well although not knowing which one specifically be the best, nevertheless gives you ample protection.
(Don't forget to email me if you would like the presentation on the stocks I like for 2006, which I broadcast on BBC2 - the picks in the past two years produced a 83% compound return.)
Value-Growth
Based on my value growth criteria which are based on stocks meeting revenue and profit growth and good value based on criteria such as price earnings growth (remember they are for a 6 month outlook: Brandon Hire, Stanley Gibbons, Manganese Bronze among others.
Remember I am targeting about 20-25% with the value growth criteria. Last year it produced 33% return.
On my momentum value indicator (which tracks stocks with value but which in the short term also have money going into the shares) I have: 4Imprint, Personal Holdings, Vitec among others.
Crazy Small Stock
These are high risk volatile stocks which could move sharply higher or move sharply lower in my view, but will almost certainly not stand still. Names on the radar include: World Trade Systems, MSB.
Also, if you would like a free multi-media CDROM on 'Investing Better', which covers spreadbetting, CFD trading and momentum indicators like the MACD, posted to you then drop me an email with your postal address to alpesh@tradermind.com.
Spreadbetters
Spreadbetters and futures traders often look at hard and soft commodities. Here's my quick take on the action for the week ahead:
- Oil: Up
- Copper: Up
- Gold: Sideways
- £/$: Sideways
- Dow: Sideways
- FTSE 100: Sideways
- Soyabean Oil: Sideways to up
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