Are you a wealth-builder?
Near-term price gains are most important to investors who are now either starting out in building a portfolio's wealth and exploring how it may best be done, or investors who have come to realize that plans made years earlier are unlikely to be met at current rates of investment wealth accumulation.
In the earlier case time may seem abundant and less important, but it needs to be seen as a most important accelerant in building financial wealth through investing. In the latter investor's case the need for more rapid capital accumulation these days cannot be accomplished by elevating risk to get higher income yields, it must be done by making better use of the investment of time, with capital gain as the prime objective.
Active investing, where capital is constantly put to work in the best odds-on situations to deliver profit within foreseeable time horizons is the strategy most likely to produce what is needed, at least risk.
That is because investment risk is not a constant. Price change is the element causing both risk and return opportunity, not "volatility" or "uncertainty." Where an investment's price is now, compared to where it has been, and most importantly, where it is likely to go next, is the key consideration for wealth-building investors.
Even quality stocks year after year have price changes within a year that are multiples of their expected "long-term trend" growth. That means declines must be happening. Near term is where those declines occur, and where the price recoveries pleasantly surprise. At this point in time, there are wobbly canaries in the market coal mine. The perceptions of market professionals see nearly two-thirds of ETFs with leveraged long holdings as having larger price drawdown exposures than upside gain prospects.
They see less than a third of those ultra-price-sensitive ETFs as having credible upside prospects. Something less than only one out of every five of those ETFs have a combination of credible upside forecasts larger than their downside risks.
The market "Music Man" would say: "Folks you got trouble. Right here in Investment City."
Can 76 (or some number) of the "right stocks and ETFs" bring calm and prosperity back to our beloved neighborhood? Let's look at the 50 most widely followed issues by Seeking Alpha readers and contributors to see if they have a more hopeful prospect. (Actually, 3 of those 50 are questionable, so we only have 47 we can trust.)
The following expectations of market professionals as to what their big-money clients are doing and may do next are the reason for you to read on.
Seeking Alpha Top 50 Stocks of Reader Interest
(used with permission)
Each stock is positioned in this map by its intersection of upside price change forecast on the green horizontal scale and the price drawdown exposures (on the red vertical scale) typical after prior forecasts like today's. Any issue above the dotted diagonal has more potential risk than return at its present price. That picture is a lot more hopeful than the concerns reflected by the Leveraged-Long crowd. Here there are only three issues out in danger-land, while five others are walking the wire. Nearly 40 of them have healthy risk/reward balances.
Since price-change risk is a dynamic, not a constant, in time these exposure relationships will change. What else might create trouble?
Other useful details from similar prior forecasts
Columns (5) and (6) are the source for Figure 1 coordinates. The (7) metric tells what % of the (2) to (3) range lies below (4). It discriminates among (12) prior forecasts to select the similar sample from which columns (8) to (14) data is provided. (13) compares (5)'s promise to (9)'s prior delivery; (14) compares (5) to (6). (15) is a figure of merit combining the several qualitative measures into an odds-weighted, risk-conditioned number.
For this exercise we ranked the top equity interests by the (15) figure of merit. Hmm. About a third of them look strong-to-passable. Another third have single-digit negative F.O.M. measures, and the other third are not particularly encouraging. But some, like DDD are of a quasi-research exploration.
On the other hand, Ford (NYSE:F) might simply have gotten ahead of itself in price with a Range Index of 40, above the group's average of 33. Its price gain achievements at this level have been about breakeven to minor losses of -0.2%. SLV has similar aggressive price problems, as the pros see it. Other investors may have different preference priorities.
The blue rows at bottom of Figure 2 aggregate this set of stocks for comparison with a total population of all stocks and aggregates similarly analyzed this day. SPDR S&P500 ETF (NYSEARCA:SPY) provides an investable market index comparison. Top-20 stocks aggregate indicates how most-competitive capital-gain investment candidates in the population compare.
Some of the stocks in this set provide able competition in the potential near-term capital gain contest. Clue: Look for (15) scores equal or better than half of the Top-20 average score in that column.
Our mission is to identify high-probability price gains in the next 3-6 months. These scores are impacted by price changes which are likely to make a difference as time progresses, perhaps making otherwise attractive stocks now more appealing later.
Disclaimer: Peter Way and generations of the Way Family are long-term providers of perspective information (earlier) helping professional and [now] individual investors discriminate between wealth-building opportunities in individual stocks and ETFs. We do not manage money for others outside of the family but do provide pro bono consulting for a limited number of not-for-profit organizations. We firmly believe investors need to maintain skin in their game by actively initiating commitment choices of capital and time investments in their personal portfolios. So our information presents for their guidance what the arguably best-informed professional investors, through their own self-protective hedging actions, believe is most likely to happen to the prices of specific issues in coming weeks and months. Evidences of how such prior forecasts have worked out are routinely provided. Our website, blockdesk.com has further information.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.