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Investing In Uncertain Times And The Significance Of Numbers

Mar. 08, 2020 12:48 PM ETSPY4 Comments
Risk Research Inc profile picture
Risk Research Inc


  • Stock prices follow rhythms or patterns based on time frame.
  • A significant market move, one way or the other, might be extremely rare in any single week but common in long term time frames.
  • Stock prices are more volatile than the performance of the underlying businesses they represent. That offers opportunity.
  • Some investors don’t need the numbers. Some have great intuition. I don’t.
  • Most investors have more confidence in their intuition than is justified by their performance. Investors tend to confuse a bull market with great intuition.

Events that are quite improbable on any given day or week, are actually extremely probable in any fifty or one hundred year period. It is crucial that an investor be clear about which time frame he or she is focused on, or seeking to profit from, and have a thorough understanding of the characteristics of that time frame.

Some charts of the S&P 500 illustrate the point. The first is the chart of primary importance to the long-term investor who wants to take ten to twenty years positions. It is a yearly chart plotted against its three-year simple moving average. The chart indicates two advantageous times to invest: halfway through 2002 and halfway through 2008. Sell points would be determined by periods when the price line traded at a unusually high premium to the red line. There were at least four of those: 1999, 2014, 2018 and 2019.Twenty Year S&P 500

Source for all stock graps: TD Ameritrade Thinkorswim

If an investor instead wanted to capitalize on quarterly stock price performance, this is what the chart would look like.Twenty year quarterly S&P

That’s the time frame I’ve chosen to focus on because my research concentrates on financial statement trend analysis, and public companies file quarterly. Using this chart, an investor would buy when the price line was at an unusually low level relative to the red, smoothed three quarter average price, and sell when the stock traded at unusually high levels relative to that line.

Finally, here is the weekly chart, a chart a short-term trader might use or at least consider.

Three Year Weekly S&P

Again, the objective would be to buy when the price fell to an unusually low level relative to the smoothed moving average, and sell when the price rose to an unusually high level. An investor could also short based on this analysis, although there are probably lots better

This article was written by

Risk Research Inc profile picture
Risk Research provides two research services for private equity firms, institutional investors and family offices. Both are based on a combination of proprietary software and traditional Graham and Dodd analysis. 1. Investigative due diligence into factors that determine risk and reward for corporate acquirers, private equity firms and family offices. (www.riskresearch.info)2. The Dividend Investor Risk Report. Our passive investment portfolio focused on quality dividend payers. We identify companies likely to increase their dividend based on free cash flow trends and dividend history. (www.dividendrisk.com).

Analyst’s Disclosure: I am/we are long MNST, V. 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.

We are constantly entering and exiting positions based on this analysis, both long and short. We maintain a balanced long/short portfolio. Do your own research. Our research can help you narrow the focus of those efforts but unless you are establishing highly diversified, long/short portfolio, that includes a substantial number of positions not mentioned in this article, it should not be your sole source of information.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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