Editor’s note: This article was first published in November 2010 as an outlook for 2011. The poor 2010 performance of the Spanish market, the expected further fall, the remarks on banking stocks and the six-month horizon all refer to that moment.
We’re entering slippery territory with this analysis of stock market investing for 2011, and I should say up front that many analysts disagree with my reasoning and with some of my advice.
Let me take this opportunity to point out that my biggest stock market successes came when I did the opposite of what the analysts recommended (this isn’t meant as criticism, as there’s a very reasonable explanation for it).
I’ve never liked technical analysis charts. In fact, I’ve never fully understood them, nor have I made any effort to, because all you’ll see in them are red, green and blue lines, which some people insist reflect a predictable algorithm for forecasting whether the stock market will go up or down.
In my view, and in the view of others who think exactly as I do (call them mentors, colleagues or friends in the profession), these charts are complicated to understand, and so they make investing in the stock market more complicated than it really is.
I agree with Jesús Pérez (Financial Red) that the time has come to be smart when investing in the stock market, and I agree with his motto that a long-term investment is a short-term investment that went wrong.
2010 has been a difficult year for the Spanish stock market. In fact, anyone who invested at the start of the year with a 12-month horizon will have lost money on most stocks. That doesn’t mean prices won’t stabilise, but for now a further fall is expected, so the time really has come to be smart. We’ll use that intelligence and focus it on one single thing: the moment to buy into a stock.
See also: Economics is not a science, but politics in disguise
On the Spanish stock market, the moment that Warren Buffett loves so much has arrived. Many stocks will end up on the operating table, and others, such as banking stocks, will go through temporary problems. It’s a matter of spotting when that fall will end in order to buy in.
The stock market isn’t a chart; it’s simply the sea, where the tide rises and falls, and in a particular lunar cycle it drops lower than usual. By getting in at that moment, we can take advantage of the next rise and, in many cases, ride the crests of the waves.
Panic and ambition are the only two factors that move the stock market. Fear is already present among investors, and people are already pulling money out in step with the current market movement, so we’ll stay alert in order to be ambitious when the time comes and smart in choosing the right stock.
Depending on how 2010 ends, on New Year’s Day our best present may be picking a good stock with a six-month outlook.
We’ll try to choose companies that are signing contracts in emerging countries, companies with expansion plans, new acquisitions and so on. We’ll analyse company projects and forget about the charts, and when the time comes we’ll have to be smart about exiting the investment, because while ambition is good, greed is not so good.
Further reading
- How you can go broke investing in the stock market
- Common mistakes investors make
- Serious mistakes when investing in the stock market
- How to invest in the US stock market
Featured image: Enric, CC BY-SA 4.0, via Wikimedia Commons.
