Discovering the major trend
Personally, the ‘major’ trend is the trend which can last from a year to maybe the next five years or even longer. How do we ascertain the trend we are on though? Granted, it is not black and white but it does depend on certain fundamentals.
A growth stock could have a much shorter ‘major trend’ compared to a blue chip stock. A major trend for Tesla Motors for example, is quite a challenge to determine. Sometimes it seems like the major trend lasts for less than a year or even half a year! Looking at the stock as a whole since their IPO however, it is safe to assume the stock is looking at long term growth of substantial value. Now, I am not an Elon Musk fan personally but a company depends on their current management. If the man at the helm calls it a day and runs away into the wilderness, the major trend for the company could immediately change…for the worse. Or it could be even better. Take Apple.inc. When we lost Steve Jobs, analysts were buzzing around the web talking about shorting Apple at all costs. Rather, the usual happened – they were proven wrong.
When trying to discover the major trend, go with your gut feel when you study a business. Or a sector, commodity, or any new idea (cough cough, crypto)
Thus, you might wonder – where are we now with Apple (AAPL)? Or with Gold? Or oil (WTI)? Where do you see the major trend? Is Apple on a continued growth stage at this point or are they set for a major decline in the next year or two? If you think either way, for what reason? What are the fundamentals backing you up? Are the fundamentals valid? Are you looking at the big picture, or are you zooming into details which do not really matter in the overall scheme of things?
These questions make you wonder if anybody out there actually knows what is going on with a certain stock. I assure you, as an investor myself, I do know the major trend with the stocks which I follow and study. I have about 50 on my watchlist do I really know the background of all of them? Absolutely not. I can confidently talk to you till I am blue in the face for about 6 or 7 stocks. This is a tiny handful to study, but following them and their story is a different story altogether.
Are you familiar with any certain business or stock? Would you have a few preferred companies who are listed on the stock market? First of all, are you partial towards regular dividend paying blue chippers or are you partial towards growth stocks which pay no dividend or very rarely?
Again, getting to know yourself is key. To understand the business or the markets in general, you get to study a lot about what you really want. It is like finding a partner, sometimes you find that you learn a lot more about yourself only when you are with a partner! This applies to both the romantic, or a business partner. To highlight this point, as you understand a business and how they operate you might actually find that your investor profile does not really match this business very well. Let us take ExxonMobil and you are currently 25 years of age. Would you actually believe ExxonMobil is an interesting and highly profitable venture? My guess is no, but does this make them a bad company to invest in? A baby boomer might think they are the BEST company to invest in, thanks to their stability, diversity in various fields as well as a strong and stable management. Volatility might not matter much to them, but it might to you.
I hope you see that investing or trading is not child’s play, nor is it a straightforward game. My advise is to treat it as a ‘lifestyle’ hobby. Take an interest, understand some companies as a business, follow their stories. Check out their social media pages (if any), imagine yourself taking over this company tomorrow as their CEO. Do you have confidence in their business and long term growth? Do you see them surviving the next big crisis and rising up even higher than before during recovery?
Ask yourself the right questions, learn about yourselves while you learn the markets. In the end, it is the gut feeling and instinct which lets you decide if the trade is worth it. We all have an inner voice which gives us the best advise, so start listening to it.