The story in markets this week is the same story it’s been since the bottom in March… Autopilot to the upside. That’s not without certain catalysts that would have normally applied downwards pressure – with COVID cases rising and the U.S. GDP data missing targets. All indicators pointing to a correction, eventually. For instance, almost 50% of stocks in the S&P 500 are trading below their 200-Day Moving Average – showing bearish signs as opposed to the overall bull market we find ourselves in.
So, what lessons do we take from markets this week and can we learn anything from Warren Buffet’s value investing in stocks such as Bank of America Corp (NYSE:BAC)?
It doesn’t matter what your normal investing strategy is… There will always be times when that strategy is in-favour and out-of-favour. This doesn’t mean you necessarily have to change your investment thesis. Buffett knows what works for him and he will certainly stay in his lane.
Markets are momentum driven for the time being… But there are lots of stock that have been beaten down that could one day take off again and go to the moon (think airliners, cruises, hospitality stocks). Those stocks are down 5x what they were trading this year. So, even if they were to bounce back a little, this could be enough for investors to make a killing…
So here’s what we are doing in markets this week and moving forward:
Short-term: Either maintain call options in the most liquid and largest companies, as a drop-off isn’t expected imminently or diversify out of individual stocks and into ETF’s. This way you get the upside from upward momentum in markets but removes the risk from any bad earnings reports ahead.
Medium-term: Based on the last 50 years, when gold has rallied, silver has superseded its precious metal big brother. Therefore, silver and silver miner ETF’s are a decent idea.
Long-term: There are so many great stocks out there that are waiting to explode back to their all-time highs as times return to “normal”.
Written by James West