This Is The Only Way To Invest

It seems like the tone in the blogsphere arena nowadays goes something like this—if you are not investing/trading like we are then you are wrong and we are going to tell you all about it.  I’ve been in the business since 1997, straight out of college and while there was a lot less accessible information back then I believe that was a big plus based on what I’m seeing now. Today we have too much information, a lot of the information is accurate, some is misleading, biased, wrong, etc… All this information probably leads to analysis paralysis for most people who are starting out.  One day they read that momentum is the way to trade, the next day they read someone else who says value is the way to go, then they read that day-trading is best thing in the world, after that its asset allocation, etc…I’m going to state some opinions that are based on 17 years of empirical observation.

1.  Owning growth/momentum/fad stocks are great when they are going up, know your time frame and how to manage them.

2.  Owning growth/momentum/fad stocks are not great when they are going down, know your time frame and how to manage them.

3.  Owning value stocks are great when they are going up, not so great when they are going down.

4.  In general terms if my intentions were to make money and not to do what I’m comfortable doing or what my practice allows me to do then within 1-12 month time frame I would rather own today’s momo/growth/fad stocks over value stocks.

5.  In general terms I would rather own today’s value stocks versus last years momo/growth/fad stocks, I would probably double down owning today’s value stocks versus the momo/growth/fad stocks of 2 years ago, triple down on today’s value stock versus momo/growth/fad stocks of 3 years ago.  Know your time frame.

6.  You are probably better off owning momentum/fad/stocks in the early stages instead of waiting until they peak and become mature companies and perhaps become a value stock, hence Intel Corporation (NASDAQ:INTC), Cisco Systems Inc (NASDAQ:CSCO), Microsoft Corporation (NASDAQ:MSFT), AOL Inc (NYSE:AOL), etc. if making money is your thing.

7.  There is a time, place and time frame for all type of investments; growth, value, cheap, junk, fad, hybrid, shorts,etc… know your time frame and how to manage them, a combination of all is probably your best bet.

8.  80% of big winners give back 50% of their gains and 50% give back 80% of their gains, it is probably best not to buy a momentum stock after it has run up for 2 years, know your time frame and your technical analysis stages 1-4.

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9.  “The Russell 3000 index measures the performance of the largest 3000 U.S. companies, 98% of the investable U.S. equity market.  40% of the stocks had a negative return over their lifetime, 20% of stocks lost nearly all of their value, 10% of stocks recorded huge wins over 500%.  80% of the gains are a function of 20% of the stocks.—guess what…..the stocks that lost all their value and had a negative return over their lifetime some where value stocks, some where household names, some where momentum stocks.

10.  In roaring bull markets buy and hold is probably the best strategy and everything else sucks; tactical, active, asset allocation, etc…

11.  In a prolong bear market buy and hold sucks, tactical, active, asset allocation might help.  Some strategies work better than others in certain markets, diversify.

12.  Some people make money buying high and selling higher, some do it buying low and selling high, some do fundamental analysis, some technical analysis, some both, some try to outperform the market, others just want to be involve and ride along.  What determines which is right and or wrong is the outcome. Try telling Miguel Cabrera or Ichiro Suzuki that their awkward batting stance is wrong, the outcome of their careers says other wise.  Last year I bought two books, one from some one who does IBD style trading who was a wizard in the 90’s and the other book was about a fellow who turned a few thousands into millions doing pretty much the opposite of IBD, who is right and who is wrong?

Here’s the bottom line;  Not everything is black or white, wrong or right, certain styles work best for some people, certain styles work best for others, certain investors invest one way and believe that every other way is wrong and stupid, some invest their way but believe in diversification to take advantage of the different seasons, others invest their way but know and accept the fact that their way is not always going to be in tune with the market, others jump from strategy to strategy looking for the SECRET SAUCE every time they have a drawdown or read a well penned blog.  On that last point imagine if the leader in missed field goals in the history of the NBA went to the gym every time he had a bad shooting night to try a new shooting form, then he would’ve never became one of the greatest of all time.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Written By: Frank Zorrilla