Sep 24, 2020
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The Secret To Making Money In A Bad Market

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The odds aren’t a similar for all investors. GETTY This week was a good reminder of ways quickly the market can turn. After selling off -3. 7% at Monday s low the S&P 500 recovered to shut down a trifling 0. 3% at the week. It takes a good manager to make money in a bad market


This week Wayne Himelsein one of my managers saw his preparation pay off. Wayne s portfolio is up 1. 67% in August while the S&P 500 is down 2. 08%. And it s not a fluke. During his first 12 years with Marketocracy Wayne averaged 11. 05% a year while the S&P 500 averaged 1


29%. Today Wayne uses his recent purchase of AMD to explain how his research turns the odds in his favor. Ken Kam: Do you’ve any commentary for us in this week s wild market behavior? Wayne Himelsein: We are able to talk day and night about what happened in the past but the only question of relevance is what happens next! And to establish this the main focus would need to move from not just discussing the past but in analyzing statistically how much predictive value there is in any set of past events


I understand that Trump did this and China did that but where is the evidence as to what effect that has on markets; where are the thousands of past trade wars we are able to look to for outcomes? In fact there aren t. Therefore big picture why the market did what it did last week is unknowable


The main focus that is worthy of our time and resources is how to best invest; what companies what strategies etc… in spite of what markets do. Kam: To be fair surely there is some value in understanding the wider fundamentals and how they might be affected? Himelsein: Sure there s some human or emotional value in understanding high level the regime we are in


But concurrently it doesn t often give us the future we expect. If we go back to Q4 of 2018 the market was tumbling into oblivion with every media outlet touting the dangers only to be followed in Q1 of 2019 with the greatest rally we ve seen in years


Nobody called that. So what was the point of all that panic? PROMOTED UNICEF USA BRANDVOICE | Paid Program
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Going All In On Young Voter Education Rather than watching each of the drama and deliberating on what this or that could mean why not spend time learning about investment styles or stocks or how best to manage assets in the face of uncertainty


Simply spend time on finding the best tools. Kam: During your first 12 years with Marketocracy you averaged 11. 05% a year while the S&P 500 averaged 1. 29%. There were many months once you made money as you did in August while the market has dropped. How do you do it? Himelsein: It has to do with finding the best odds


In our discussion last week on MarketAxess I used to be insistent upon it having found a bottom and being ready to turn around and begin climbing even saying it won t drop a single penny more. And quite literally while the market fell 4% it didn’t budge a penny lower


Correctly it did exactly as described running up almost 6. 5% for the week. The chances of that variety of follow-through in the face of the market s falling seem almost magical. But it s not. I simply have decades of expertise in identifying tells in the market that bring about greatly increasing my odds


The point being at the end of the day it s still an odds game. I ve shared picks that haven t worked to boot because no matter if a good player has 55/45 odds the bad calls still surface 45% of the time! Thus all you will do in the face of uncertainty is increase your odds and keep on making new bets so that the better odds have an opportunity to play out over time


Kam: It usually amazes me that investors expect a good manager to be right forever and actually one only needs some percents above 50/50 to do quite well. So please let us know why the odds favor AMD? Himelsein: Advanced Micro Devices has some colorful tells. After a very strong 2016 it spent 2017 consolidating


Then from about May of 2018 through Sep of 2018 it exploded at the upside running skyward like a rocket at high speed and without pause. Then as would be expected in Q4 of 2018 it tumbled down giving back about 1/2 its prior five-month run-up. But what was special about this drop is that it stopped far before any of the prior highs in 2016 or 2017


Correctly it stopped at the level it had reached in about June of 2018. This indicated that while it had to give back some it wasn t going to let itself fall into prior territory; it had to stay inside of its new zone of strength. Kam: I guess it then showed off that strength going forward? Himelsein: Exactly right


From early 2019 onward it s been methodically climbing. But this time around it s not gaining rocket ship style with an upward blast it s been merely gliding upward more like an airplane building its altitude after having left the airport. More so the climb has undulations gaining then dipping but always higher than the prior


The casual slope and wavy building are the varieties of trends that inspire confidence in the energy a stock builds as it climbs. And then something beautiful happened late last week. At the heels of a good earnings number AMD leaped up on Thursday and Friday and found itself at a new high


Not just any new high but a whole breach of the Sep 2018 top it had formed after its 5 months of rocketing. Yes it took slightly longer than many to get over the Q4 of 2018 correction but it s done so with gusto; in a kind of way that screams both the want and ability to continue gaining


My Take: With the trade war with China heating up and the 2020 election at the horizon the odds are high that we are able to see more weeks like this past one. Often times like this it makes sense to choose a manager who has delivered good results even in bad market conditions


Click here to learn more about Wayne the stocks he has been buying recently and sign up to be notified when he updates his views

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