Hi John,
That’s almost like the holy grail question hence by definition thanks for asking it! Firstly I will quote an old classic adage amongst traders:
- “Plan your trade and trade your plan”.
The same psychology applies to investing i.e. our mind will often tell us we should be buying even if we had planned to sell a particular stock at $x, or in other words human nature is to buy high and sell low which is one of the reasons that MM follows and quotes market sentiment indicators – being contrarian and not getting sucked in by the herd is generally more profitable over time.
We make our investment decisions by combining a number of pieces of the puzzle although by time the picture is crystal clear the best risk / reward is probably behind us. We describe our approach as top down meets bottom up, and it combines the following:
- Top down = macro view while bottom up takes into consideration the fundamental back drop for a company such as pricing power and point of difference and arguably most importantly good old fashion valuation both now and moving forward. As you may appreciate, these are all subjective in nature. We then look to massage best risk/reward by considering the technicals.
Just like MM has been looking to reduce our high Beta (growth) positions into market strength we like to lay plans and execute when the market walks into them:
- Many tech stocks have bounced over 25% since June and we’re now looking to reduce our overweight growth portfolio exposure to the sector as the arm wrestle between inflation & a recession remains a close run thing, hence we feel its time to address the risk / reward in parts of our portfolios.
In terms of buying uptrends or downtrends as you have alluded to, it is often a question of time frames. Ideally, we like to buy pullbacks / corrections of long term uptrends.
