BUY STOCKS, INDIVIDUAL STOCKS, NOT THE MARKET. But I explain this at the end.
First, thanks to TradingView user russ.brown.52 for putting up your long term trendlines chart on the DJIA. I decided to add some internal trendlines (in green) that capture the movement within the extremes of price. You can see that those internal trendlines are just under the current market from 14000-9000, but rising steadily.
I then added some important points about how the FED has acted strongly to avoid the DISASTER that we experienced in the post 1974 environment for the stock market where inflation ripped apart the values of stocks by over 64%. Although most people argue that current inflation rates are much higher than are reported, keeping rates lower than historically normal has kept the system afloat and awash in cash and credit.
I then added the market cycles from 1942-1981 and 1981-present are very similar and fortunately for me I found the pattern in 2001 and have been able to find innumerable comparisons and unreal similarities of those two time frames. Although I missed publishing a book to announce to the world, I did present my findings to hundreds of people through my investment group, presentations direct to hedge funds and many individual investors over the past 13 years. I encourage you to read the books by Harry Dent. His books go a long way towards explaining the population cycles that drove this pattern. In short, we face the headwinds of people leaving the workforce in the next 10 years and the costs of caring for our elderly population. We also face the lack of spending from large family households going forward, which will restrain economic activity for well over a decade.
I hope you can take away from this chart that it is important to understand the long term cycles driving the market. I would add that it is important to begin to hedge any risks associated if the market were to return to its long term trends. The market is poised to drift sideways to up 30% for another 10-20 years and confound a majority of people. This chart shows us that we need to find other ways to grow our retirement portfolios because the average stock is not going to generate a big enough return. We have to find growth stocks that can increase by multiples as opposed to earning 3%-6% at best in the stock market for the next 10-20 years.
So, thank you to the FED for doing everything you could to keep from repeating the pattern of the past. And sorry to the savers and the retirees who have had to suffer because reported inflation is not keeping up with real-world price increases and for not being able to earn a decent return from your savings in the bank.
Thank you to those that fostered and encouraged the growth in the internet and all the technologies that support it. The internet is simply the greatest wealth building "FOUNTAIN OF WEALTH" since the internal combustion engine and electricity.
Tim West
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Reagan took over in January 1981. Notice the similarity to today (Jan 23, 2017).
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As Reagan took office, after a sizable 10% rally from the election lows in November at 924, there was a drop from a peak at 1021 down to 787 (-234 points or 22.9%) in the DJIA after Reagan took office, but then there was upside to 2700+ by August 1987.
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misha.spiridonov.79
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Tim, I would like to THANK YOU SOOOO MUCH for what you do here on the Tradingview. I've been on the site for about a month and I am following you and I feel so lucky that somehow I found this site and especially you.
Keep up the good work and please know that we very much appreciate your hard work.
charttrader
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+1
timwest
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@MiSha.spiridonov.79, You are very welcome! I'm quiet lately in publishing, but active in the Key Hidden Levels Chat Room.
russ.browne.52
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Hi Tim, Thanks for the mention regarding my original dow chart.
The other things that you have to consider is the western nations building debt crisis that Martin Armstrong has been predicting for over 3 decades, as governments have dropped interest rates to near zero to save on debt service charges (70% of debts are from compounding interest) they have become desperate for returns for the pension funds and those monies have been fueling the stock market rise, also as government start do 'bail in' actually taking people's money out of their bank accounts to pay for government then people are trying to stop the government from getting their money so owning stocks is a way to do that and as Europe is on its way to imploding capital is desperately seeking shelter in various investments.
2016 has been called the year from hell by Armstrong as the debt problems will intensify by then and he thinks people will realize there are no pensions, just debt and will take to the streets again as in 2008-2009 but this time the protest will turn violent. Gold will eventually go to at least $5000 after it final flush which should happen in 2015 as confidence is lost in western governments and the idea that huge debts can be piled up indefinitely will be proven to be very wrong.... socialism is going to die as its brother communism already did.
timwest
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@russ.browne.52, Hello Russ, 2016 turned out to be an ok year despite the lowest sentiment in decades as measured by AAII's 50-week average sentiment. We had several sharp moves down that made sentiment extremely negative, both early in 2016 and before the election, which created a very tradable bottom of significance in equity prices. Profit margins have held up all the while. I'll update my initial post and see what happens.
A-shot
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Nice one. Saying thank you is not enough for the detail you provide and time you take to provide the description. If you can, would you please share with us what is your portfolio looking like now (do you invest in separate stocks more, or trade funds, bonds, gold?). Are you an investor (long term) or more of a trader (short term)? If this type of info is provided some where with some biographical information about you i would love to read it :)
timwest
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Thanks for the questions 2use. I'll consider publishing my portfolio as it is constructed now and discuss the why's and how that it will change over time. I believe in a long/short portfolio where half the positions are longs and half are short positions. Longs for me include silver, silver mining companies, drug stocks, consumer staples, banking issues, select technology names, oil stocks. Shorts include banking, Russell 2000, Homebuilding & related companies, airlines, S&P500, Internet bubble stocks. I trade in and out of Bond Funds, up to 10% of the portfolio. My silver and silver related positions are 20% of the account. I trade on all time frames because in order to see what is going on you have to be in the market and watching what is happening to the market and how does it react to news. If the market is moving dramatically, I will trade more often as I can capture more swings and exit stocks that get overbought and replace with oversold ones. I love to look for stocks after a period of bad news because that makes people justify selling their shares at what usually turn out to be low prices. Often times though, this strategy lags when a bull market is in full swing because you don't have stocks that are oversold. There is no one right way to trade - it is only important to know yourself and how you react to losing and winning. We all need to understand ourselves and I think it takes a long time to learn your deeper motivations and what your financial goals are. As for my background, I have watched markets since the 1970's when the price of sugar shot up to the sky and I since I loved sugar, I thought I could have made a fortune had I figured out it was going to go up like that. Also in the 1970's we had the oil crisis and since then I've been interested in economics, which I studied at college. I graduated in 1987 and traded the stock market with some money I had inherited at the time. I wanted to learn more so I went to Wall Street and became an investment advisor. I recommended portfolios of Apple Computer, Microsoft, Abbott Labs, Merck, Lilly and a few other stocks. I felt that those had the best long term growth opportunities. I learned that it wasn't easy dealing with everyone and trying to get people to give me their money to manage when I was just a kid out of college, but I still have a client to this day that held onto that Microsoft and it has compounded their account from 200K to well beyond $3 million since 1988 (11% compounded return, versus 8% for the S&P500 since then). I then wanted to learn the business of trading so I got a job on a tradingdesk on Wall Street. .....(to be continued) I'll make a better bio here at TradingView that will go into my background and how I've come to learn what I know.
Thanks again for asking.
A-shot
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That would be great, as it does not just give more credibility, it is interesting to know. 2 questions though
1) drug stocks - which ones do you mean? Biotech included or excluded? Marijuana? or large cap pharmacies?
2) 20% in silver - isnt that a huge position? I mean sounds like a lot of eggs in one basket. I assume you firmly believe in an upside (and i assume materials and gold as well?) and you have invested a lot in it?
timwest
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Hello 2use. I have waited to reply to your questions as my personal portfolio. I don't want to give specifics on my personal holdings. I take most of the trades I put in here at TradingView for 10-50% of my portfolio. However, I wasn't sure how I wanted to answer you about the question about too many eggs in one basket. But here is my answer: I like silver. I think 20% is conservative. 25% is a good target and 33% would be a bit too much. The way people measure risk is interesting and non-sensical, but let's go over it. Let's change the usage of the word "risk" a little in a sentence and see what we get. Here's my best definition of risk: "Risk is doing something you don't know". Pure and simple. So, what most people are taught to do is to spread your risk around, assuming you know nothing. How logical is that? Now you are doing more things and having even less knowledge per investment. This makes it so doing more risky things (outside the area of expertise) is taking a chance that each thing will hurt you less. But if you don't know what you are doing, doing more different things is MORE risky. I realize this is a different way of looking at it. But it is far less risky to have and know 4 investments and accept the volatility of those investments, then it is to have 40 investments that you have only a general understanding of. What I am saying is that Volatility is not risk. Volatility is a measure of price change. The most volatile investments in price can have either the greatest downside potential and also the greatest upside potential. Volatility is more dependent on how much knowledge people have when making a decision on the company and how uncertain the company's future is. The more uncertain the business environment is, or how unpredictable sales are for the company, or how unpredictable the earnings are because of huge expenses by the company, well, by the nature of volatility, the higher the volatility of the investment. Low volatility of an investment just means that either everyone is extremely knowledgeable that invests in the investment and/or that the information regarding the investment is very stable and predictable. Now, that may sound like a very low-risk investment, but that doesn't sound like an investment I want to make. Investing low-risk is a sure loser over the long term, like T-Bills or T-Bonds for that matter.
Keep up the good work and please know that we very much appreciate your hard work.