As the dust settles on a frantic year, it is only natural to reflect on the twelve months that have passed. In this case, 2020 has been a school of hard knocks for many investors.
After starting the year with high hopes, many looked on in horror as markets crumbled during the fastest market sell-off in history. Those unfortunate enough to take their foot off the gas in the following period would have likely been flummoxed again, as stocks raced to recover in a whirlwind rally. Brexit and US presidential perplexity only complicated matters further as the year ground to a close.
Opto Sessions has attempted to accompany weary investors through the stormy markets, providing wisdom from some giants of the investing world.
On 31 December, in a final bonus episode, co-hosts Ed Gotham and Haydn Brain consider some of the most useful and exciting elements of the show this year.
Checking your indicators
In an episode encapsulating the most dramatic events of the year, it would be impossible not to mention the March crash. For Opto Sessions listeners, JC Parets’ wisdom regarding how he predicted some kind of major market event may prove an important lesson. “I’ve said it before and I’ll say it again, this stock market crash came after more warning signs than any stock market crash in world history,” Parets said.
"I’ve said it before and I’ll say it again, this stock market crash came after more warning signs than any stock market crash in world history" - JC Parets
“In February, the S&P 500 made new highs, the Dow made new highs and the Nasdaq made new highs. The Russell 2000 did not. Mid-caps did not. Micro-caps did not. The value index did not. The Dow Jones Transportation average continued to diverge negatively — a classic Dow theory sell signal. [There was] breadth deterioration. The list of 21-day highs deteriorated. The list of 63-day highs deteriorated. The list of 52-week highs deteriorated. The list of stocks showing bullish-momentum characteristics deteriorated. [There was] an expansion in new lows. Regional banks made new all-time lows relative to the S&P 500 — before the market peaked. I could go on and on and on, but it was quite obvious,” he explained.
Another important lesson Joachim Klement shared on the podcast was the danger of checking a portfolio too often. This is a mistake investors often make and, according to the investment strategist at Liberum and author of 7 Mistakes Every Investor Makes, it is a sure-fire way of inflicting damage on your investments. This was never more evident than in the first half of the year.
“You typically reduce risk in these circumstances and people who did do that missed out on the recovery that we’ve seen since April. As a result, they’ve compounded their losses by looking at [their portfolio] too often, which has triggered a short-term reaction,” Klement recalls.
"You typically reduce risk in these circumstances and people who did do that missed out on the recovery that we’ve seen since April" - Joachim Klement
Correct behaviour, it would seem, is an important hallmark of a good investing strategy. This was the lesson from author Morgan Housel, who recently published The Psychology of Money. Speaking to Opto Sessions, he explained his theory on the importance of correct behaviour. For Housel, “what is really important is that if you have analytical skills but not behavioural skills, the lack of behavioural skills can neutralise any of the analytical skills you have”.
Looking in the right places
Good behaviour can go a long way, but it won’t get investors much without the right opportunities. One good place to look, according to Chris Camillo, founder of Dumb Money, is at the conversations people are having
He told Opto Sessions about the benefits of social arbitrage, through which one can glean critical investing information by looking at conversations people are having on sites like Twitter. With this data, Camillo has been able to spot shifts in attitude and behaviours that can point to a big buy signal.
In one particular instance, Camillo recalled spotting a global trend of DIY “slime”, a key ingredient of which — white glue — was in high demand. Through some careful research, he found an investment opportunity in a top producer, Newell Brands [NWL].
“What was amazing is that Newell brand stock price went up 17% or 18% over the course of a couple of quarters. It was a trade I’d initiated, it was a leveraged trade, and I made maybe close to 200% on my investment over a very short time,” Camillo recalled.
"I made maybe close to 200% on my investment over a very short time" - Chris Camillo
To listen to the special bonus episode including many more highlights from our top guests this year, or for more episodes, visit Opto Sessions wherever you get your podcasts.