AAII Washington D.C. Metro Chapter

I admit I am ignorant so be kind to me.  I am also fairly new to individual stock investing/trading.  The advice of the Masters is to invest only when the market trend is up.  In particular Eric Wish, Bill O'Neil and Stan Weinstein have been clear about this.  I have also heard from many others who lament that in 2022 all the breakouts they have tried fail quickly.  I have listened carefully to their advice.

My question is this...O'Neil teaches that 75% of all stocks will travel in the direction of the market.  Don't fight the trend.  Others have said, The trend is your friend..  That said, if 75% of stocks are following the downtrend, what about the other 25%.  Is there anyone doing well by taking long positions in the 25% of stocks that are bucking the trend and doing okay to well in this down market....and I am wondering about more than just energy stocks.  Is anyone investing long in this way, looking for stocks that are generating positive returns and trending above their short, medium and long term moving averages.

I wonder if gains can be made in this way by avoiding all the failing breakouts and just taking conservative positions in stocks like this? 

Any comments would be appreciated.  John

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John Robie
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In a down market, if a stock you have identified for your buy list is within 5% of it's 52 week low, I will start/add with a 1/4 position.  As a long term investor, I hate reflecting on coulda, woulda, shoulda 2,3,4 years down the road.

-Peter

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PETER OSWALD
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Hi John,

In the long run the stock market goes up, but of course not every stock does. I would add that there is money to be made from long positions in almost any market environment. It's just a lot harder I bear markets. So, go ahead and look for that 25% (or whatever the percentage is), but understand that if it were easy, everyone would do it.

The reason so many investing experts say invest when the market trend is up is that they have learned from being burned enough times that they make more money being quick to follow a trend than trying to be smarter than everyone else by finding the stocks that are bucking the market trend.

That doesn't mean you can't or shouldn't take a long position in a down market but you would probably want to average into the position over time and still keep the total position relatively modest in your overall portfolio.

Individual investors often try to time the market by buying at the bottom and selling at the top. Unfortunately, no one ever knows when these will happen and too often they end up acting late, buying near the top and selling at the bottom. Developing the discipline to take partial profits as your stocks go is a good first step.

Expert advice can help you shift to a larger cash percentage ahead of a correction and help you act on an uptrend sooner than you otherwise would. That's how investors like Warren Buffett are able to make so much money.

Good luck,

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Ed Coburn
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