My approach. Market Weather - Sept 22, 2023

26 Sep 2023

Many studies show that passive is superior to the active investment approach, and I agree that most money should be managed passively, using low cost broadly diversified index funds. Markets are mostly efficient in pricing securities, meaning there are not many proverbial 20-dollar bills you can find on sidewalks. However, some anomalies have also been well-documented, and one of them is momentum or trend-following. I am a value-conscious trend-follower. As a long-term investor, I believe valuations are key to portfolio returns, however, markets can and often trend far above valuations that offer acceptable risk-adjusted returns. This is where the study of price and trend-following come in. In my process, I ignore pundits, financial media — these are noise. I certainly don’t predict, instead listen to what’s going on with the price that reflects supply and demand. Price action to me is the best indicator (PhD, if you will) helping to manage risk and stay on the right side of the market. I believe, everyone could improve risk-adjusted portfolio returns, for at least part of their portfolio, and if you want to put in some time and effort, I am here to help you learn some ways to improve your process.

Last week's takeaways.
Of all the broad ETFs representing major asset classes, US dollar, commodity futures and short-term US treasuries appear the strongest. US stocks, except for the energy sector, are flashing ‘caution’ and all other asset classes — ‘danger’.
US large-cap ETFs, heavy on technology, consumer discretionary, have not broken the longer-term uptrends, but most stocks look ugly (as seen on VVALUG, IWM charts). The question is, will the “generals” (like AAPL, GGOOGLE) join the “soldiers” in retreat or lead them higher. The good news, stocks tend to get stronger after September.