“Q. Where to invest during 2009 ?

A. Strategy here rather than stock picks. The strategy is clear, to accumulate stocks with stop losses in the decimated long-term growth sectors, the mega-trend sectors remain as I pointed in the October article are the Energy sector, that’s crude oil and natural gas (hit fresh lows), Water and Agricultural Commodities, add to that Biotech, Health and Tech stocks. Continue to avoid the financials, they are insolvent. It appears the central banks are attempting to fiddle the books with regards proposed ‘changes’ to mark to market valuations so as to give the illusion of solvency. Yes financial stocks WILL soar, BUT like the penny stocks that they have become, they will exhibit much volatility where 50% gains one week could easily turn into a 50% loss the following week.

Again remember to use stop losses on ALL positions. i.e. you place the stop under the most significant low where the market cannot trade if you are right ! For you only get stopped out if you are wrong. The maximum for a stop on a stock is 20%, and you never move a stop against your position. ONLY in the direction of the position. It is such a strategy that turns a portfolio to cash during a bear market without seeing bull market profits turn into bear market losses.

Your Stealth Bull Market Accumulating Analyst.

 Nadeem Walayat

Comment:

I’ve followed Walayat’s commentary for some time now and I find him to be pretty useful. I agree with his assessment of the current pessimism about the market and the advice to sell into every rally. That might have been right until now, but about now is probably the time to begin to accumulate. Even if in a worst case scenario, we go down to 5000, the upside from there is a lot greater than the downside. If you aren’t prepared to take that pain, the other thing to do would be to nibble at dips and hold through without selling into the rises. Nibble again when it dips. That way if the rally is just another bear market rally, you won’t have too much pain until the bottom. And if it’s the beginning of something better, then you’ll not have lost out.

Today’s action, GLD and dollar index down, seems to bear him out. With stocks up, investment money (which is largely what’s holding up the ETF) flows out of gold into the market. The same for the dollar, which was at the favorable end of the risk averse trade until now, ever since it became clear that Europe and Asia were slowing down just as fast (or faster) than the US.

I still think the dollar uptrend is not broken..yet…

But I’ve nibbled on Aussi and Kiwi (up today) and may add to my positions. Like Walayat, I think you have to ignore fundamentals and just think of price – it simplifies things a great deal.

(BTW I am not a professional trader but I’ve been managing my own savings since 2004 with no worse results than some of the top professionals around – I beat Peter Schiff hands down last year (not hard to do – a Schiff portfolio would have been down more than half last year) and Bill Miller too  – and with better predictions of price levels than most of them. My worst point is I’m overly cautious, trade only with a very small part of my savings, and have lost out from holding my money in dollars – mainly because, for logistical reasons, I haven’t been able to put down roots anywhere I think is really safe. In other words, I’ve a good idea where things will go but usually fail to act – the Hamlet syndrome…)