Opportunity Knocking?
Posted 02-12-2009 at 01:22 PM by greenfaucet.com
By Jim Farrish, greenfaucet.com
The selling resulting from the comprehensive bailout plan from Geithner could be an opportunity. At least that is what I am reading from investment firms. Advisors are telling their clients the bottom is in and now is a good time to buy into equities for the long term. That may very well be the case over the next five years, but how much risk is there currently in the equity markets? From where I sit a 5% selloff in response to a plan from the Treasury says plenty.
I understand that fear breeds opportunity if you are rational in your approach to investing. The challenge is most investors don't approach these opportunities rationally. Looking through the various sectors of the market I see what I believe are opportunities long term. However, defining long term today for investors could be next Friday. Talking 3-5 year time horizon is very difficult and the wounds are still to fresh to venture to far from cash.
What I like on the long term horizon.
In an attempt to put some perspective on the longer term view, as I see it, the following are pieces I like and some of the opportunity surrounding each.
Technology is definitely one of my top picks. This sector has built a solid base and is currently building on a short term uptrend. The outlook for technology is good. Looking across the landscape and at the balance sheets there is plenty of cash on hand. Cisco raised $4 billion from a bond offering earlier this week showing the ability to acquire financing in the sector in the current banking environment that is bullish. If you dare look into the stimulus package as it currently exists there is plenty of money headed towards technology in the forms of alternative energy and healthcare, not to mention biotech research. I like the longer term outlook and I would build positions currently by laddering in. IYW, iShares DJ US Technology ETF is one way to play the broad sector.
Healthcare is on my list of liked sectors longer term as well. For some of the same reasons as technology the sector stands to benefit from the stimulus package over the next three years. Needless to say the need for healthcare in an aging population is a given. Delivery of this care remains a wildcard, but the solution will be ironed out over time and the opportunity resulting will be worthy of investing. IYH, iShares DJ US Healthcare ETF is the play for the broad sector.
Energy is another of the sectors looking long term that looks promising. While the short term bottom has not been established the consensus is prices will move higher as the economies improve worldwide. This is not going to be a short term healing process and that would lead you to the long term outlook. If over the next three years crude were to double and hit $80 per barrel, energy would push higher as a result. That is also a solid annual rate of return on your money. The hypothesis is not unreasonable even if crude only rises 50% over the next three years and thus, worthy of playing longer term.
Digging into the sectors you can look for what stocks will provide the needed leadership. The cream, as always, will rise to the top. I am in the process of building watch lists from each of the three sectors above. This allows me to see what is pushing each higher and allows me the opportunity to invest in those stocks as they make their respective moves. Patience is the key to succeeding with this strategy. You have to have faith in your strategy and stick with it over time. If you abandon it on big down days or weeks you will never experience the end result.
On the heels of a 40% down period for stocks it is hard to think long term or be patient with stocks. Herein lies both the challenge and the opportunity. If you want to take advantage of the longer term opportunity you must have a written plan and a planned strategy. Work the plan, abide by the strategy and focus on the horizon not today. Periods following major corrections offer the best long term opportunities. If we look back to the bottom building process of the 2000 correction in 2002 (very similar to now) you will see the rise over the next three years. Investing randomly at the midpoint of the bottom trading range from September 2002 through April 2003 you would have an average entry point of approximately 870 on the S&P 500 index. At the end of March 2006, three years later, the closing price on the index was approximately 1300. That is roughly 50% over the period or a simple return of 16.6% per annum. That is the opportunity looking forward if we are patient and have a defined strategy for investing. Yes, opportunity is knocking longer term, but it will take a defined strategy to benefit from the opportunity.
The selling resulting from the comprehensive bailout plan from Geithner could be an opportunity. At least that is what I am reading from investment firms. Advisors are telling their clients the bottom is in and now is a good time to buy into equities for the long term. That may very well be the case over the next five years, but how much risk is there currently in the equity markets? From where I sit a 5% selloff in response to a plan from the Treasury says plenty.
I understand that fear breeds opportunity if you are rational in your approach to investing. The challenge is most investors don't approach these opportunities rationally. Looking through the various sectors of the market I see what I believe are opportunities long term. However, defining long term today for investors could be next Friday. Talking 3-5 year time horizon is very difficult and the wounds are still to fresh to venture to far from cash.
What I like on the long term horizon.
In an attempt to put some perspective on the longer term view, as I see it, the following are pieces I like and some of the opportunity surrounding each.
Technology is definitely one of my top picks. This sector has built a solid base and is currently building on a short term uptrend. The outlook for technology is good. Looking across the landscape and at the balance sheets there is plenty of cash on hand. Cisco raised $4 billion from a bond offering earlier this week showing the ability to acquire financing in the sector in the current banking environment that is bullish. If you dare look into the stimulus package as it currently exists there is plenty of money headed towards technology in the forms of alternative energy and healthcare, not to mention biotech research. I like the longer term outlook and I would build positions currently by laddering in. IYW, iShares DJ US Technology ETF is one way to play the broad sector.
Healthcare is on my list of liked sectors longer term as well. For some of the same reasons as technology the sector stands to benefit from the stimulus package over the next three years. Needless to say the need for healthcare in an aging population is a given. Delivery of this care remains a wildcard, but the solution will be ironed out over time and the opportunity resulting will be worthy of investing. IYH, iShares DJ US Healthcare ETF is the play for the broad sector.
Energy is another of the sectors looking long term that looks promising. While the short term bottom has not been established the consensus is prices will move higher as the economies improve worldwide. This is not going to be a short term healing process and that would lead you to the long term outlook. If over the next three years crude were to double and hit $80 per barrel, energy would push higher as a result. That is also a solid annual rate of return on your money. The hypothesis is not unreasonable even if crude only rises 50% over the next three years and thus, worthy of playing longer term.
Digging into the sectors you can look for what stocks will provide the needed leadership. The cream, as always, will rise to the top. I am in the process of building watch lists from each of the three sectors above. This allows me to see what is pushing each higher and allows me the opportunity to invest in those stocks as they make their respective moves. Patience is the key to succeeding with this strategy. You have to have faith in your strategy and stick with it over time. If you abandon it on big down days or weeks you will never experience the end result.
On the heels of a 40% down period for stocks it is hard to think long term or be patient with stocks. Herein lies both the challenge and the opportunity. If you want to take advantage of the longer term opportunity you must have a written plan and a planned strategy. Work the plan, abide by the strategy and focus on the horizon not today. Periods following major corrections offer the best long term opportunities. If we look back to the bottom building process of the 2000 correction in 2002 (very similar to now) you will see the rise over the next three years. Investing randomly at the midpoint of the bottom trading range from September 2002 through April 2003 you would have an average entry point of approximately 870 on the S&P 500 index. At the end of March 2006, three years later, the closing price on the index was approximately 1300. That is roughly 50% over the period or a simple return of 16.6% per annum. That is the opportunity looking forward if we are patient and have a defined strategy for investing. Yes, opportunity is knocking longer term, but it will take a defined strategy to benefit from the opportunity.
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By establishing a stable of the most highly respected writers in the industry in a very balanced manner, we serve to keep the standards of content as high as possible. While other sites aggregate content without any regard for quality or credibility, we strive to provide users with a site offering balanced, objective, professional opinion and research while giving users the ability to interact with their favorite contributors and utilize the latest technology to get hard hitting answers to hard hitting questions.
Our users have the opportunity to sample newsletter styles to help them find a fit for their investment objectives, interests, and preferences, as we hope to create a sounding board for exceptional minds to convey their vision of the markets to an intelligent audience in a consistent manner. For all the broken clocks, one horse races, and single tune instruments, there are writers adapting, researching, and strategizing.
The former group is representative of what is wrong with many sites in existence today. The latter group represents practicality and reality.
We also strive to provide a site that not only gives the user the highest quality content and most progressive technological integration, but as well adapts to the user’s preferences and demands. In other words, greenfaucet is here to provide for the user. Who is the user? You the broker. You the fund manager. You the individual investor. You the day trader. Whoever YOU want to be.
