Smart Money, Dumb Money – February 12, 2021

February 12, 2021No Comments



We’re going to look at some of my past calls over the past 13, 15 months or so, and the calls that were, dead on and good calls that were pretty good, and the calls that weren’t so good.

I like to fully disclose how I do things and I use the blog and these videos to do so. And I like to be accountable. Everybody likes to talk about their winners. There’s something funny about my industry. They don’t often print performance results, and many people don’t ever talk about their losers, but I think it’s important that all of us look at our losers and see where we went wrong. Hopefully, we have more winners than losers because that’s the name of the game. So let’s get on with it. I’m going to share my screen right now and I’m going to bring you to this week’s blogs. So the first one I want to look at was actually my second blog of the week, and it’s looking back at my good calls and bad calls. So one of the things that ValueTrend has been harping on really since very early in the summer, I think it was around June, July was oil.

This is that time period, right there around June, July after the COVID crash, it recovered to a point and then sort of stayed flat. Now, this is the actual crude oil itself. It’s the commodity. It’s not the stocks, but stocks tend to follow the commodity. We made a call technically I felt it was undervalued and I noted it in a few of my blogs. You can click on them here where I outlined the reasons for this, but in a nutshell, we were looking at the oil sector, particularly in October, we bought aggressively into the sector we dipped in a little bit in the summer.

The reason we were buying is that we felt that the usage and by the way, the stats we just read today backed up our belief that the usage in India and China was ramping up despite the big green movement that seems to be happening in North America and Europe. So the concept here was that this is a commodity that’s being overlooked, and there was too much focus on solar energy and whatnot. And we were buying in the low forties and it’s now in the mid to high fifties. So that’s been a good trade and just this week, we’ve really seen that sector take off and we think there’s more room to go. I have a $65 approximate target on oil. We are also very bullish on value stocks. And again, I’ve got a couple of links here on the blog that you can click on to see the blogs where I was talking about value stocks.

I only note a couple of the blogs on these notes. I’ve learned a lot about value stocks, and I learned a lot about materials and what we’re calling reflation stocks, inflation-driven stocks. Because we think inflation is coming down the road based on all the money printing and low-interest rates. So one of the sectors we really harped on was base metals. We have a position in base metals I think is around 10% of the portfolio. And we have about 10% of oil by the way, which is also a reflation type of play.

But this is the metal area. And you can see there’s April and it’s been an outperformer. It performed well over the summer, but it really started to arc up in sort of October and on. And that’s because as you’ll see on the next chart, another call I made was that the tech stocks, the fangs and whatnot would lose steam.

And I made this call pretty darn accurately if I can say so myself I made the call in September and literally they peaked in August and this is Amazon and you can see literally gone nowhere. Now, a couple of the tech stocks have done, okay. Notice Google’s made a new high, but most of them, if you look at Netflix and all them they’ve really gone quite flat. Now the other side that I was very bearish on and correct on the call was the stay at home stocks. Things like zoom, which I’m using to record this meeting. It’s a great product, but it got overvalued. And so did Peloton the people that make those exercise bicycles and whatnot. I mean, these stocks, sure, everybody’s indoors and has to work out and has to use Zoom and etc.

But it’s all about valuation and overbought status. And I blogged on this topic multiple times. One example was given here. I said, get out of the techs, get out of the States, stay inside and move into things like materials. A neutral call that I made. I was pretty right on this, but there were some caveats to that being correct. So my neutral call was that I felt that in November, actually, sorry, on March 16th, I was stating unequivocally that this market was not one to sell into. The market was crashing hard as you can see here, this is the March of 2020 and on the 16th, which was right around this point here, I felt that it was capitulating. I was waiting for a MACD signal.

Now I was correct. I said, don’t panic, don’t sell. And that was a good call to make right here. Cause it ended up going up. Now what I also said, and this is the part where I was maybe a little incorrect in that I was comparing most bear, this crash that we just went through in March of 2022 most bear markets. And this is the 2009 bear market. And you can see it as most market crashes result in a complex bottom. This is sort of a head and shoulder look to it. So there was a neckline and a breakout. You could see a complex bottom means it makes multiple attempts before it finally breaks out into a new bull market. That is what I anticipated for the March crash. And in fact, it just went straight out with no consolidation and made new highs before you could say, Bob’s your uncle.

So it was right about not panicking, I was right about this. We probably had seen the bottom, but I was waiting for some ratcheting up and down to try to play that we lagged in at ValueTrend. It’s our strategy. We don’t make guesses that this is the bottom. And if we have made that guess that, that was the bottom of March 16th and if we had gone in full in with both feet. Then we would have done much better, but we’re not that kind of investor because we go by history and history shows that most markets don’t look like this when they make a buck. If one does, if I turn the clock back, I would say, well, maybe because of the ferocity of the sell-off, I could have been a little bit more aggressive stepping in, but we bought in and we spent most of our cash by the time across the 200 days moving average up here.

Okay. So that’s a neutral, we’ll call it a good call, not to sell bad calls, not to buy all at once, Bad calls. So I was bearish on the loony and wrote a blog in January very beginning of the year in 2020. And I thought at the time that this line here is 77 cents. And I felt that the market has had the limiting, I should say, versus the US has had so much trouble in the past breaking 77 cents. I didn’t think it would breakthrough and I was wrong. Cause it’s now pushing 79.

There was some reasoning behind the technicals as well because we really haven’t had a very responsible government when it comes to many things. And I outlined them in a blog here and you can click on these and you can sort of see the backing for my comment.

It’s not just a read. It feels that way. So final thing I was incorrect on was the influence of the Fang stocks, Facebook, Apple, Amazon, whatnot on the markets. I felt that because these stocks would do this like Amazon and go sideways. And I was right about that, but I felt that because they are so heavily weighted on the stock market, that the market itself would be kind of flat. And that was most definitely not the case. As we know, the S&P went up new highs because markets rotated in a big way into, luckily the stuff that I was buying. So it turned out to be a good trade for me, but I felt that the index would not be so well off. I’m still happy to hold the stocks that we held because of the value sectors and the oils and the metals outperformed the broad market anyway.

So I was happy with our performance. I just wasn’t calling the broad market correctly at that time. So those are my good and bad calls. One call for this year that I’m making right now is that I think that consumer staples, where you can see a consumer staple, it should be on your radar.

I think consumer staples are looking technically attractive right now. And unlike buying a stock like Tesla with a PE ratio of 200 times, or even, you know, Amazon is still trading around 70 or 80 times forward earnings. I mean, these are expensive stocks. There’s a lot of good value in some of these staple stocks. This is a staple ETF, and you can see it’s on an uptrend. It’s still above the 200 day and it’s approaching that. And I feel that there’s a real argument to be made to start legging in.

Remember we never buy all at once to disable. So we bought one position in staples recently, and we’ll probably end up buying more. This is not a stock recommendation. So please do not take this as advice, but it’s one of the staples that consumer staples that make up that index. It doesn’t have the same pattern as you see on the index. It’s Kraft. They’ve had real problems over the years, but the stock to me is starting to look like it’s building a base, you can see that’s kind of a heavy shoulder. Angular head and shoulders. Look, I think if it can break 36, then it could be technically positive and it could have some upside maybe into this level up here, which probably would be a good trade. It would be probably a 15% upside plus a dividend.

One stock that we did buy, so again, not a recommendation, but we bought Coca-Cola it’s on an uptrend. We bought it on this touch of this trend line here, and we liked the stock. So that’s another. You gotta pick and choose your staples. But if you’re wise and diligent, you can find some real value there. And I think that’s the sector that the market will rotate into. If, and when I think it’s more of a when than if, the technology and overbought stocks such as the solar panel stocks and the EVs stocks start to round over this summer, you could see a rotation, into things like utilities and staples and sectors like that.

If you are interested in portfolio management services that use sector rotation well, that’s what we do. And we’ve proven sideways in bear markets that our strength is in identifying these changes. Anybody can make money in a bull market. Our forte is performing well in a soft market, so we’re very happy to talk to you about your portfolio. If you feel that you would like some help over the coming quite probable uncertain times.

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