By Nigam Arora
• This time it is different. Even though we have taken protective measures, they are nowhere near the protection we took the last time. Further, we are only opportunistically short selling and not wholesale short selling.
• Popular tech stocks Apple /zigman2/quotes/202934861/composite AAPL +2.14% , Facebook , Amazon /zigman2/quotes/210331248/composite AMZN +2.07% and Microsoft /zigman2/quotes/207732364/composite MSFT +1.70% have been market leaders. Investors ought to carefully watch them. For example, Apple stock rocketed Tuesday after tariffs on phones were delayed.
• Semiconductor stocks have often given advance indications of the stock market. Popular semiconductor stocks AMD /zigman2/quotes/208144392/composite AMD +2.76% , Micron Technology /zigman2/quotes/205710729/composite MU +4.36% , Intel /zigman2/quotes/203649727/composite INTC +1.46% and Nvidia /zigman2/quotes/200467500/composite NVDA +4.27% are worth watching.
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What’s different this time
Here are the big differences this time compared to last time.
• There are negative interest rates around the world.
• Negative interest rates cushion any potential drop in the stock market.
• Central banks have more tools, such as quantitative easing (QE).
• Politicians are more prepared on the fiscal front.
• If the trade war gets resolved, it may trigger renewed global growth and higher stock prices.
• Mortgage standards are much stricter.
• Corporate and sovereign debt is a bigger danger.
What to do now
Investors ought to consider following a proven model. It is important that any model that investors follow is not a static model. Since the market, economic and geopolitical conditions have dramatically changed, the models that worked in the past may not work this time.
Investors ought to consider adaptive models that automatically change with market conditions. The difficulty investors face is that there is a scarcity of such models that are proven in bear markets as well as bull markets. An example of a proven model in both bull and bear markets. Right now the ZYX Asset Allocation Model has taken some protective measures but its overall stance is still to hold good long-term positions.
In an environment like this, investors interested in higher returns with lower risks ought to consider following Arora’s 18th Law of Investing and Trading: “Diversifying by time frames provides a consistent stream of profits.” When I started writing this article, the Dow Jones Industrial Average was down over 100 points. Then the news came that some tariffs will be postponed. The market jumped about 600 points from the lows. Investors can take advantage of such volatility by diversifying by time frames.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.