I have had the good fortune of working with thousands of investors over the past three decades.
My conclusion is that all investors can benefit from bringing more sophistication to their decision making. Especially today, as volatility is causing panic in the U.S. stock market.
The purpose of this article is to help those who aspire to do better with practical guidance. There are principles that go beyond buy, hold or sell.
This article is focused on 10 popular tech stocks, but the principles can be applied to most stocks. To begin, I will illustrate with two charts.
The charts
Please click here for a chart of Facebook FB, +0.53% The chart shows when The Arora Report gave a signal to take partial profits on Facebook, Google GOOG, -0.05% GOOGL, -0.17% and Twitter TWTR, +1.35%
Please click here for a chart showing money flows on FAANG stocks, including Amazon AMZN, -4.38% Apple AAPL, -1.10% and Netflix NFLX, -4.96% The chart also shows money flows on other popular tech stocks.
Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.
Trump may go after Amazon
There is speculation that President Trump may go after Amazon. This is creating negative sentiment for tech stocks. To be fair, this news is not new. The new twist here is that Trump apparently wants to curtail Amazon to protect small businesses. Plus, CEO Jeff Bezos owns The Washington Post, the liberal media outlet that tends to criticize Trump.
The reason behind the signal
At The Arora Report, our signals are based on the six screens of the ZYX Change Method. Please click here to learn about the six screens.
The reason behind the signal is explained in “The average investor has turned against Facebook and other FAANG stocks.”
Bringing more sophistication
Investor decisions don’t need to be limited to buy, sell or hold. All investors will benefit from taking into account, and adjusting, the following:
• Position size.
• Time horizon. Some investors may have a long time horizon, such as 10 years. Other investors may have a very short time horizon, such as a few days.
• Some investors may be holding a core position for the long term and then surrounding the core position with short-term trades.
• At The Arora Report, we advocate diversifying by time frame. This way, if trades do not work out in one time period, they often work out in a different time period.
• Investors need to be aware of the significance of making two consecutive correct decisions. If you decide to sell, not only does the timing have to be right, but you have to time correctly another decision to buy the stock again. Making those two decisions correctly is a lot more difficult than it seems. A much better way is to scale in and to scale out.
What to do now
Here is what The Arora Report suggested to its subscribers on March 19 before these stocks started falling:
“Those who entered these stocks relatively recently and have not been realizing some profits along the way may consider taking partial profits.
“Those who have been holding these stocks for a long time and have been realizing partial profits along the way may consider continuing to hold.
“The ‘Buy Now’ rating is a ‘No’ on these stocks.
“Those not in these stocks may wait for new signals from the Real Time Feed.”
My long-time readers know that I have been emphasizing proper position sizing on tech stocks for the past month.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article. 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.