For many investors, following a rules based investment process can be challenging – especially when you see that “can’t miss” trade come along.
And when that happens, frustration and “FOMO” (Fear of Missing Out) take hold of your emotions and ya just can’t help yourself!
There go the rules… right out the proverbial window!
I get it. It takes a lot of discipline to stick to a rules based strategy.
Occasionally I’ll field a call from an eager investor asking, “did I see how well X is doing” and “aren’t we missing an opportunity to get in early on X.”
And the short answer to that question is yes.
The longer you wait “to pull the trigger”, the more “potential” upside you may miss.
The question comes down to how much risk are you willing to accept before making any trade?
How much confirmation do you need to see before committing your hard earned money?
Our rules based investment process dictates that we see a confirmed uptrend in a security before we’re willing to risk investor capital.
At RWM, we don’t use a traders mentality – we’re interested in investing money in securities that have the potential to rise significantly over the next several months (or years) – as institutional money piles into the sector, driving demand and prices.
We believe this is the best way to avoid falling prey to short term price fluctuations.
As a result, we’re willing to sacrifice the first move off the bottom.
Our sights are firmly set on the biggest part of the move, not the first uptick in price.
We’ve been watching one beleaguered sector, since May 31st – its performance has topped 9 out of 10 S&P 500 sectors and out-gained the S&P 500 index by more than 3%.
Only the Technology sector has been more profitable over that time.
It’s a sector that currently ranks second to last as domestic equity sector rankings go, leading only the energy sector – which ranks dead last.
And that’s why you won’t find this sector on our current “must-have” list or in our model portfolios today.
The sector I’m referring to is Basic Materials. This beaten down sector is showing some signs of life, and investors are taking notice.
Over the last two months, basic materials has been the most improved U.S. sector in terms of buyers demand.
During that time, every other domestic sector except for technology has seen demand falter – which results in lower prices.
Since 5/31, Basic Materials has been the second best performing sector in the S&P 500, with the Materials Select Sector SPDR Fund (XLB) returning 12.50%, compared to the S&P 500’s 9.14% gains.
XLB trails only the Technology Select Sector SPDR Fund XLK, which gained 15.04%.
For those of you familiar with point and figure charts, XLB also gave a second consecutive buy signal earlier this month when it completed a bullish catapult pattern at $59.
And that means XLB’s strong short-term performance and recent chart action provide further evidence that the sector’s technical picture is improving on both a relative and absolute basis.
So, for those of you with an itchy finger, looking for that next trade idea – basic materials could make your list as a possible trade.
A few of the top ETFs in the basic materials space are concentrated around gold and silver.
Here are a few names to look into: SILJ, GDX, RING, GDXJ, and SLVP.
As for us, we’re willing to wait for XLB and the rest of the sector to move up the charts and provide further evidence that the sector has some potential staying power before committing any capital.
If you’re interested in more info on why we make our investment decisions this way, or more details on what technical indicators and “inside” market data we look at when evaluating securities, feel free to email us at email@example.com.
You’re also welcome to schedule an appointment with one of our advisors. Investors with accounts valued at least $500,000 are eligible for a 100% free portfolio evaluation which will allow you to assess the relative strength and risk inherent in your current portfolio. Click here now to see available call times.
Until next time – safe trading…
Get Our FREE Guide
How to Find the Best Advisor for You
Learn how to choose an advisor that has your best interests in mind. You'll also be subscribed to ADAPT, Avalon’s free newsletter with updates on our strongest performing investment models and market insights from a responsible money management perspective.