Hey Everyone, Tim here! Today I want to talk about my exact trading strategy in 2020. A couple weeks ago, I made a video on the top 5 Stocks to buy in April. If you haven’t watched that yet, I recommend you check it out! I got a few questions on how exactly I plan on executing my trading strategy over the next 6-18 months. Now I’m going to share with everyone what exactly I plan on doing.
Long Term Investing
I want to clarify the difference between long-term investing and short term investing. Specifically in this post, I am talking about long-term investing and my long term portfolio. I will buy and hold for 5-10 years. In my swing trading portfolio I catch shorter moves in the market, and trade anywhere from a few days to a few months. Swing trading requires more complicated technical analysis and accuracy in your entries and exits. For long term investing, I’m looking to buy good companies at a discount. One of the things I do want to emphasize is I am not some all knowing magic ball…or am I….? Just kidding! No one is. Although this is my plan now, it can change as market conditions change.
The Strategy & The History
I am in cash right now. I believe that the markets are currently in “limbo” if you want to call it. No I am not talking about the game where you walk under 2 sticks. The markets are not walking under limbo sticks. What you need to understand is that the markets NEVER fall in one swoop. They will drop, and then bounce back, and continue to repeat this. When the markets go up, the markets don’t just go up in one straight line. It goes up, comes down, then goes up and continues like this. A good analogy for how long it takes a market to go up is to think of it like an escalator. When markets tank, they fall like an elevator. This happened in March.
I believe the markets are currently in a retracement. They will go back and test the lows. Possibly make lower lows this year. Here’s some data I found online regarding this – if you see below in 01-02 during the dot com bubble
Below is another example. This is taken from the great recession in 08-09.
This is why I believe the start is only here, and I am being patient with my cash. Anything can happen, and these are just my own beliefs based on my research in the markets. Nobody knows where the bottom is – and when prices become “cheap” relative to what companies are worth, I plan on loading up and averaging in over the course of 12-18 months. If I assume that we will reach the bottom sometime in the next 12-18 months, I would calculate out how much I plan on investing in total over that time period. I would then divide by 12 months, and then that’s how much I would put in each month. I will do this regardless of what that markets do.
This part is especially important. If the markets bounce back don’t be greedy and think the bottom’s hit and keep buying. If the markets go lower and you panic you defeat the purpose of averaging in. You MUST be consistent and remove psychology from it.
The Current Climate
Now that’s not all, there’s also other reasons why I think the markets will go lower. The first is that I don’t believe the fear of Coronavirus or second order consequences of what it will due to the economy with so many people not working is priced in yet.
As of when I’m filming this video on April 11th, The U.S. has around 525,000 cases, and ~ 20,000 deaths. That’s about a 4% death rate in the U.S. currently. And keep in mind, we are extremely limited on testing. This number is more realistically anywhere from 5-10x that amount and could be more!
In the Bay Area where I’m located, the quarantine is effective until May 3rd, but I don’t think that’s likely with the amounts of new cases we’re currently having. If we continue to stay in quarantine like this, many businesses will go out of business, people won’t be working which means people aren’t spending. I talk more about this cycle in one of my videos where I talk about how CoronaVirus will affect the economy. I also believe that if some reason we do come out of quarantine in the next few months that it won’t be the same. People will still be scared. And I also believe that if the quarantine is lifted, it will only be gradual.
To summarize, based on history and how the markets normally drop in past recession, we can potentially have 1-2 more drops, which lines up with what I believe about how early on in the recession we are. If the markets have another 20-30% drop over the next 6 months, I will be patiently waiting on the sidelines for that to happen.