Its important to understand how we got out of the first GFC

helicopter shark escape GFC

A river of capital flowed … bail-outs, interest rate reductions, printing money, special banking arrangements etc.

Worldwide stimulus packages flowed including a massive stimulus from China.

Bankers were no longer paid to hoard and began to lend.

Capital began to trickle – when the banking system appeared solid.

A readjustment period ensued.

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Why did the Stock Market rise so far and so fast?

Confidence restored due to a lack of investment alternatives. Recall that at the time, bank interest rates were very low and real estate investment was unavailable as there was no lending (with the exception of the first home stimulus).

Those with cash – invested in stocks, too fast and created a self fulfilling confidence. They drove the market up into a fools paradise which was based on too little substance.

There was always going to be a time to pay the piper!

What did we learn from the GFC 1?

By 2009 all the lessons were forgotten – a mere 12 months later. Since then it has just been a matter of time for the Greed to reemerge (and it has) before the GFC2 occurs …… And it will.

What do we do?

At pivotal times knowing when to sell is invaluable.  We follow the changes in our Pythagoras Investment Timing Indexes. They offer a mathematical understanding of the stock market through volatility, which show that price sensitive events are predictable from changes in Volatility (i.e. in advance of price moves). These changes lead to buy/sell recommendations.

We recommend a sell when the market/stock is at risk of going down, or no-where. At these times we recommend investing in cash, and await the buying opportunity. When the market/stock is less risky, and it’s going to go up, we reinvest to profit.

Conclusion: The key to making money is selling.

The key to making money in any market is selling before any negative event. Pythagoras generates the sells before the events with share price effects – its proactive not reactive.

Investors know it’s rare for all stocks to go down all the time, all at once. Even in a bear market there are upward moves to profit from – if you have the right Buy/Sell recommendations.

Therefore Pythagoras can make money in any market regardless of the investment environment – in fact its best in the tough markets.   We worry less about the events and their timing and focus on Volatility changes. At Pythagoras we follow changes in volatility which precede the events. This places us at the forefront of investing.

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Disclaimer: The information in this document (“Information”) is not intended to constitute advice.  It is for general information only and does not take into account your individual objectives, financial situation or needs.  You should assess whether the information is appropriate for you and seek professional financial advice before relying on or making investment decisions based on the Information.  Investment products are subject to risk including the loss of income or capital invested.  Past performance is not an indicator of future performance.  Neither Pythagoras Investment Timing Index Pty Ltd ACN 147371113 (AFSL 431 238), its directors, employees and representatives (collectively, “Pythagoras”) warrant the accuracy or completeness of the Information. To the extent permitted by law,  Pythagoras disclaims all responsibility and liability for any loss or damage of any nature whatsoever which may be suffered by any person directly or indirectly

 

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