Based on the amount of reader e-mails I have received, I am amazed about how many investors are in hot pursuit of trying to pick a bottom in certain beaten down ETFs. Others are using an assortment of analysts and TV gurus to confirm their uncontrollable desires to enter the market and, hopefully, pick a declining investment (a loser) on the theory that once they made the purchase the downtrend is sure to reverse.
From my viewpoint as a trend tracker, both of those approaches, buying losers and listening to analysts, have no merit whatsoever. To make this more understandable, maybe I need to inject some sense of humor by quoting someone who has an opinion on the subject. Back in 2002, humorist Dave Barry said the following:
Enron stock was rated as “Can’t Miss” until it became clear that the company was in desperate trouble, at which point analysts lowered the rating to “Sure Thing.” Only when Enron went completely under did a few bold analysts demote its stock to the lowest possible Wall Street analyst rating, “Hot Buy.”
There is a lesson in this and it is this: Don’t go long when the trend is down and don’t enter into short positions when the trend is up. It’s not difficult yet so hard to do for many who are itching to do something—anything.
Next time, the desire to act tries to overcome your rational judgment, keep in mind that the safest strategy in this uncertain environment is to stand aside and wait for better conditions.