Retirement Investing Explained by TechniTrader®
THE NEW FUNDAMENTALS: What every long-term investor needs to know to be successful in today’s marketplace. The stock market is evolving. In fact, it is in a constant state of evolution as it responds to pressures from various aspects of modern society.
Externally, it is changing because the matrix of Market Participants has changed dramatically in the last decade. Instead of just 3 levels of market participants, as the Dow Theory defined, there are now 9 levels of market participants, each with their own agendas and buying powers, which impact stock prices differently.
Internally, the stock market is also evolving into something the investors of the 1950s, 1960s, and 1970s would barely recognize, and would certainly struggle to succeed in, if they used the traditional fundamental and financial analysis used in those days.
Therefore, it is critical that long-term investors learn how to invest in our modern and evolving stock market. Mutual Funds were the common investment instrument during the 20th century. Their popularity died along with the Bull market that ended in 2000.
Since then, ETFs (aka Exchange-Traded Funds) have grown exponentially in popularity and diversity. This is just one example of the evolving stock market of today. ETFs have been around for just about a decade, but the growth of this new industry has seen an explosion that is not over yet. Should you own ETFs? It depends on your goals.
ETFs offer substantial benefits over Mutual Funds, as you can buy and sell them as easily as you can a stock. Evaluating these funds can be easier than researching a Mutual fund because the return and performance of the ETF is usually provided by the ETF issuer, plus stock indicators can be applied to the chart for study.
The best way to determine if an ETF is something to buy for a long-term investment is to study the ETF chart. Below is an example of an ETF chart.
We can see that it came to market in late 2008 and dropped with the market at that time. The company that created the ETF is FirstTrust. It is an index fund of 49 stocks involved in the Wind Energy sector. We can see that it was in a downtrend until 2012 where it began forming a bottom. TSV, a large-lot volume indicator, indicates early that the bottom had been reached and institutional investors began accumulating. High-Frequency and Institutional traders stepped in and caused more volume to surge in July 2013.
Institutional investor and trader activity is just one of several New Fundamentals investors need to know and study. The middle indicator is volume, which shows us that more market participants began trading this ETF starting in July 2013. The price chart on top shows that the price of the ETF currently is moving up steadily with a sustainable angle of ascent out of the bottom and will reach some resistance at the 2009 highs. There have been opportunities for investing in this ETF thus far and there may be more opportunities in the future. This kind of technical analysis is one of the ways that we can uncover which market participants are trading at any given time, an important part of the New Fundamentals.
When deciding on individual stocks in which to invest and hold for more than a couple of weeks, you must study the financial condition of the company, but P&E ratios are not leading anymore as they can easily be manipulated to make the ratio more attractive to investors who don’t study the relationship between profits and earnings figures for themselves. But fundamental analysis shouldn’t stop there. Guidance for the expected performance of a company in coming quarters is also an important New Fundamental for informed, forward-looking investors.
Perhaps the most overlooked New Fundamental of our modern market is the Product Cycle. Product cycle tells you whether the company is going to have revenue growth and whether that growth is going to be accelerating or decelerating, or if the product is nearing market saturation which causes stocks to fall steeply in price. The reason the NASDAQ stock market had such a huge Bear Market in 2000–2002 was because 4 major new industries all reached market saturation at the same time. Market Saturation occurs when 80% of the first-time consumer buyers have bought that product. It is the end of a product’s cycle and causes revenues to fall, earnings to drop, eventual layoffs, and contraction for that business. All businesses experience market saturation at some point.
Long-term investors should be selling their stock as the business’ product nears market saturation, but unfortunately, most investors start buying the stock at that point because it has been chosen to be on an index such as the S&P 500 or the Dow. A prime example of what happens to a stock that reaches market saturation is Microsoft. Below is a monthly chart showing the life of MSFT as a publicly traded stock.
You can see that in the early years of its New Technology Product Cycle, it moved up strongly, but in 2000 it reached market saturation and lost half of its value by 2002. It has recovered slightly since then but has yet, after over a decade, to really move well for a long-term investment. If you had bought in 2000 at its high, just as it became part of the Dow 30 Average, you would still be holding a stock worth far less than you paid for it. You want to get into stocks as they are just moving up in the early stages of their new technology’s product cycle.
There are currently 5 major New Technologies coming to market that are going to revolutionize modern societies and some of which are currently creating a Great Bull Market. These new technologies are still in the early stages of their product cycles.
The 5 Major New Industries:
- Cloud Technology
- Biotechnology & Life Sciences
- Fuel Cell Industry
- Alternative Green Energy Industry
Of the five, Cloud Technology is moving most aggressively. To really take advantage of the next generation of growth stocks that will emerge from these new industries, investors need to learn the terminology, technology, and new companies that are creating new products within each of these new industries. This is part of the New Fundamentals you must study to get an edge in today’s market.
Instead of waiting until a company is listed on a major index or until it has become a popular household name, an investor should find these stocks early and buy before they have made the huge gains that make them popular.
Investing today is a whole new world. If you depend on the outdated fundamentals of the 20th century, you will miss out on most of the long-term profitability available from stock investing. If you are looking for an edge in our modern market, find out how you can learn the New Fundamentals taught exclusively by TechniTrader®.