I often wonder if people think I’m a soothsayer: They frequently ask me at the beginning of each year where I see the Dow Jones Industrial Average (DJIA) heading. Sure, experts chime in at the beginning of each new year to predict what the market is going to do, but no one knows for sure.
Expert predictions run the gamut from theorizing the DJIA will close the year above 20,000; others forecast complete doom. It almost seems as if the financial pundits and news media are trying to tell the market what to do as opposed to listening to what the market is saying.
All of this talk can make investors pretty uneasy…to the point of dumping an entire portfolio and sitting with the cash. But being safe won’t necessarily benefit you. As the great American financier John Pierpont Morgan said when people asked him what he thought the market would do, “It will fluctuate.”
I have no idea what the market will do in 2015, and anyone who tells you he does is just not being truthful. What information I do have comes from a set of indicators that tells me whether supply and demand is in control of the overall market, sectors, and individual stocks. While I’m hard-pressed to make market predictions, these indicators allow me to piece together a helpful list of themes for the coming year.
Develop a Discipline
I’ve learned to follow the “point and figure” methodology, which works on the laws of supply and demand. While the idea of charting price changes each day may seem simplistic, it simply works.
With all of the financial data available, the daily high and low doesn’t seem like a big deal. The same is true of a relative strength calculation. However, these calculations can be formidable: For instance, those small numbers let us know that the US housing industry was beginning its recovery in November of 2011. The numbers let us know the healthcare sector demand was coming back in July of 2012. More significantly, they signaled to us to divest our portfolios of all stocks in November of 2007 and not reinvest in US equities until March of 2009.
We all make mistakes; the trick is to learn from those mistakes. Don’t worry if your investment portfolio severely underperformed in 2014. If you made some mistakes with your account, gain some knowledge from it. If 2014 was a good year for your portfolio, think about what you did differently from the previous year and do more of that.
As baseball great Yogi Berra said, “You can observe a lot just by watchin’.” That holds true for the market for sure: It’s the investor who simply pays attention to a few basic indicators, keeps it simple, and adheres to a logical, organized plan who wins.
Roger S. Balser is the CEO of Balser Wealth Management LLC in Chicago. He can be reached via [email protected].