Friday, February 13, 2009

The Non-Strategy

"However beautiful the strategy,
you should occasionally look at the results.”

Winston Churchill

The new name of this web log, Small Cap Strategist, implies…well that there is a plan, a line of attack. I have suggested various approaches to the current equity market. Invest in sectors that will grow in the long term such as health care, renewable fuel, energy savings and efficiency solutions, recycling and resource conservation. Take long positions in undervalued stocks and plan to hold for an extended term. The dividend yield tactic was also suggested with numerous names of downtrodden stocks for dividend paying stocks. Then there is the synthetic long position using an option approach.

Is anything working? Well, in a word the answer is NO. Many health care and renewable fuels companies are overpriced despite the massive sell-off in the U.S. equity market. Even companies with large bank accounts and positive cash flow have cut dividends. Has anyone looked at option pricing lately? Volatility remains at unprecedented levels and there are few option bargains.

Ok, so maybe it is time to revisit the momentum play. Yes, I am suggesting looking for short-term trading opportunities. The risk here is that some unforeseen event or announcement derails the direction of trade - up or down. Now more than ever equities are subject to event risk. So the short-term long or short position would be among the riskiest and is not for the plodding investor who wants crunch numbers on the fundamentals for weeks or months before taking a stand. This is for the traders among us, who see a trend and are ready to move with it perhaps only on technical indicators.

Need your sleep? Don’t want to take up nail biting? Alright, consider cash as the “non-strategy” strategy. The train that is the U.S. equity market is not leaving the station any time soon.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

No comments: