Monetive Wealth Newsletter
Sector Rotation Investing anchored around Long Term Trends
This is Monetive Wealth Market Musings, a newsletter about a traditional approach to investing & trading.
The market is at crossroads: disconnected from fundamentals for two years and riding on the back of unlimited easy money. Fed could be on the cusp of announcing a change in its bond buying velocity and get into an aggressive taper mode. The market has sneezed, recovered and now seems to be waiting for the words of wisdom from Powell before picking a direction.
There are a lot of hyperboles used to describe where we are and I can’t do any better. So I will stick to what I know and how I am deploying my capital. I am not calling for a complete market meltdown or correction but I think there is a lot more froth left to come out of the market especially in high multiple stocks. I don’t want to be caught in the vortex, hence I am taking my profits or losses while trimming the riskier positions.
My investment focus is based on following years of market cycles and sector rotation. I invest around a few major long-term trends. These are multi-sector horizontals that I map to sector/subsector rotations and plan entry and exit based on sector performance.
Healthcare Technologies
Next Generation Banking
Industry 4.0
SaaS & Cloud
EV Ecosystem
I am positioned in a few of these themes and will be adding others on any market correction when valuations come down to reasonable levels. I am not chasing stocks at any price but rather letting them come to me. I am ok with missing a run in the meantime.
From an approach perspective, I have always benefited from taking bigger risk in safer stocks rather than running after high growth names with no fundamentals to speak of and no earnings on the horizon either. I would rather use the leverage of Options on low multiple stocks when they pullback, than expect the growth stocks that have fallen off 50% or more to recover to their lofty heights.
The mechanics of my investments are:
Limit my holding to 20 or so positions in sectors that are showing strength .
Invest in top 1-3 stocks in the sectors and/or a sector ETF.
Keep a significant cash position to take on large swings in high growth stocks when the opportunity presents itself.
Keep a tight stop and cut loose if levels don't hold.
Take profits quickly and re-enter at the next opportunity rather than trying to hold on for too long.
Trade with the market and take what the market gives even if there is no logic to the run.
We have all seen how markets can remain illogical for very long periods.
Use leveraged ETF’s after a significant market pullback to capture the bounce and to buy time to find the right plays to go long.
Watch the VIX.
With a Fed effectively on the sidelines, volatility should move about freely and not stay pegged down at lows.
I will post my market review and outlook every 2 weeks in this newsletter starting in January. Since I use sector rotation as a big driver of my investments and timing, I will cover sector strengths and interesting plays I am considering. None of this is Investment Advice. This is how I am positioning my capital and what I plan to do going forward.