Honestly...I Want To Invest, Not Trade

When it comes to picking a market strategy, I find that many people simply ask, “What strategy will generate the best return?” and begin their journey there.

Many people approach life that way as well, seeing a perceived outcome and looking for the shortest path to get there.

And while that may seem like a logical way to approach the goal of making money in markets or choosing your path in life, it ignores the fact that markets and life are both multifaceted. What may appear great in isolation could actually be disastrous when combined with the many other factors that exist in life.

Let me explain.

Early in my college journey, I picked the “analyst” career path partially based on my interest but mostly because it was the most lucrative opportunity I felt I could realistically attain. Once I did that, I built the rest of my life around serving that goal (and eventually that job), which looked great on the outside but was an absolute nightmare on the inside.

At surface level, I was a great technical analyst and, by all measures, headed for a long-running career as “something” in the asset management space. But if you looked at the totality of the situation, that’s all I was…a budding technical analyst. And once I realized I no longer wanted to pursue that career path, I had almost nothing left. Luckily, I had a great relationship with my now fiance that helped develop my personal life a bit, but I was not a well-rounded person by any stretch of the imagination.

There’s a lot more to this story and many more lessons from it to discuss. But for this blog post, the primary point is that a job is only one aspect of life. If you optimize only for the most lucrative path you can identify, chances are you’ll make your money but sacrifice a whole lot else along the way.

And the same goes for markets. I am ultimately not here to serve the markets. The markets are here to serve me, which is why I need to start with what I want my life to look like and then figure out where markets fit in. Not the other way around.

I’m not going to get into my current personal and professional goals in this post, so you’ll just have to trust me when I say choosing a longer-term timeframe and investing instead of trading is going to serve me best.

Ultimately, I don’t need another job, which is what I view active trading as. It’s a business that requires you to actively manage it day in and day out. If you don’t trade, you don’t get paid. It’s that simple. (Not to mention, it’s incredibly tax and capital-inefficient, which is why many further monetize their skills in other ways.)

And I’m certainly not going to start a research business, alerts service, or some other retail-investor-focused product when I’m not even a profitable investor myself. I left that business for many reasons, but the pervasive lack of actual performance or what I perceive as value creation is the primary one.

My goal is to make as much money as I can from my day job as a financial journalist and from the financial education company I’m building. Those will be my sources of active income.

As for the markets…they will be another place for me to invest my active income for growth. Since I’ve already invested 10+ years into this skillset and still enjoy participating in markets, I might as well attempt to deliver some modest outperformance vs. indexing (which is where most of my retirement capital will remain invested). But only with the limited time and money I’m willing to dedicate to it. It’s not another job.

With that background, over the last couple of weeks, I think I’ve identified the groundwork for a potential investing strategy.

I call this the “Of course…” investing strategy. Because it starts with looking for longer-term chart setups that I could picture myself looking back on and saying, “Of course that stock did X from there...”

It’s much easier to explain with a few examples, so let’s take a look…

Here’s Microsoft doing nothing for roughly 15 years after the dot-com bubble. Then, it broke out, and never looked back. And if you had looked at the progress its business had made throughout that period, you’d expect nothing less than the stock to go bonkers once it finally broke out.

Or Jabil “doing nothing” for two decades and then nearly doubling in a year following its 2022 breakout.

And for those who’ll say it’s just a tech or ZIRP thing, there are plenty of examples elsewhere. Like Mondelez International in the early 2010s.

Or Lululemon’s seven-year base breakout in 2018.

My point is any experienced technical analyst has charts imprinted in their mind that make them experience the “Of course…” type feeling. These are some quick examples. But there are many, many more.

The reason I’m starting with technicals is that it doesn’t matter how good a fundamental story is if the institutions driving the stock price don’t agree with you. I’m a technical analyst first and respect the silly human behaviors and incentives that drive markets on a daily basis. There’s no point in fighting it.

But having a good chart isn’t enough. In this longer-term investment strategy (multi-year holds), my goal is to do the work upfront, buy/sell the damn stock, set a stop, and let the market do its thing. And for me to have the conviction to hold the stock through its inevitable corrections, I’ll need to understand if and how the fundamentals are supporting the stock.

Additionally, filtering with fundamentals will also help identify which of the many setups I’ll inevitably find are worth adding to the portfolio. Because not all chart patterns are created equal.

I’m not talking anything crazy, either. Simply a look at revenue growth, earnings growth, and free cash flow generation is more than enough. I just want to see if these key metrics are trending in the right (or wrong) direction when compared to the stock price. Because, at the end of the day, the market cares about the company’s ability to generate cash over the long term.

With a few charts and a one-page description, I should be able to describe my investment thesis in full. If it’s beyond one page and a few charts, I’ve likely lost the plot and need to revisit the idea.

Here are some examples that I’ve identified as potential “Of course…” setups from a technical perspective, but I’ve not done any fundamental work on them yet. Also, based on the way I exported them, they’re in alphabetical order, not by sector or technical setup (i.e. potential breakout, buying support, etc.)

Here’s AbbVie consolidating above support after a multi-year breakout. Any weakness towards that level looks like a buying opportunity.

Real estate is unloved in the current environment, but this life science-focused REIT Alexandria Real Estate Equities is trying to find support at long-term support near 100-110.

Medical device company Boston Scientific recently broke out of a nearly 20-year base. Any pullbacks to the 45 level would be a gift for longer-term holders.

Healthcare services and products company Cardinal Health is stuck under resistance near 91-95 but is looking to confirm an 8-year base breakout.

Carrier Global Corporation is on breakout watch at 59-60. It’s a global leader in building and cold chain solutions (i.e. HVAC, security equipment, etc.)

The CBOE Global Markets exchange on a pullback towards 135-140 looks great.

For the bottom fishers, furniture chain store Conns, Inc., is trying to find some support above 3.00 once again.

Construction materials company CRH Plc is pulling back towards a major breakout level at 50-53.

The Swedish IT and communications company Ericsson is trying to stabilize above support near 4.80 with a 3% yield to boot.

Oil and gas company EOG Resources has stabilized above its 110-120 breakout level and looks ready to continue higher.

Oil and gas company Diamondback Energy looks similar, clearing 140 again.

Financial services company Fiserv is trying to clear resistance at 125.

Industrial/machinery company Fortive Corporation recently broke out above 75.

Oil and gas giant Hess broke out of a 15-year base. Any pullbacks towards 130 look buyable.

Hardware, storage, and peripherals company Hewlett Packard Enterprises is trying to break out above 18, where its been stuck since going public.

Hotel company Intercontinental Hotels Group recently broke out above 73.

Professional services firm in the industrial space, Jacobs Solutions, broke out above 105 and continues to find support above that long-term level.

Payments giant Mastercard broke out above 400.

Industrial giant 3M Company is trying to stabilize above a 15-year support level near 92-97.

Pharmaceutical giant Merck & Co. broke out of a 25-year base. Any pullbacks towards 83-85 would give buyers an opportunity to accumulate shares.

The oil and gas exploration and production company Pioneer Natural Resources has stabilized above 200 and is looking to accelerate above 235.

Discount apparel and fashion retailer Ross Stores may follow TJX to new heights if it can break above 125.

Building products company Trane Technologies needs to break above 205-210.

Aerospace and defense company Textron Inc. is attempting a 15-year breakout.

Despite all the noise around UBS Group, its 15-year base breakout remains intact if prices are above 21.

Uranium ETF continues its slow breakout of its 2-year consolidation.

Payments giant Visa is looking to follow Mastercard, clearing 249-252.

Industrial and machinery company Westinghouse Air Brake Technologies broke out of an 8-year base. Needs to stay above 97-103.

Oil and gas giant Exxon Mobil cleared 15-year resistance above 95.

And these charts are all just from the S&P 500 (except for $ERIC and $URA)…

The other thing to recognize is that finding stocks to buy is the easy part. It’s everything else that comes along with the portfolio management process that determines whether you’re going to survive in the market. And it’s also where most trading services lack in specificity…

I have some initial thoughts about position sizing, identifying exits (both when right and wrong), and everything else, but I’ll save that for a different post.

For now, this is as far as I’ve gotten. Feel free to reply to this email with your own “Of course…” setups or thoughts on anything discussed in general.

I look forward to hearing your feedback. Until next time!