Don’t Fall for ‘All or Nothing’ Investing

Editor’s note: As we told you a few weeks ago, Chaikin Analytics founder Marc Chaikin recently joined quantitative fund manager Meb Faber on his podcast, The Meb Faber Show.

Marc and Meb talked for roughly 35 minutes during the interview. They covered everything from Marc’s early career to what he’s “bullish” on today – and all sorts of topics in between.

Today, we’re sharing an edited excerpt with Chaikin PowerFeed readers…

In it, Marc talks about market vulnerability. And related to that, he shares why you shouldn’t invest with an “all in” or “all out” mindset. It’s an incredibly compelling discussion considering the further market hardships we’ve seen over the past couple of weeks…

Meb: How do you think about broad market moves? You’ve obviously experienced a bear market or two. And a lot of young investors today haven’t really.

I mean, we had the sort of pandemic “jiggle” – which was technically a bear market. But that was so fast [that] I feel like no one even was able to do anything.

Do you think we’re vulnerable today? Do you rely on any indicators to kind of guide that? Does the Power Gauge, in any way, reflect that broad market sort of composition and strength?

Marc: The Power Gauge definitely does – even though only a relatively small percentage of its factors are technical.

We have what we call a “technical overlay.” It helps us know if a stock with a very attractive Power Gauge rating across all 20 factors – meaning it has positive underlying fundamentals – is in a downtrend.

New investors should look at broad market trends to have a diversified portfolio. And to me, a diversified portfolio means having some [exchange-traded funds (“ETFs”)] in the broad-based industries… or more theme-based ETFs, based on yield or industry groups.

Then, you also want to have some individual stocks… which can add “juice” to your portfolio. I call it “supercharging your returns.” For me, those pieces of the puzzle are strong stocks in strong industry groups.

So in other words, I don’t believe it’s good to be “all in” or “all out.”

You don’t want to miss the top 10 days of a given year or a decade. If you’re just [completely] out of the market… that does more damage to your overall returns than if you sidestep the 10 worst days.

In terms of individual stocks, what I do is let the technicals deter my exposure. So, if I’m long in Nvidia (NVDA) and the technicals start breaking down, I’ll get out.

I have a discipline.

That’s what’s happened since November. A lot of our favorite stocks – like Alphabet (GOOGL) and Nvidia – broke down with the market. So I let the market take me out of that.

By that, I mean they either break my stop losses or the technicals break down. For example, our Chaikin Money Flow indicator might turn negative.

For me, it’s a way to go to cash with that portion of my portfolio. And I think that’s better than the all-or-nothing approach.

Editor’s note: You can listen to the full interview between Meb and Marc on Meb’s website right here… Or if you’d prefer to read the transcript, you can find that there as well. You can also check out The Meb Faber Show on Apple Podcasts, Spotify, or your preferred podcast app.

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