Using the top-down method of stock analysis, I invest in areas that tend to outperform the market during a bear phase. These stocks are selected for several reasons:
- High yields
- Positive money flow
- Improving sectors as the economy turns bullish
I select stocks from abroad that meet these criteria but may not have high yields. I will choose stocks from the G7 nations, which are the seven largest industrialized countries—U.S., Japan, Great Britain, France, Germany, Italy, and Canada--that have positive money flow fundamentals.
I am interested in buying a stock that has both value and growth potentials. I am a money flow analyst and that is the lynch pen of my investment strategy and, therefore, my first consideration. Money flow analysis examines every trade in an attempt to measure the amount of money buying a stock compared to the amount of money selling a stock. Money flow considers the net value of the money moving into or out of a stock (click here for more information on money flow and other short-term supply and demand influences). After that, I could be a value, growth, or even a momentum investor. It depends on the accumulation and distribution equation for each stock and its sector.
I do not focus on any specific market segments, except for those that are undergoing accumulation. I also seek out those market segments that, based on business cycle considerations, may soon start being accumulated. For individual stocks in the segments experiencing accumulation, I attempt to by as cheaply as possible. In that way, if I do make the wrong decision, it is made at the bottom of the stock's price range, not at the top. The end result is that your potential losses should be much smaller and the potential gains much larger. Beyond the methods outlined here, I do not focus exclusively on fundamental or technical analysis techniques. Instead, I make use of everything that has been designed to provide the direction of the stock, its market segments, its industry group, and the overall economy.
My revised sell strategy is to sell when a sector moves out of favor on a 7—101 loss. If I buy a racehorse that turns into a dog, I sell it once it gives back 25% of the profits it has made.
