Using the top-down method of stock analysis, it is possible to invest in areas that tend to outperform the market during a bear phase. These stocks are selected for several reasons:
1) High yields
2) Positive money flow
3) Improving sectors as the economy turns bullish
Stocks are selected from abroad that meet these criteria but may not have high yields. Choices come 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.
The main goal is buying a stock that has both value and growth potentials. Money flow analysis is the lynch pen of the investment strategy and, therefore, the first consideration. It 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, value, growth, or even a momentum investing is the next step. It depends on the accumulation and distribution equation for each stock and its sector.
No focus is given to any specific market segments, except for those that are undergoing accumulation. Of interest are those market segments that, based on business cycle considerations, may soon start being accumulated. For individual stocks in the segments experiencing accumulation, I attempt is made to buy as cheaply as possible. In that way, if a wrong decision is made, it is made at the bottom of the stock’s price range, not at the top. The end result is that the potential losses should be much smaller and the potential gains much larger. Beyond the methods outlined here, there is no central focus on fundamental or technical analysis techniques. Instead, use is made of everything that has been designed to provide the direction of the stock, its market segments, its industry group, and the overall economy.
The sell strategy is to sell when a sector moves out of favor on a 7—101 loss. If a racehorse is bought that turns into a dog, it is sold once it gives back 25% of the profits it has made.