The KISSer Approach: How to Identify Stocks Poised for an 80%+ Surge, Even When The Media Calls A Market Crash.
Warning: Your partner may fall in love with you again!
Good investors are exceptionally good KISSers. What do I mean?
They know how to Keep It Simple, Sweetheart. OK, it’s kissing of a different kind, but stay with me — it’s profitable.
As Leonardo da Vinci said, simplicity is the ultimate sophistication.
However, simplicity is not something associated with the stock market. In fact, quite the opposite. Go on to the internet, and this is what people want you to believe investing is:
I know, an eyesore.
However, ask these same people sharing these images for their performance history over the last 2+ years, and this is what you will get:
Just imagine some tumbleweed blowing along gently in the wind.
People on the internet like to sound smart but push for some meat on the bones, and it soon becomes evident that they don’t know how to invest. Some are paid to spread non-profitable (mis)information, whilst others choose social media clout over family wealth.
Nuts!
This will only have one outcome — regret. We have no time for that.
In this article, I will show you how mind-boggling returns on your investment are achieved by learning to KISS.
Come on, let’s be honest. Being a good KISSer and making serious ROI has been at the top of your investing hitlist. Well, good news, I know how to do both, so let’s dive in…
A stock moves in only 3 ways:
- Up, which is a bullish trend.
- Down, which is a bearish trend.
- Sideways, which is a consolidation.
It will maintain any one of these three directions for weeks, months, or even years.
When a stock is either bullish or bearish, it is known as a trending asset.
This logic applies to commodities and forex pairs as well.
As investors, we:
- Go long in a bullish trend to make money.
- Go short in a bearish trend to make money.
- Stand aside and protect capital in a sideways market.
A slight digression…
Shorting to make money can be a foreign concept. How is making money from an asset dropping in value possible?
This is a topic for an upcoming article, and when I will break it down using a simple analogy.
For now, I ask you to accept that it is possible.
Let’s say Gold starts dropping from $2000 to $1900 to $1800 all the way to $1000, and you hit ‘SELL’ in your broker account; you will make money.
Hit ‘BUY’, and you will lose money.
Got it? Good.
Back to the main topic…
Bullish and bearish trends are the most profitable environments the financial markets offer. Period.
Amateurs, get-rich-quick schemers and the generally misinformed will try to convince you otherwise. You will do well to ignore them.
Trend followers have topped performance tables since the dawn of the financial market. Note where Richard Dennis comes in this table compared to Warren Buffett.
Yet all we ever hear about on our media channels is Warren Buffett and next to nothing about Richard Dennis. We could definitely get all conspiracy theory about this, but the reality is that the less you know about Richard Dennis, the better in the eyes of ‘the system’.
Not if I can help it.
Our job as investors is to identify if a stock is moving up, down or sideways and position ourselves accordingly to either profit or protect capital.
How do you identify the direction of a stock?
This is remarkably simple and where the beauty of technical analysis, a flashy term for using charts to make your investing decisions, shines bright.
First, a quick recap. I have mentioned above that:
- Trending assets are the most profitable environments
- And trends last months to years
So, I need the proper charting set up to identify:
- The start of a stock’s long-term trend to enter a position.
- The end of a stock’s long-term trend to exit a position.
Pro Tip: I typically hold a stock for 12 to 18 months before taking profit and/or rebalancing the portfolio.
To do this, I use a multi-timeframe setup, which looks as follows:
Let’s break it down:
- In the top left, I have the monthly timeframe.
- In the top right, I have the weekly timeframe.
- Across the bottom, I have the daily timeframe.
The magic word is alignment, which is when the three timeframes move in the same direction.
- If a stock’s monthly, weekly and daily timeframes are moving up, we have bullish alignment and consider long positions.
- If a stock’s monthly, weekly and daily timeframes are moving down, we have bearish alignment and consider short positions.
If there is a mixture of bullish and bearish factors across all three timeframes, we stand aside.
Remember, the daily moves faster than the weekly, which moves faster than the monthly, and so a stock can be moving in different directions on each timeframe.
Once aligned, expect trends to move quickly. If you are not prepared, you will watch opportunity after opportunity pass you by and why so many have underperforming or poorly performing portfolios.
At some point, you must get on top of this. With this information, that time is now.
To identify the direction of each timeframe, we use timeless indicators.
Timeless, meaning these indicators were used before us; they are used now and will continue to be used after we have gone. If it ain’t broke, don’t fix it, as the saying goes.
The goal is not to be right or to outsmart the market. There is only one outcome for that — You will lose.
The goal is to make money, lots of it, and safely. Greed never pays. However, failing to maximise profit from a trending stock means failure as an investor. You’re just not doing your job correctly.
So, what are these timeless indicators?
Let’s start with the weekly and daily timeframes.
In my previous article, I covered the 200 simple moving average (200sma) in detail. As a reminder:
- When a stock is trading above the daily and weekly 200sma, the bias is bullish, and we take long positions.
- When a stock is trading below the daily and weekly 200sma, the bias is bearish, and we take short positions.
- If a stock is above one and below the other, there is no bias, and we stand aside.
Simple and straightforward.
In the previous article, I also shared stocks I invested in that moved 80%+ using the 200sma as my guide.
Now, the monthly timeframe.
The indicator we use to tell us the trend direction of a stock is last year’s high and low:
- If a stock is above last year’s high, the trend direction is bullish, and we look for long opportunities.
- If a stock is below last year’s low, the trend direction is bearish, and we look for shorting opportunities.
- If a stock is trading between last year’s high and low, the stock is moving sideways, and we stand aside.
Again, simple and straightforward.
Let’s put that all together.
For a stock or asset to be in a confirmed bull trend and to consider long positions, it must be trading ABOVE:
- Last year’s high on the monthly timeframe
- The 200sma on the weekly timeframe
- The 200sma on the daily timeframe
Here is MSFT as an example at the time of writing (December 2023).
For a stock or asset to be in a confirmed bear trend and to consider short positions, it must be trading BELOW:
- Last year’s low on the monthly timeframe
- The 200sma on the weekly timeframe
- The 200sma on the daily timeframe
Here is Palladium, a commodity, as an example at the time of writing (December 2023).
In any other combination, we have an asset with no clear trend direction, and when we stand aside.
‘But what about the fundamentals, Zaheer?’ I hear you ask.
Institutions pay 10s of $1000s monthly to get news items early. By the time we, the retail investor, get the news, it is old and factored into the markets.
However, we need the institutions to provide the liquidity and create the trends.
Pro Tip: Wall Street is disconnected from The High Street. The stock market can and will rally despite the bleak picture our mainstream media likes to paint.
Here’s another approach and an altogether simpler one that does not involve burying yourself in mundane reports and figures:
If a stock meets the above criteria across all three timeframes and keeps pushing up over weeks and months, we can assume the fundamentals are healthy, and there is a demand for this stock.
Remember when Cristiano Ronaldo went to Saudi Arabia for a mind-boggling contract worth $200 million? It doesn’t matter what you thought; someone was willing to pay that money.
View a rising stock in the same way.
The goal is not to be right, which is where ego comes in; the goal is to make a profit, and where being an objective investor who does nothing more than follow the trend pays dividends.
Repeat this process over many years, and you will be rewarded exceptionally handsomely.
As I said at the start, if you want to be a good KISSer, I have your back. Now go show your partner.
Keep It Simple, Sweetheart.
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