As we enter a new year in 2014, I feel its important that I come clean with you about my bad calls in 2013.
Most of the “experts” who make market predictions prefer not to look back and examine their calls. After all, the best way to forget a wrong prediction is to pretend it never existed.
I make it a habit to regularly re-visit my old calls and be totally honest with you as much as I can. I believe I owe it to you as a reader who follows my updates. This way we can all learn from past mistakes.
The worst type of trader or “expert” are NOT those who get it wrong. It is those who get it wrong and instead of owning up to it, they try and justify to people why they are still correct!
Those experts are not being fair to the thousands of people who follow their advice – and worst of all, they are no better than the irrational 95% of people out there who always lose money.
As traders we need to constantly remember that markets are always changing and evolving – as they respond to new information, data and sentiment. Therefore, the market of today is NOT the same market of 30 days ago.
So here are my dumbest investment ideas of 2013:
While I remained bullish on stocks for most of 2013, I underestimated the bullishness (or strength) of this market.
So last year the market completely ignored my April warning for stocks (based on seasonal selling cycles) and also shrugged off the “Sell in May and go away” call of the Wall Street Journal.
This chart shows when stocks finally decided to take a pause:
The market did not sell off until June. However, as it happens, the June decline was not the particularly significant correction that I and almost everyone else anticipated. I expected the market to “test” the 200 moving average, a technical level which has not been tested since November 2012. This did not materialise.
Stocks also did not display their normal “Halloween effect” in 2013. This is a usually predictable pattern where stocks decline in October to November and then rally from November to Christmas.
However, in 2013 the bulls pushed stocks higher from mid-October in what we have now called the “Champagne cork rally”.
One important thing we did get right about stocks in 2013, is that pullbacks were buy opportunities and that the dreaded “Fed taper” in December did NOT result in the doomsday scenario that everybody was expecting. The market was already expecting the Fed to taper (cut bond purchases) and the actual taper itself was a joke (not significant enough).
Gold and Gold Stocks
2013 has been called an “extraordinary year” for Gold.
In April 2013, after Gold plunged by 17% in 3 weeks, I stubbornly refused to accept that gold was now in a “downtrend”.
Millionaire Gold investor John Doody said the April crash was due to an “illegal act”. I saw gold’s decline in April as no more than a retracement of its previous bullish upward trend, and I was looking for a continuation higher. See this chart:
Now I’m ready to accept that my refusal to accept that gold’s trend had changed in April was due to my own inner bias towards higher gold prices.
In May however, after gold closed below its monthly 50 moving average (blue line), I had no choice but to change my mind. This was a decisive break of its 2008-2011 upward trend.
It wasn’t all bad
One thing we did get right in April though was that Gold mining stocks were in serious trouble. It would be hard for most gold miners to remain profitable with gold prices below $1500. Since April the average gold stock has dropped by 40%.
Also we did pretty well in shorting bonds from May (in profit by 15%). We were right in buying steel stocks when they were most hated – AKS is up 132%. And our stock pick 3D Systems (DDD) which was recommended in December’s trading webinar is up 31%.
Going forward I am looking once again with keen interest at buying stocks and markets that are hated by the masses. So gold and emerging market stocks like Russsia, Singapore, China and Brazil are worth being patient for.
If you feel I missed out anything here in this post then feel free to leave a comment below.
Alessio Rastani is a stock market trader at www.leadingtrader.com