Remember this one? The trend is your friend. Or how about this saying? A rising tide lifts all boats?

And when the trend turns against us? When the market plunges, run for an exit until you see blood in the streets (or hear the sound of cannon) and then it’s time to get back in on the cheap.

Yes, markets with strong trends are relatively easy to navigate.

But how about a market without a strong discernable trend to drive stock prices? One that seems at the mercy of news? And that has rallied far enough so that while it’s not especially expensive, it’s not especially cheap either?

What do you do as an investor then? I think that’s the kind of market we’re in right now; one without a strong trend in either direction, but that seems inclined—maybe–to drift higher in the absence of bad news.

You can go for broke, swing for the fences, double down… You can make a big directional bet on the market and hope that you’ve called it correctly. If you’re right in your call, you’ll make out like a bandit. Get the direction wrong with a big directional bet and you’ll feel like you’ve been robbed by a bandit.

Or you can play “small ball” and take what the market gives you as its search for direction creates temporary bargains in individual stocks that you’d like to own for a while. “Small ball” is time consuming. It takes a whole lot more effort to invest this way than to go decide to load up on gold or to short Chinese banks. But in a market that’s searching for direction “small ball” is the best way to make some money while limiting your exposure to getting the big picture wrong.

It has the added value that if, as I believe now, the trend of global stock markets will be a whole  lot clearer in six months than they are now, you will have preserved your capital diligently enough so that you can take advantage of an easier market.

Okay, a brief review of where we are both in terms of the technicals of the market and its macroeconomic underpinnings. And then on to my three “small ball” picks. Read more

And the winners among oil stocks from the Egyptian crisis are…

Interesting pattern in today’s big winners on the New York Stock Exchange: the list is dominated by the names of relatively small, predominantly domestic energy producers.

As of the end of trading in New York today you would have found these stocks among the big percentage winners: Oasis Petroleum (OAS) up 5.9%, Brigham Exploration (BEXP) up 3.4%, Ultra Petroleum (UPL) 4.6%, Swift Energy (SFY) up 3.22%, Chesapeake Energy (CHK) 8.1%, and Berry Petroleum (BRY) up 4.9%.

These energy companies don’t have a whole lot in common—some natural gas producers (Ultra Petroleum and Chesapeake Energy); some produce oil from oil shales (Oasis and Brigham); some work in traditional fields in California (Berry).

But they do have in common a lack of exposure not just to Egypt but also to the Middle East. They’re up as a bet that we’re seeing the beginning of a wave of instability in the region that will make oil from “safe” sources increasingly valuable.

I don’t think I’d chase these here—although I don’t think this trend is over or a flash-in-the-pan, I just don’t want to buy after 10% gains in just two days.

If you like the logic of these stocks, however, I’d suggest that you take a look at oil producers from Canada’s oil sands. Read more

Up/down, buy/sell, gloom/boom: It’s not easy to be a long-term investor

Take the long view

The stock market is fixated on the short-term, we all know that. It’s an unusual occasion when stock analysts and investors look more than a few quarters ahead. That means stock prices often tend to respond to short-term news as if it were the only news.

And that means investors with a long-term view of companies and economic trends can often buy likely long-term winners while they are temporarily depressed by short-term news. This kind of long-term thinking in a short-term market is one of the best ways I know of for the average investor to beat the stock market indexes.

In pursuing that kind of strategy, however, too much caution is actually a bad thing. Let me explain—and give you some examples of stocks and sectors where taking the long view will pay off. Read more

Natural gas pains: What’s a value investor to buy?

Some company will eventually make a killing from today’s collapse in natural gas prices.

But when? And which company?

Value investors usually only need to identify a bargain and then hang on until the rest of the stock market catches up with their thinking. But the plunge in natural gas prices has been so severe and could last so long that some of the companies with the best natural gas assets may not survive the shakeout.

Balance sheets are at this moment more important than geology.

Prices are the beginning of the problem. Benchmark Henry Hub natural gas for September delivery closed at $3.163 per million BTUs (British thermal units) on August 17,

That’s a 44% decline in price since the beginning of 2009 and the lowest price since September 2002.

And traders fear that this isn’t the end of the worst. Read more