The tennis ball theory of investing
Normally I write about Corporate Social Responsibility. But the pandemonium in stock markets across the world as I write about the future of CSR, has forced me to declare the secret of investing. I shall show you both how not to lose and how to make money through investing. Now, if you got this far, you probably think I am going to try and sell you something. No, I am not! Do read on and/or look at a 7min interview.
Part of my own personal social responsibility is to give you some free advice so that when you do gain you can use gains to invest in anything that would make the world a better place. I am just going to write down my theory which I have used all my life and also one that I suggest to my friends and relations around the world. Have I been successful? Yes, although worrying about my personal investments and the stock markets is not, and has never been, my main interest.
You see one of the biggest problems with investment analysts, TV broadcasters such as Quest and that shouty fellow on MSNBC who is ridiculous is that they simply reproduce past trends and assume that trends will continue into the future. Oh yes, they’ll add in a few remarks about market fundamentals and company credentials etc. As long as markets act in a straight line trend they are fine. But what we all know is that markets suddenly crash and the straight line is no more. What we get is a parabolic curve..in fact very much like the trajectory of a tennis ball.
Hence the tennis ball theory of investing. Like a tennis ball what goes up, eventually comes down. Happily it then bounces back up again, but not always to where it was before. The same thing with stock markets. What goes up, comes down. Now, of course, the big problem is to know the ‘turning point’ i.e. when will the market go down and when will it rise again? I am not talking about day to day fluctuations, but about major falls and major rises. Did you ever hear investment analysts talking about turning points? Rarely!
So how can you spot a turning point? Well not easy. We know that simply throwing darts at a list of stocks is at least as successful as all investment analysts on average. And, yes purely randomly some investment analysts are going to be correct but you cant know which ones apriori! Of any one million investment analysts there may be as many as 10,000 who are correct i.e. one per cent! But are they correct consistently? No, the probabilities are against them. One per cent of one percent, if there are a million will give you 100..maybe one of their names might be Warren Buffet..he does good analysis and does think out of the box. But no need to pay him anything just think of a tennis ball!
Anyway, back to turning points and how to spot them. Normally these are obvious. When the price of oil goes up to, what was it $US147 a barrel and you know the swing producer Saudia Arabia cost of production is less than $7…something has got to happen. At $147 a barrel, massive investments take place even for the hardest to reach minerals…gradually creating a huge surplus of oil followed by a crash (in parenthesis all that talk about Peak Oil and finite resources was laughable…there will always be resources when the price goes up…no the earth is not finite!). When the Dow Jones hit 12,000 I was worried..when it went up to 20,000 heck I am out! When the dollar went down to 80 centimes per one Swiss France, heck I am buying dollars..they are around 95 centimes today…about a 20% gain in a year.
So like a tennis ball, what goes up comes down. Happily it goes up again. Maybe tennis balls are more predictable than stock markets or commodity prices but frankly if Murray serves to me I dont know where it will drop nor when it will go up again (OK we are talking nano-seconds here), but the ball does come down and it does go up again.
So my tennis ball theory advice today (Aug 26 2015)? Looks like oil at below $US40 a barrel is a good time to buy. Yes it may go down to $US20…then mass consumption will bring it up again. Like a tennis ball. Of course no-one can predict exactly when are the turning points we just know that sometimes they are obvious to pick — house prices in the USA anyone? The turning points will come just like a bouncing tennis ball. Please listen and invest accordingly. This free advice will save you money and as it will, please don’t forget to invest in socially responsible projects since even if they crash you will have the benefit of helping someone!
[first appeared https://www.linkedin.com/pulse/tennis-ball-theory-investing-dr-michael-hopkins?trk=prof-post ]
