Stock market

How to Invest Like George Soros

George Soros is a trading legend. And, he is an investment legend because he achieved amazing results.

Over more than 40 years, George Soros delivered an average annual return of about 20% to the investors in his hedge fund. At that rate of return, a $10,000 investment when the fund was started in 1969 would have grown to more than $20 million when Soros closed the fund in 2011.

George Soros

Source: Harald Dettenborn Wikimedia Commons

The most famous story of Soros’ success might be the day that he broke the Bank of England and reaped a one day profit of more than $1 billion. Trades like that have led many individual investors to believe that Soros traded markets they cannot or choose not to access.

However, Soros started his career as a stock market analyst and wrote about his stock market investments in his 1987 book The Alchemy of Finance. In the book, he noted that his stock selection was responsible for most of the returns in his hedge fund.

A Roadmap To Success

The book is a kind of diary of the fund’s progress over a period of about a year. During that time, the value of the fund more than doubled.

In addition to recording his thoughts on the market, Soros shared details of his investment philosophy in The Alchemy of Finance. He wrote, “Most of what I know is in the book…I have not kept anything deliberately hidden.”  This makes the book a must read for serious investors.

Among his important insights into investing is the idea that the thought processes of investors are often just as important to the movements of economies and markets as more “objective” factors such as interest rates and measures of economic growth.

This led him to the conclusion, according to The Telegraph, Soros believes that “anyone who tries to predict the markets by assuming that they behave rationally is doomed to failure.

He said his concepts “provided me with a new way of looking at financial markets, a better way than the prevailing theory. This gave me an edge, first as a securities analyst and then as a hedge fund manager.”

This indicates that sentiment indicators can be as important to understand as fundamentals. “Many investors make a distinction between market sentiment and business “fundamentals”, implying that anyone who can ignore the former and concentrate on the latter is likely to make better returns.

But Soros pointed out that there were two problems with this attitude. First, anyone’s knowledge of the “fundamentals” of today’s highly complex markets is bound to be incomplete. But, Soros realized that investor sentiment didn’t affect just share prices, it could actually change economic fundamentals.”

Economics Confirms the Theory

Economists label this idea the wealth effect, which is the concept that change in spending that accompanies a change in perceived wealth. Usually the wealth effect is positive: spending changes in the same direction as perceived wealth. The wealth effect can be significant and is seen around the world.

wealth effect

Source: Federal Reserve

From Soros’ perspective, this means that “Every bubble has two components: an underlying trend that prevails in reality and a misconception relating to that trend. A boom-bust process is set in motion when a trend and a misconception positively reinforce each other.”

He said the simplest example was a property boom. Here, the trend is the availability of cheap credit; the misconception is that property is worth more for other reasons and not just because more people are able to buy. That is confirmed by the Fed data shown above.

News Can Create Opportunities

Although his theory is important, Soros will always be best known for his bet against the Bank of England in 1992 in the run-up to Britain’s eviction from the European Exchange Rate Mechanism, the precursor of the euro. This was his billion dollar day.

The Exchange Rate Mechanism was meant to keep European Union (EU) currencies in rough alignment until the euro was introduced. This meant that when, for example, the French franc rose against the dollar, the Bank of England tried to ensure that the pound did too.

Soros believed that this was an unstable situation and he believed that based on the fundamentals the pound was becoming overvalued. That hurt British exporter and was unsustainable in the long run as political pressure would mount along with exporters’ pain.

Another problem was that interest rates needed to be increased to maintain the artificially inflated value of the pound. That slow hurt the economy and added political pressure to the central bank and other policy makers.

Soros understood that at some point the pain would be too much for the government and Bank of England would be forced to devalue the pound. This insight led him to take a short position in the pound that would benefit from the decline when it occurred.

On a day that would become known as “Black Wednesday,” Soros’ bet paid off. The Bank of England cut interest rates, the value of the pound fell sharply and Soros collected his profit.

British Pound weekly chart

Since that time, he has made other big bets in currency markets and captured large gains in trades on the Japanese yen and in other markets.

This is, of course, different from buy and hold investing. Soros looks for quick gains and the chance to find additional quick gains. He takes profits and prepares for the next trade rather than holding to achieve a long term gain for tax reasons or other purposes.

Individuals could apply this philosophy to the stock market. They know that large moves can follow earnings announcements and identifying extremes in sentiment could provide opportunities to benefit from reactions after earnings are released.

Exchange traded funds also allow individuals to access currency markets and commodities without accepting the risks of futures contracts. That could make it possible to benefit from moves in oil or gold as Soros has in the past.

In fact, Soros did use the SPDR Gold ETF (NYSE:GLD) for a recent trade in that market. The key is to look for sentiment and then identify the trade. That could help investors enjoy profits like Soros.

His recent holdings indicate a bearish outlook for the broad stock market but a favorable view of broadcasters.

recent holdings chart


Individuals could consider put options. Like Soros, or they could consider specific stocks or sectors he finds attractive. History does say that Soros is likely to be profitable in the long run.

Stock market

A 5G Investment Hidden in Plain Sight

Fifth generation, or 5G, wireless systems are set to change the way cell phones connect to the world. The truth is that many investors will attempt to benefit from 5G by finding the best technology providers.

5g is a step in an evolutionary process that began decades ago.

wireless communication timeline


5G is expected to help facilitate the increasing proliferation of the “internet of things” (IoT) and more advanced machine-to-machine technologies. It will bring an exponential increase in data speeds that will change how people interact with the internet.

For example, download time for an HD movie could go from an hour to a few seconds. 5G can also power up remote surgery, and some say truly autonomous vehicles aren’t possible without it.

They may overlook an income strategy that will benefit from 5G. The National Association of Real Estate Investment Trusts (NAREIT) explains, “as with previous “Gs,” tower and data center REITs will play a vital role globally in enabling this new generation of technology to get to the market efficiently.”

5G is a significant evolution from wireless capabilities that are currently available. It isn’t a single technological innovation, but rather a series of advances in communication. These changes mean that speeds could be 10 times faster than the speeds attained with 4G systems.

That means it will be possible to connect everything to everything.

6G details


The problem for technology investors is that “the benefits of 5G,” Dan Schlanger, senior vice president and CFO at Crown Castle International Corp. (NYSE: CCI) notes, “are still not 100 percent clear. However, he expects to see developers come in and utilize the technology in ways that have never been dreamed before—much like Uber and Waze have done with 4G.

One thing that is certain is that cellular providers will need more towers. CCI has prepared for the rollout of 5G for close to a decade, beginning with owning 4,000 towers and expanding into 60,000 small cells, with 60,000 miles of metro fiber throughout the top metro markets in the United States.

CCI weekly chart

“We are very well positioned for what 5G will become,” Schlanger says. “The way we define it is [as] really ubiquitous, high-speed, low-latency coverage to allow people to access their data wherever they are and however they want it.”

Jim Poole, vice president of business development at Equinix, Inc. (Nasdaq: EQIX), says this is where the data center REITs come into the picture.

EQIX weekly chart“We deliver interconnection to companies, which is the private data exchange between businesses,” Poole says. “It is the fastest, most secure, lowest-latency connectivity there is, and will be a critical part of the 5G revolution.”

Equinix’s global interconnection platform allows companies to access their clouds, networks, data, and partners directly, so they can connect to whatever they need, wherever they need it, he adds.

Evan Serton, senior vice president and portfolio specialist at Cohen & Steers, says one should consider the wireless network as a toll road: 5G will have significantly larger lanes for wireless traffic and dramatically higher speed limits than the current 4G technology.

New 5G capabilities can be used by service providers to extend their reach for their enterprise mobile customers. In turn, enterprises can harness wireless-based technologies such as the IoT to provide new services to mobile users. 

This technology comes with technology challenges as Forbes explained,

“5G brings a suite of new technologies, and among the most popular contenders are small cells, millimeter waves, massive multiple-input multiple-output (MIMO), beamforming and full duplex.

Essentially small cells are miniature cellphone towers that can be placed in inconspicuous places such as light poles and the roofs of buildings. They don’t require as much power as full-sized towers, and perform better when clustered together.

For investors, Connected Real Estate’s Rich Berliner says, “Delivery of 5G service will require wireless carriers to invest in more cell towers, as well as in small cell and fiber networks to broadcast 5G signals into specific areas. Implementation of 5G should be a massive home run for cell tower REITs and is expected to buoy revenue growth for the better part of the next decade. Companies with a specific focus on small cells may benefit the most.”

American Tower told Bloomberg “(that) ‘single tenant’ towers have gross margins of 40% from rentals… two tenants have 74% margins…three tenants have 83% margins.

As with anything, tower REITs will need to diversify and grow in any areas they can, possibly on an international scale. American Tower is looking into that aspect, as Crown Castle International is focusing on building up on U.S. soil, before 5G comes to fruition.”

Clients implementing public wireless internet connections may prefer 5G, with speed gains, cost reductions and ease of deployment—leaving behind big fiber-optic cable providers such as Uniti Group (UNIT) and Zayo Group Holdings (ZAYO).”

Forbes recommends considering American Tower (NYSE: AMT), “which was founded in 1995, is the fastest-growing player in telecommunications infrastructure. Its global portfolio includes more than 160,000 tower sites (40,000 U.S.) in various stages of wireless network deployment.

AMT weekly chart

The $61 billion market cap company had first quarter 2018 consolidated adjusted funds from operations (AFFO) of $807 million, up 11.9% from first quarter 2017. American Tower has paid and increased dividends each quarter since 2012, has a current yield of 2.2% and a 43% payout ratio.

Recently, AMT tried to prevent contractors from constructing new towers within a half mile of existing tower sites, FierceWireless’ Mike Dano reports, but suspended the effort after opposition from industry players including AT&T and Verizon.

Dano says it’s due “to increasing competition in the cell tower industry…hoping to cash in on the wireless industry’s collective move to 5G…and increased network densification.”

CCI is another possible investment in the sector as is Landmark Infrastructure Partners LP (Nasdaq: LMRK), which has a current yield of about 9% and leases assets to companies in wireless communication (70% of revenue), outdoor advertising (20%), and renewable power generation. This could provide diversification along with income.

5G will change many things but the technology will create winners and losers. Income investors may want to consider the companies that provide the towers to benefit from the technology while waiting for the winners to become clear.

Passive Income

This Asset Class Could Provide Double Digit Passive Income

Every saver has come to understand the problem of low interest rates. Interest rates available on safe investments could be lower than the rate of inflation. This leads to a loss in buying power. This also leads many investors to chase yields by accepting more risk.

There is a tradeoff between risk and reward. Higher rewards will invariably carry more risks than investment options with less risk. But, there are ways to reduce risk.

Hard Money Lending Could Balance Risks With Rewards

Hard money loans are a specific type of real estate loan. These loans are always backed by assets, which means that the property serves as sole collateral for the loan. In many underwriting processes, the value of the property will be the most important factor in approving the loan.

In hard money lending, a lender can overlook some of the concerns with a borrower’s credit history or the state of the local real estate market because they have a process in place to take control of the property if that proves to be necessary.

Although these are real estate loans, they are not like mortgages. The goal of a hard money lender is to provide access to short term capital. The focus on the short term reduces risk since real estate trends are fairly steady in the short run.

These loans also carry relatively high interest rates. This is possible because the borrower is frequently focused on a highly leveraged deal and is targeting large returns. The interest paid on a hard money loan is just one small cost of the transaction.

Although the loan would be just one part of the transaction, it is possible that without the loan there would not be any type of transaction. That makes the loan worth a great deal to the borrow.

Rather than address the theory of the process, an example could be the best way to explain this type of investment.

An Example of the Rewards and Risks of Hard Money Lending

Consider an individual with above average home maintenance skills. The individual might have worked with a builder in the past but been laid off in the slowdown of the housing cycle.

This individual is shopping for a home that has been foreclosed. The home may have been worth $220,000 when the bank foreclosed. But, after several months, the bank is willing to accept an offer of $140,000.

Please remember that we are not addressing the buying or selling of real estate and are not suggesting that this type of deal is available on any particular property. We are using numbers to demonstrate the potential value of hard money lending.

This home has sat vacant and in need of some repairs. It could also use upgrades including new paint and a finished basement. The investor is capable of completing the work without the need to hire a contractor at a cost of $25,000. The home should be ready for resale in three months.

When the work is completed, the home should sell for $250,000. But, the investor has only $20,000 and banks will not lend on the property because it is not going to be owner occupied.

A local hard money lender is able to provide a loan that funds the purchase of the bank and the repairs. The total cost would be $165,000 ($140,000 to buy the home and $25,000 for repairs). The lender provides $145,000 and the buyer invests $20,000.

This loan would be for one year. The borrower would pay a 2% funding fee ($2,900) and 10% interest ($14,500). The lender receives a first mortgage on the loan which could be sold, as is, for $220,000. Paperwork is completed by local title companies.

This means the lender is protected unless the home value falls below $145,000, a 35% decline which is only seen in market crashes. The borrower is willing to pay the high rate because they stand to make much more when the work is done.

In this example, the borrower, the lender and the individual investors who fund the loans are able to profit.

Trading Hard Money Lenders

Business Development companies (BDCs) may be either be private or public finance companies that make hard money loans. These private hard money lenders typically operate within a single state and usually are focused on a specific industry, the most common of which is mortgage lending.

Borrowers typically use hard money loans when it is important to get a loan origination quickly, or when they can’t, or won’t, provide supporting documentation to obtain a lower-cost loan. These borrowers also often have ongoing relationships with BDCs, so that they can obtain fast financing when needed.

A BDC or hard money lender can typically move a loan request through to closing, before a bank-originated loan has even completed its first step of financing, or processing.

The increased interest-carrying costs are simply the cost of business for these borrowers, who find it is worth it to secure a rapid loan closing.

The publicly traded BDCs, with loan portfolios largely collateralized by real estate or other hard assets, include Hercules Capital (NYSE: HTGC) with a yield of 9.5%.

HTGC daily chart

Monroe Capital (Nasdaq: MRCC) offers a yield of about 11.4%.

MRCC daily chart

Garrison Capital (Nasdaq: GARS) provided a yield of more than 12.5% at the recent price.

GARS daily chart

Local Lenders Are in This Business

In almost every local community, there are individuals funding real estate purchases like this. The fix and flip model of real estate investing has existed for decades and will continue to serve an important role in the market. That means financing opportunities will continue to be available.

Investors like these deals because interest rates for hard money loans are typically 9.75% to 15% and origination fees can be 2% to 3%.

Low LTV rates provide security to the lender. Hard money LTV (loan-to-value) rates are typically 50% to 65%, but they can be based on the purchase price or the after-repairs appraisal value, usually whichever is higher, rather than being forced to go with the lower of the two as bank lenders are.

Borrowers typically put some money down, another factor that reduces the risk of the lender since they then face a real loss if they fail to achieve their goals.

Borrowers like these deals because the underwriting process is considerably faster than a typical mortgage. The costs are also lower than a typical mortgage.

Most hard money loans have interest-only payments during the term of the loan with the principal due at the end of the loan, but in some situations, it is possible to have money to cover the monthly interest payments included in the original loan amount.

These are short-term loans, often used to bridge between other financing options, so the typical term is between six months and two years.

Because hard money lending is an integral part of the real estate market, lenders and borrowers tend to know each other in local real estate markets. This means it is relatively easy for new investors to put cash to work in these markets.

It is possible for a new investor to find deals on their own and lend directly to real estate buyers. Or, it is almost always possible to find existing lenders and work with them to fund individual projects. Some large lenders also provide pooled investments with high yields.

Perhaps the best way to get started is to complete a web search for lenders in your area and contact them to begin earning passive income.

Stock market strategies

An Active Strategy For Inactive Traders

Many traders would like to trade more actively but they may lack the time. There are some strategies that require just a few minutes a week to trade, including this one that trades based on broad market trends.

Traders might often focus on stocks because they know individual stocks can make volatile moves. The same is true for the market in general and for sectors and industries. In general, sectors are broad groups and industries are more specific collections of companies.

As an example, Walmart is in the food and staples industry and in the hypermarkets and super center industry according to some classifications. Other classifications are possible, depending on the data provider.

That fact highlights an important point. When building a sector strategy, it is not necessary to focus on precise definitions. It is important to find a data source and to use that data source consistently and with discipline.

Defining Sector Rotation Strategies

Sector rotation strategies are based on the idea that traders rotate from one group. Some theories contend this is a natural part of the business cycle and the sector with the strongest performance is tied to where the economy is in the business cycle.

The business cycle is the expansion and contraction of the economy. It is measured with data like the GDP report and the employment report and other economic data series offer insights into where we are in the cycle.

But, the economic cycle is impossible to measure in real time. GDP data, for example, is released once a quarter and is frequently revised. In fact, economists expect the data to be revised.

The economic cycle is also an imprecise construct. In math or in physics, a cycle is strictly defined by tome and once the down trend of the cycle begins, that trend continues until its scheduled conclusion. In the economic cycle, there is no definite time between tops and bottoms.

There is also no defined magnitude of the size of peaks and troughs. And, it is not predetermined. The cycle can start and stop and behave in unexpected and unpredictable ways.

Despite its approximate nature, the business cycle is still useful for traders. The fact is that some sectors or industries do better at different times. And, the leadership in the market varies from sector to sector. This gives rise to the sector rotation strategy.

The chart below is typical of the ones used to define the strategy. It shows a business cycle and imposes an expected pattern of which sectors will do best in each part of the cycle.

business cycle chart


The next chart presents the same type of information in a different and perhaps more understandable style.

business cycle chart


What’s important is the idea that different sectors lead at different times and traders could potentially benefit that.

Dynamic Markets Require a Dynamic Strategy

The charts above give the impression that there will be a time when traders should sell health care, for example, and but consumer staples. When consumer staples are sold, the investor would rotate into utilities.

This is, of course, a theory. In practice, the market does not behave so predictably. That means many traders have developed dynamic strategies to decide when to rotate between sectors. We will build out a simple example of a strategy.

While there are a number if data sources that a trader could use, we will look to, a free site that has a screening tool that could be used to trade this strategy. The rules for the strategy are shown in the next chart and we will explain the concepts in the next section.

Finviz chart


Specific Strategy Rules

We have elected to consider only exchange traded funds (ETFs). An ETF holds dozens or hundreds of individual stocks. That reduces the volatility of the holdings. A trader could also use individual stocks instead but that would lead to higher expected volatility.

Volatility in general terms is the size of the expected price swings. Higher volatility could mean larger potential rewards and higher potential risks. Each trader should consider their risk tolerance in deciding exactly how much volatility they are willing to accept.

Next, we required minimum trading volume of 1 million shares. That is a liquidity filter to make it easy to trade. By requiring a relatively large amount of volume, we are doing all we can ensure that we can trade at a reasonable cost under any market conditions.

We then get to the heart of the rules. We require the ETFs to be up in the last six months and we require the closing price to be above the 200 day moving average. Then, we look for short term pull backs within that up trend, using RSI below 40 to identify that.

This is our complete set of rules that will determine which ETFs to trade.

Recently 5 ETFs passed this screen. Their ticker symbols are shown in the next figure.

stock picks


These ETFs could be bought. Remember, this is just one approach and we are searching for the best performers. You could tailor this to your risk preference.

Now, the decision on when to sell must be considered. One approach is simply to run this screen once a month. If an ETF is no longer among the top five, it could be sold and replaced with the top performing ETFs that are not currently in the portfolio.

There is no reason that one month holding periods need to be used. Research completed in the academic community has shown that this approach could be successful with any time period from about one month to one year. Rerunning the screen every three months is an approach that could be considered.

This is a relatively simple sector rotation strategy and there are a number of ways that it could be refined. However, all will have risks since the top performing ETFs in a bull market can, and often do, reverse sharply. This means volatility will still be high, even with ETFs.

However, in the long run, strategies like this one that are based on momentum have been shown to beat the market. That means this could be a useful strategy in a retirement account which has a long term outlook. Sector rotation could be a valuable addition to long term, and even short term traders.

Stock Picks

Emerging Markets Could Be Leading Global Markets

Emerging markets, as a group, remain more than 20% below their recent peak. A decline of 20% is the commonly accepted definition of a bear market. And, now, by that measure emerging markets are in bear market mode.

To measure emerging markets as a group, traders can turn to the iShares MSCI Emerging Markets ETF (NYSE: EEM). The chart of EEM is shown below.

EEM weekly chart

After a 21% rally earlier this year that sparked hopes of a new bull market, the down turn has resumed.

Before digging into what the drop means, it could be helpful to define the terms. An emerging market is a country that has some characteristics of a developed market but does not satisfy standards to be termed a developed market.

This includes countries that may become developed markets in the future or were in the past. The economies of China and India are considered to be the largest emerging markets.

Emerging markets fit between developed markets and “frontier markets,” a term used to describe developing countries with slower economies than those that are considered to be emerging. This can all be confusing, so economists have tried to refine the definition.

Some definitions require an emerging economy to display the following characteristics:

  • Intermediate income: its PPP per capita income is comprised between 10% and 75% of the average EU per capita income.
  • Catching-up growth: during at least the last decade, it has experienced a brisk economic growth that has narrowed the income gap with advanced economies.
  • Institutional transformations and economic opening: during the same period, it has undertaken profound institutional transformations which contributed to integrate it more deeply into the world economy. Hence, emerging economies appears to be a by-product of the current globalization.

But that definition, more than 50 countries, representing 60% of the world’s population and 45% of its GDP, are emerging. The ten largest Ems are, in alphabetical order, Argentina, Brazil, China, India, Indonesia, Mexico, Poland, South Africa, South Korea and Turkey.

Turmoil Is Spread Around the World

Often when emerging markets make a large price move, there is one region that stands out. That’s not the case right now. Problems in Turkey, Argentina and South Africa are ongoing and potentially serious.

iShares MSCI Turkey ETF (NYSE: TUR) is still more than 55% below its 2017 high.

TUR weekly chart

Turkey is in the midst of a little noticed financial crisis. As reports, “The two main actors in the economic crisis gripping Turkey are the central bank, which runs the state’s monetary policies, and the Treasury, which is in charge of fiscal policies.

The central bank is ostensibly independent, while the Treasury is attached to Treasury and Finance Minister Berat Albayrak, who is also President Recep Tayyip Erdogan’s son-in-law.

Those who follow how things work on the ground are well aware that the central bank does not act independently and is subject to direct and indirect government meddling. The bank has long felt compelled to seek Erdogan’s blessing in its interest rate decisions.

Recently, it has come under pressure to let the Treasury use its resources and — again, at Albayrak’s behest — do something it should never do, namely directly or indirectly intervene in the foreign exchange market.

The bank’s role in foreign currency sales by Treasury-controlled public banks, aimed at curbing the slump of the Turkish lira, is a case in point.

The central bank’s transfer of funds to the Treasury is even more intriguing. Such transfers are not something new — in fact, they are required by law, given that the bank is ultimately a state-owned company that transfers part of its profits to the Treasury.

 This year, however, the transfer that was due in April was brought forward to January via a legal amendment ahead of the March 31 local polls. As a result, the Treasury — saddled with major deficits due to the government’s preelection populism — was able to get early some 34 billion liras ($5.6 billion) instead of borrowing on high interest rates.

The Treasury has now reportedly set an eye on the central bank’s legal reserves, which represent 20% of its profits and a sum the bank sets aside by law to use in extraordinary circumstances.

There are legal obstructions to the move, but given the government’s record on respect for the law, many are convinced it would not be discouraged by legal hurdles. Its only reservation seems to be that such a blood transfusion would lay bare the Treasury’s desperate situation for all to see, including the foreign money markets.”

There is a more traditional crisis in Argentina. Global X FTSE Argentina 20 ETF (NYSE: ARGT) is about 25% below its 2017 highs.

ARGT weekly chart

Here, the IMF is trying to bail out the country and the Financial Times notes, “When the IMF completed its third review of Argentina’s economy in early April, managing director Christine Lagarde boasted that the government policies linked to the country’s record $56bn bailout from the fund were “bearing fruit”. 

Less than a month later, amid darkening political prospects for incumbent president Mauricio Macri, the country’s currency crisis reignited and bond yields spiked, threatening not only the IMF’s Argentina programme but its reputation and that of its leader.”

iShares MSCI South Africa Index ETF (NYSE: EZA) is almost 30% below its 2017 highs as populist policies in that country threaten economic growth.

EZA weekly chart

These three countries show that this crisis is different than other crises in the past. For example, in 2008, there was a common problem in emerging markets and developed economies as a credit crisis threatened the financial system.

That’s not the case this time and that indicates there could be different factors to consider when trading.

Safety Could Become Important

Traders are generally thinking about the possible returns on their capital. In other words, they are seeking opportunities to earn rewards of perhaps 10% a year on their investment accounts. In times of crisis, they often start to consider the importance of return of their capital.

When crises and bear markets hit, traders become increasingly concerned about losses of capital. They can react by putting their capital into investment opportunities that appear to be the safest. This explains why Treasury securities often rise in price when the stock market crashes.

In the current market environment, the crises are geographically diversified. Few stock markets around the world are in decisive bull markets with major stock market indexes at or near new all time highs. One market trading near new highs is the US stock market.

That means the US could offer safety to traders and markets in the country could benefit from a flight to safety trade. This could benefit large cap US stocks, the ones included in the S&P 500 index, for example, and US Treasury securities.

Treasuries could be beneficiaries of increased cash flow since they offer safety and the Federal Reserve is one of the few central banks in the world raising rates. That could make the market attractive to overseas investors.

In fact, that is what happened in the previous two emerging market bears. This is the third time EEM has fallen by at least 20% in the past ten years. Neither of the previous bears resulted in a bear market for US stocks.

In 2011, the S&P 500 Index fell 17.8% during the emerging market bear market. In hindsight, that was a buying opportunity for US investors.

The next emerging market bear developed in 2014. That time, the S&P 500 fell less than 7%. US stocks then rallied 12% before selling off by 12% as the emerging market continued for 16 months.

This time is probably the same as the other two times. US stocks could pull back but a bear market in the US won’t start until the US economy contracts. For now, there’s no sign of that.

Stock market strategies

Finding Winning Stocks With the Most Potential

Many investors study the past to find potential winners in the future. The idea is that stocks that did well in the past have attributes that can be used to spot potential winners in the future. This idea will not be foolproof, but it can be useful to consider the past.

A recent article at prepared a study on this question. “The companies chosen for the study were based on companies in “The Greatest Stock Market Winners: 1970-1983,” published by William O’Neil & Co.

 To be considered a great winner, a company typically had to at least double in value within a calendar year, although there were a few exceptions to this guideline, and not all companies that doubled in value were selected.

On average, the 222 winners increased in value by 349%. While this average was buoyed by a few winners with astronomical increases, more than half the firms increased in value by at least 237%.

Historical fundamental and technical information on these firms was taken from the Datagraph books (also published by William O’Neil & Co. and sold primarily to institutional investors).

The results of this study are summarized in the table below.

stock market winners


The first group of indicators, the smart money variables, do not seem to be useful in predicting major stock market moves.

Next, the study looked at five different valuation variables.

Among the 222 winners, 164 were selling for less than book value in the quarter in which the buy occurred.

The median price-to-book-value ratio was 0.60, while the average ratio was 0.95. (The median is the exact midpoint, where half of all ratios fall above and half fall below; it is used because it is less influenced by extreme values.)

While a price-to-book-value ratio of less than 1.00 may not be a perfect indicator of a stock market winner, it does seem to be a common characteristic. This suggests an investment strategy that isolates firms selling below book value.

Only one out of every 10 of these firms had price-earnings ratios of less than 5.0 in the buy quarter. This indicates that very low price-earnings ratios are not a necessary ingredient of a successful investment strategy.

The results also indicated that the winners are not characterized by either low stock prices or small stock market capitalizations (number of shares times price per share).

This suggests that small size, whether measured by share price or stock market capitalization, is not a necessary component of a successful investment strategy.

The betas of the stock market winners were examined to see if their extraordinary rates of return might be compensation for riskiness. While the firms as a group were slightly riskier than the market as a whole, the additional stock market risk cannot account for the extraordinary returns of these winners.

 The technical indicator measured among the stock winners was relative strength.

The relative strength of a stock is the average of quarterly price changes during the previous year, but giving more weight (40%) to the most recent quarter and less weight (20% each) to the three other quarters; these average changes are then ranked among all stocks, ranging from 1 (lowest) to 99 (highest).

Among the winners, the median rank in the buy quarter was 93; fully 212 of the 222 firms possessed relative strength rankings of greater than 70.

In addition, the relative strength rankings for 170 of the 222 winners increased between the quarter prior to the buy and the quarter during which the stock was purchased.

These findings show that investors should seek out firms with high relative strength rankings; and second, investors should try to identify firms that exhibit a positive change in their ranking from the prior quarter.

Several measures of earnings and profitability among the stock market winners were examined.

The average pretax profit margin in the buy quarter was 12.7%. In the quarter prior to the buy, the profit margin was slightly smaller, while by the sell quarter, the average profit margin had increased to 14.5%.

The nearly 2% increase in the pretax profit margins may have contributed to the significant price appreciation of these firms. Fully 216 of the 222 winners had positive pretax margins in the buy quarter and 215 had positive pretax margins in the quarter prior to the purchase.

This evidence clearly indicates that a high, positive pretax profit margin should be one of the selection screens in an investment strategy.

On average, quarterly earnings in the buy quarter rose nearly 45.9% from the previous quarter; these were not seasonally adjusted, and they represent changes in the raw accounting earnings.

Interestingly, quarterly earnings in the quarter prior to the buy increased an average of 60.8%, while in the quarter prior to that they increased an average of 50.4%—in other words, there was an acceleration in quarterly earnings.

Another investment rule suggested by the winners is to seek out firms with a positive change in quarterly earnings—earnings acceleration.

The pattern of changes in quarterly sales closely parallels that of changes in quarterly earnings. During the two quarters prior to the buy, quarterly sales were positive and increasing. During the buy quarter, quarterly sales on average increased 9.5%.

A longer term picture of earnings growth can also be useful. Investors should select companies that have positive five-year quarterly earnings growth rates.

Another useful screen is the number of common shares outstanding. Nearly 90% of the firms had fewer than 20 million shares of stock outstanding. Investors may want to select companies with fewer than 20 million outstanding shares of stock.

It’s also useful to look for stocks near new highs in price.

On the buy date, more than half the winners were selling within 8% of their previous two-year highs, and only one was selling at a price of less than half its previous two-year high. More than 80% of the firms were selling within 15% of their previous two-year highs.

An investment strategy that selects stocks selling within 15% of their two-year highs would capture a common characteristic of these winners.

These characteristics could help traders find the next big winners in the stock market.

Stock market

Reading a Cloud Chart

Ichimoku Cloud charts are a popular tool for analysts, perhaps because they are visually appealing.

AAPL chart

The most prominent feature on the chart is the shaded areas. These are the Clouds. There are actually five components of the chart and the construction of the Cloud Chart can be summarized as follows:

  1. Turning Line, which is the midpoint of the high and low of the last 9 sessions.
  2. Standard Line which is the midpoint of the high and low of the last 26 sessions.
  3. Cloud Span A is the midpoint of the turning line and the standard line and is shifted forward by 26 bars.
  4. Cloud Span B is the midpoint of the high and low of last 52 sessions and is also shifted 26 bars forward.
  5. The Lagging Line is the price line the (the closing price) shifted backwards by 26 bars.

Each of these components is also known by other names. The Turning Line is called the Tenkan-sen or the Conversion Line in some sources. The Standard Line is the Kijun-sen or Base Line. The Lagging Line is also known as the Chikou Span or the Lagging Span.

Now let’s look at how to analyze the chart of Apple (Nasdaq: AAPL) shown above. It can be confusing to look at the chart because there are several pieces of information. With experience, many traders like having a large amount of information available at a single glance.

With less experience, the chart can be overwhelming. To cut through potential confusion, we will look at that chart in three steps. In the first step, we will look only at the clouds and then we will address the interpretation of the various lines.

AAPL daily chart

Because the chart is less confusing, we have compressed the time to show more signals. With just the Clouds, interpretation is easy. When prices are above the Cloud, the chart is bullish. When prices are below the Cloud, the chart is bearish.

When prices are in the cloud, the answer is not clear but we should expect the previous trend to resume. Right now, prices entered the Cloud from above so we should expect AAPL to resume its uptrend.

The chart above shows these signals are clear enough that they can be traded. Sell when prices fall below the lower span of the loud and buy when prices break above the upper line of the Cloud. This is similar to a trading strategy using moving averages (MAs).

One problem with any MA is that signals come after the trend has reversed and you need to capture long-term trends to make up for the delays in the signals. Another problem with MAs is that there will inevitably be a number of whipsaw trades.

A whipsaw trade is one that lasts a short time before being reversed. These trades usually result in small gains or losses but trading costs can add up. These costs are generally overcome with an MA strategy because you will eventually be on the right side of a long-term trend.

Clouds should also deliver profits from long term trends but they will suffer from lags in signals and whipsaw trades while waiting for the big winners that are generally needed to make a trend following system successful.

This is an important point. Any individual trading decision based on Clouds can be wrong. There could be several losing signals in a row. It generally requires discipline to take 100% of the signals and a long-term commitment to profit from Clouds or any trend-following strategy.

In the chart above, we see that AAPL dropped below the lower line of the Cloud in the middle of November. This is bearish and it will take a break above the upper line of the Cloud for AAPL to turn bullish with this indicator.

The next chart removes the Cloud Spans and includes only the Turning Line and the Signal Line.

AAPL cloud chart

These lines are moving averages and should be interpreted in the same way any MA would be interpreted. When the faster moving average is above the shorter average, the chart is bullish. In this case, that would mean the Turning Line is above the Standard Line.

When the shorter MA is below the longer MA, the chart is bearish. In the chart above, the Standard Line, the longer moving average that uses 26-bars instead of 9 in its calculation, is shown in red. In the chart above, when the red line is on top, the chart is bearish.

From the chart above, you can see this system does a nice job providing buy and sell signals. Right now, AAPL is bearish on this reading.

Many traders will prefer a simpler approach than Clouds. A simple MA system, maybe buying when the 50-day MA crosses above the 200-day MA and selling on a downside cross, could be easier to trade. There would be only one signal to watch in that system.

With Clouds, traders have three signals to watch:

  1. Relationship of the closing price to the Cloud Spans; if the close is above the Clouds, the signal is bullish and when the close is below the Clouds the signal is bearish.
  2. The position of the Turning Line to the Standard Line.; when the Turning Line is above the Standard Line, the signal is bullish and when the Turning Line is below the Standard Line the signal is bearish.
  3. The position of the Lagging Line to the Cloud Spans; buy signals are given when the line is above the Cloud and a sell signal is given when the line is below the Cloud.

A trader could trade when all three signals agree or when two of the three agree or in some other way. You could also pick one of the three signals and base all decisions on that indicator, ignoring the other components of the Clouds.

The important point, as it is with any indicator, to apply the same rules consistently. If you are consistent and disciplined, Clouds could deliver gains in the long run.

Stock market strategies

Investing Like a Rocket Scientist To Deliver Returns

Many investors are considering strategies that can be considered quantitative investing. This type of investing is, in general, a newer approach to investing that relies on tools that weren’t widely available to individual investors until recently.

In simplest terms, quant investors use computer screening to find investment ideas. They might use a database to screen for stocks with low price to earnings (P/E) ratios. Professional investors have had these tools for decades and many have put the tools to good use.

Consider James Simons, an investor who may not be as well know as Warren Buffett but who has a track record that might be even more impressive that Buffett’s.

After graduating from MIT, Simons worked as a cryptographer cracking codes for the Department of Defense during the Vietnam War. After that, he taught math at MIT and Harvard.

He worked with other researchers to develop a theorem for differential geometry that’s called the Chern-Simons forms. Experts say it is an important tool for theoretical physicists working to identify the smallest forces in the universe.

In 1982, Simons left academia and decided to apply his math skills to the financial markets. He founded Renaissance Technologies, a hedge fund group that uses complex math tools to take advantage of inefficiencies in futures, currencies, and the stock market.

His firm now employs more than 300 professionals, many with PhDs in math and science. His benchmark fund, the Medallion Fund delivered annual returns of 35.6% at a time when the S&P 500 gained an average of 9.2% a year over twenty years.

That return is after fees and Renaissance charges what might be the highest fees in the industry. The firm charges a management fee of 5% a year and also takes 44% of the gains above a benchmark. Typically, a hedge fund charges less than 2% a year and retains 20% of gains above the benchmark.

Simons might be the best quantitative investment manager in the world.

Unlocking Quant Analysis

Many investors focus on fundamental analysis, technical analysis or a combination of the two.

Fundamental analysts will sort through a company’s income statement, its balance sheet, and the company’s statement of cash flows, adjusting the reported numbers as appropriate to develop the values needed to complete a discounted cash flow analysis to determine the company’s value.

Technical analysts review price charts in search of patterns and study indicators designed to show the direction of the trend or highlight potential reversals in the trend.

A quantitative approach to investing relies on computers to identify characteristics of successful stocks. Based on historical performance of that factor, the investor buys all stocks that meet the defined criteria and sells when predefined sell rules are met.

Quants often use the computer output to drive all decisions. They may not supplement that output with any other analysis. This has provided success and outsized returns to some investment managers.

But, for many years it requires data and programming skills to find stocks with a quant strategy. Now, those tools are available to individual investors and some tools for implement quant strategies are even available for free.

A Free Quant Screening Tool

One way to find stocks meeting a variety of predefined requirement is with the free stock screening tool available at At this site, you could screen for a variety of fundamental factors like free cash flow, high levels of institutional ownership and bullish institutional transactions.

The site also allows investors to screen for a variety of technical factors. We can quickly work through an example to demonstrate how this tool could be applied. The screen below shows all of the available filters.

Finviz screener


There were 7,601 stocks in the database on a recent day. We want to search for just a few that could be good investments. We will combine fundamentals and technical data in a search for the right stock (fundamentals) at the right time (technicals).

To ensure the stock is tradable at a reasonable cost, even in a market crash, we will limit the search using market cap selecting just the largest which are labeled “mega cap.” All selections are made with pull down menus as shown below.

Finviz stock screener


That reduced our potential buys to just 34 stocks. The screen updates with each selection so that you know whether or not a criteria is too restrictive or not restrictive enough. To increase the potential buys, we will change this selection to “+large” cap stocks, those with a market cap of $10 billion or more.

We now have 706 stocks in our screen. For a fundamental factor, we will use “price / free cash flow.” Some studies have shown this an excellent predictor of future stock market performance. Any criteria could be used depending on your preference.

Selecting a low P/FCF ratio, defined by FinViz as less than 15, left 119 stocks in our screen. Now we want to add a technical filter. For this, we want to focus on “buying dips” which can be defined as stocks in long term up trends but short term down trends.

The criteria for FinViz is that the stock be above its 200-day moving average, a long term up trend, but below its 20- day moving average, a short term down trend.

These criteria are shown in the next chart.

Finviz stock selection tool


This left us with 19 stocks, enough for a diversified portfolio. The screen could be rerun once a month, rebalancing the portfolio based on the most current data.

Alternatively, a screen could be constructed of purely technical criteria or based solely on fundamentals. Quant investing can be adapted to your personal investment style preferences and to your desired criteria to define expected levels of risk.

This is an adaptable tool which has been proven to deliver superior performance in the hands of some managers. For individual investors, an added benefit is that quant investing imposes discipline with strict buy and sell rules needed and a plan for action in bull and bear markets.

Stock market

This Could Be the Most Important Decision for Investors

While many investors spend a great deal of time considering what to buy, that may not be the most important decision for investors. The other decision investors might focus on is the decision related to when to sell. But, again, that might not be the most factor contributing to their long-term success.

According to the American Association of Individual Investors, in what the editors consider to be one of the most important articles they ever published,

“It is widely agreed that the asset allocation decision is the most important one an investor will make. How you split your investment funds among stocks, bonds and cash (that is, short-term debt) is more important than your choice of stock mutual funds.

Experts, not surprisingly, do not always agree on the precise allocations that different types of investors should adhere to.

Yet, in comparing recommendations from published advisory sources, it is clear that there exists a broad consensus about the appropriate mix among stocks, bonds and cash for most individuals during each stage of their life cycle.

Of course, all recommendations carry a disclaimer that individual circumstances may dictate a mix that is quite different.

Many individual investors, though, resemble at least roughly the “typical” investor profile.”

asset allocation for investors

There are some specific guidelines that could help many investors improve their performance, according to the article. The general rules include:

  • Choose a fixed weight strategy, with rebalancing at least annually.

Specific asset mixes will differ at different points in an investor’s life cycle. In order to maintain a given asset mix, the portfolio must be periodically rebalanced.

The simple idea is that a stable asset mix gives an investor a stable risk exposure that is appropriate for their financial needs, which are typically dictated by the stage in life.

A fixed weight strategy is a long run contrarian strategy. When stocks rise from being fairly valued to overvalued, the investor sells the overvalued stocks and buys bonds (or cash), or when putting new money into the portfolio purchases bonds or cash rather than stocks.

When stocks fall from being fairly valued to undervalued, the investor sells bonds and buys the undervalued stocks, or uses new money to buy stocks. In short, a fixed-weight strategy allows someone to profit from market misvaluations while maintaining a stable risk exposure.

  • A portfolio’s risk can be moderated by mixing stocks and debt.

Stocks are claims against real assets. Bonds and cash are debt, usually promising fixed returns. Stock and debt are fundamentally different animals and, consequently, their returns tend not to follow similar patterns to each other. Consequently, combining stocks and debt moderates the portfolio’s risk.

On a broader scale, individuals who hold stocks and debt in their investment portfolio and own their own home have their broad portfolio diversified among stocks, debt and real estate—three asset types whose returns do not vary closely together.

  • The longer the investment horizon, the larger the portion of the portfolio that should be allocated to stocks.

Young investors who are years from retirement can invest more of their portfolio in stocks than the elderly. Although year-to-year stock returns are volatile, the young can be reasonably confident that the good years will more than offset the bad years over their investment horizon.

 As you age and your investment horizon shortens, you are less confident that there will be enough good years to offset the bad, and the recommended allocation to stocks decreases.

  • Everyone should have some exposure to stocks, even a conservative 80 year old couple.

Historically, the returns on a portfolio of long-term Treasury bonds have been more volatile (that is, riskier) than a portfolio with 90% bonds and 10% common stocks.

Stocks held alone are riskier than bonds held alone, but due to the magic of diversification you can add some stock to an all-bond portfolio and actually reduce the portfolio’s risk.

Diversification means not putting all your eggs in one basket even if the basket looks safe. Since 1926, the volatility of an 80% bond/20% stock portfolio has been equal to that of a 100% bond portfolio. This helps explain why no one recommends a stock weight of less than 20%.

  • Diversify within the stock portion of the portfolio. In particular, an investor should always have an exposure to large-value and large-growth stocks.

There are two dimensions to investing in the stock market: size and style. Size refers to the size of the firm. In general, the 500 stocks comprising the S&P 500 are considered “large” stocks, which account for almost 75% of the market value of all U.S. stocks.

Style refers to the investment style or philosophy to which a company is most likely to appeal. Growth investors seek growth stocks—firms with fast-growing earnings. Value investors seek value stocks—firms whose shares are selling below their “real” value.

  • International stocks should be a part of everyone’s portfolio, with the possible exception of the elderly.

Recommendations for international exposure start at about 15% to 20% for younger investors, and gradually decrease as one gets older. One source recommends no exposure for those who are 75 or older.

  • Young investors should put more emphasis on international stocks, small stocks and growth stocks while older investors should put more emphasis on large-cap stocks, especially value stocks.

While broad diversification is always encouraged, younger investors can take more risk, and can therefore place greater emphasis on the riskier portions of the stock market; older investors can still invest in these areas, but their emphasis should be on more stable, large-capitalization companies.

  • Investors can avoid the emerging international stock markets.

Emerging stock markets promise a wild and bumpy rise. The average Mexican stock lost 60% of its value in three months ending in March 1995. Of course, dramatic gains are also possible.

  • As one ages, shift the bond portion of the portfolio from primarily long term bonds to primarily intermediate term or short term bonds.

Bond prices become more stable as maturity shortens. Thus, the advice to shorten bond maturity as one ages is consistent with the other advice to move toward assets with more stable prices.

  • As one ages, the cash portion of the portfolio increases.

Increasing cash assets is part of shortening the bond maturity for increased price stability.

  • High grade corporate bonds and Treasury bonds of similar maturity are close substitutes.

No one distinguishes between buying high-grade corporate bonds or Treasury bonds of similar maturity, because the returns on these bonds move very closely together, although high-grade corporate bonds tend to have slightly higher yields.

Over the long run, these rules have delivered strong returns.

A guide to risk toleranceWithin the stock portion of the portfolio, stock selection can add significant value and a disciplined approach to stock selection can deliver large returns.


Could This Be the Time to Buy Cryptocurrencies ?

Bitcoin and other cryptocurrencies have enjoyed a bull market recently. As Barron’s noted,

“After trading around $4,000 for the first three months of 2019, Bitcoin took off at the beginning of April and almost doubled in a month and half, briefly trading above $8,000 [last week].

Then, Bitcoin’s price suddenly fell 9.5%, dropping from $7,720.90 to $6,985.13 in the space of 30 minutes. Bitcoin recently traded at $7,170.

“The level of the pullback is actually picture perfect. So far, the top cryptoassets have come down about 10 [percent] from their recent highs,” Mati Greenspan, an analyst at the trading company eToro, said Friday morning.

If Bitcoin’s slide “stops soon and turns around,” he said, “there is virtually no major resistance on the chart until $20,000.”

Bitcoin’s sharp rise over the last few weeks has been attributed by some analysts to the ongoing U.S.-China trade war.

Harpal Sandhu, chairman of Mint Exchange, told Barron’s earlier this week that based on the trade flows he has observed, investors in China have been selling yuan to move into bitcoin and other currencies ahead of a trade war. “This is capital flight coming out of China because of trade,” he said.

Bitstamp, a European exchange, blamed the crash on a massive, single seller. “A large sell order was executed on our BTC/USD pair today, strongly impacting the order book,” the company tweeted. “Our system behaved as designed, processing and fulfilling the client’s order as it was received.”

Another factor that Bitcoin analysts think helped to drive up the price is the charges filed by the New York State Attorney General Tish James against the owners of Bitfinex, a cryptocurrency exchange.

James said that Bitfinex executives raided the reserve fund of Tether, a so-called stable coin that is designed to trade at a constant value, of $850 million. Those charges, the theory goes, caused a flight out of Tether and into Bitcoin in a sort-of intra-crypto flight to safety.”

Another reason could be the possibility of a recession.

With concerns of recession mounting, now could be an ideal time to buy into the market.

Cryptocurrencies haven’t really seen a recession. Barron’s reported, “This new, decentralized asset class was born at the tail end of the housing crisis, and has yet to experience the full force of a recession or even lengthy bear market.

For years, digital assets have existed in a period of market expansion in the United States. Gross Domestic Product (GDP) has increased significantly, bringing total average GDP growth from -1.73% in 2009 to 3.138% in 2017; and unemployment has dropped from 10% to 4%, with more than two million jobs created each year for the past eight years.

Unfortunately, what’s been a positive sign for upward trends in traditional markets has had an adverse impact on the mainstream appeal of digital assets.

Because the economy has steadily improved throughout the industry’s life-span, some more casual observers have failed to fully appreciate how the intrinsic qualities of blockchain-based assets (e.g., decentralization, immutability, and bespoke structures) may benefit them.

As a result, many have erroneously assumed all digital assets are functionally interchangeable, and will all react the same way to economic fluctuations.

As is the case with any industry, companies weathering the impact of a severe market correction are, understandably, going to react differently based on their business models, leverage, and market capitalization.

That’s not to say we’ll know exactly what will happen during a recession—it’s perfectly plausible, if not likely, that there will be at least some material degree of performance correlation between various digital assets.

However, what’s more likely is that we’ll begin to see certain digital assets, each equipped with their own unique value proposition, begin to separate themselves from the pack and gain momentum as a result of their inherent structural value, not merely from speculation or the rising tide of a bullish cryptocurrencies market.

Faced with a recession, Bitcoin may serve a market function similar to that of a safe-haven commodity, rather than an equity, due to its inherent scarcity and decentrality. Bitcoin, by design, is not intended to be used as a foundation on which developers could build a platform or enterprise.

Because its supply is not controlled by any one person or entity, it’s more likely that Bitcoin will perform independently of broad market pressures (akin to how one would expect gold to react)—potentially even appreciating in value should demand for alternative forms of dependable value storage arise.

GDAX daily chart

By contrast, Ethereum is far more likely to follow market trends. That’s because its platform allows other companies to build products on top of the Ethereum protocol, putting significant onus on mainstream investors to keep products afloat.

If the investors suffer, the companies suffer, which causes Ethereum to suffer as a result. Because Ethereum is a developer-focused blockchain, it’s very much dependent on how many companies use the Ethereum platform to build their projects.

If those companies were to go out of business, Ethereum’s relevance and, subsequently, its price, would undoubtedly be affected. That’s not to say Ethereum is structured similarly to equity markets by any means, but it’s more closely entangled with equity markets than most other digital assets.

BITF daily chart

Ripple’s XRP is a payments-focused digital asset that currently has the third largest capitalization in the crypto industry. Unlike Bitcoin and Ethereum, Ripple digital currency is frequently used for frictionless financial asset transfers, functioning more as a medium of exchange than other digital assets.

Because XRP functions outside the purview of mainstream markets, it’s certainly reasonable to believe that XRP would act independently in the event of a recession. On the other hand, however, XRP’s price is also highly dependent on issuance and adoption.

If Ripple loses usership—either because its issuance was mismanaged or because other projects (such as J.P. Morgan ’s proposed coin JPM) became more popular—XRP’s value would almost surely go with it.

daily chart

This all indicates that cryptocurrencies could be worth considering. Even if the economy grows, the assets could be bargains after their extended bear market. If the recession does strike, cryptocurrencies could bounce as investors seek safe havens. That could deliver significant gains to traders in the asset class.

The bottom line is that cryptocurrencies are worth considering for both long term investors and short term traders.