I was invited as a co-speaker in this seminar (14 Jan 2017, Singapore) with Hu Liyang (胡立阳), a famous stock investing guru in Asia. As requested by a reader, I am giving a summary here to show the similarities and differences of my views with Hu Liyang (HLY) on Market Outlook for the next few years.
The last time I met HLY was probably 4-5 years ago. The first impression of him again is that both of us are getting much older. He has a few more “railway tracks” on forehead while I have many more white hairs.
Both of us have observed many economy cycles in the past few decades, although HLY is probably 10+ years more senior than me, that’s why we are mostly aligned in many understanding on market outlook. HLY hinted a retirement which I think he deserves it. For me, I don’t feel I am “working” on my interest of investment education, so I don’t feel tired yet. Perhaps one day I may also start a new phase in life, hoping investment is also part of lifelong learning for all the readers.
Similarities in Market Outlook
1) Final Phase of Bull Market
Both agree that the market is entering the final phase of bull run. I am supported by high optimism of stock market at Level 3 (especially US) and Level 4 (world), while HLY is mainly based on interest rate cycle: “bull market starts when interest rate is cut, ends about 1-2 years after interest rate hike in US”
2) Danger Signals for Investment Market
Both agree that bond market is at high risk, bond yield has been at historical low, when bond yield hits 3% (now is 2+% for US 10 years bond yield), the fund is moving from bond to stock and property market, creating risky investment bubbles.
3) Market Cycle Investing
Both agree on market cycle theory. HLY uses “pendulum theory”, market will swing from high to low, low to high, sometimes may be even over-corrected, applying his 50% discount theory and other correction factor. I mainly use Optimism to declare the market risk (>75% Optimism) or opportunity (<25 Optimism). Despite the exact methods may be different, both are suggesting buy low sell high based on economy cycles.
Differences in Market Outlook
1) Timing of Global Financial Crisis
HLY has been trying to predict the timing of global financial crisis. I remember a few years ago, he predicted the great crisis may come around year 2013 or 2014. This time, the time bomb is extended to around year 2019. With political economy such as global QE and near zero interest rate for so many years, the current market cycle duration is much longer than last time. I could understand why HLY still tries to predict the future as there are too many audience really hope to have a crystal ball to see the future, especially HLY has an amazing record to predict the ending time of last global financial crisis in year 2008.
My view is that market cycle duration is unpredictable because it depends on the rate of optimism reaching danger zone of 75-100%. However, there is a predictability within the unpredictability. We just let Optimism shows us the risk level, no need to guess the future. If US takes 10+ years to reach high optimism, market cycle duration will be prolonged. If US behaves like China, stock index is doubled in 1 year, then market cycle will be shorter. This is one of my Ein 55 Investment Styles (of course, HLY also has his 100 Investment Styles in his famous book), Optimism is a market thermometer. We will never know when we will have the next fever (eg >38 deg.C), but we will know when we have a fever because we could feel overheated, temperature measured is too high. It is never too late to find a Panadol to cool down the body when we really have fever. Similarly, we will not know when the next crisis may come, but we could guess the probability with market temperature using optimism. When market is having a mild fever (38 deg.C or 75% Optimism) or high fever (40 deg.C or 100% Optimism), we will know as well. The key challenge is whether a trader or investor is willing to take profit (as if taking Panadol), admitting the market is feverish. Based on my observations of past market cycles, more people work harder despite having high fevers, ending up losing what they have accumulated when the market bubble is burst.
2) Factors for Success in Stocks
HLY believes the stock market is a probability game of 3 possibilities: up, flat or down in share prices (more of a TA believer); fundamental or business are not as important. He mainly uses “money analysis” to analyze the money flow in economy cycles, combining with many TA methods to predict the mega stock market low and high, both in prices and timing.
I believe in an integration of 3 pillars to be successful in stocks:
2.1) Optimism + Fundamental Analysis (FA, buy giant stock with strong business fundamentals).
2.2) Optimism + Technical Analysis (TA, investment clock to wait for giant to fall down and recover),
2.3) Optimism + Personal Analysis (PA, emotional control) to take actions.
I also believe there is a need to match the strategy with our unique personality:
– short term trader (buy/sell every few weeks),
– mid term trader (buy/sell every few months),
– long term investor (buy/sell every few years),
– life time investor (buy and not need to sell for life).
Warren Buffett, Jim Rogers, Hu Liyang, Jesse Livermore, etc, each investing master or trading guru, could have their own styles of making money, but it may not be suitable for everyone, unless you share the same frequency in mindset. This is the reason I teach the complete Ein55 Styles with consideration of both short term trading and long term investing, FA, TA & PA with economic analysis, showing Ein55 graduates how to customize an unique trading or investing style for individual.
We should learn to find Top 10 global giant stocks as players of our dream team, buying good business at discounted price at low optimism, ahead of others who may be fearful. Mastery of investment clock is very critical to profit consistently from stock market.
The safest time to buy a stock is when everyone is afraid the sky will fall down while the business is still operating normally with consistent performance. This could be a rare opportunity to buy during a crisis, we should learn how to take this advantage to truly buy low sell high.
When Optimism Strategies are combined with Fundamental Analysis (value investing & growth investing), Technical Analysis (support / resistance / trends), and Personal Analysis (mind control of greed and fear), it is very powerful when one is able to take the right action (Buy, Hold, Sell, Wait or Short) at the right time aligning with own personality.
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