Brandy Auterson:
It’s now time for 4 Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Welcome back, David.
David Nelson:
Thank you, Brandy.
Brandy Auterson:
So, while we have seen a little more volatility in the stock market in recent weeks, prices still seem to be at elevated levels now, with people asking whether a rally can keep going. What is something maybe you look at for answers?
David Nelson:
Well, I think the prudent question is built into the process that we talk about on a regular basis with our clients as well as on this program, and that’s, it’s very important to assess risks. And so, if we had to hone in on one item, it certainly would be the market itself. With all the discussion on inflation, and the Federal Reserve, and the supply chains, they’re all important, but if you really focus on … And the chart that I brought along today is really going to hone in on exactly what I brought up earlier, and that is the market itself.
David Nelson:
It’s called trend following. Now, it’s not perfect, but what it does is it keeps you on the right side of the big moves. So, what we have here is basically a chart illustrating … The blue line is illustrating the S&P 500, and again, a good proxy as far as for what the market is doing, et cetera. And in red, we have in there, kind of boxed in, this is a simple recipe as far as to try to stay historically on the right side as far as of the market.
David Nelson:
Now, what it’s illustrating here is quite interesting, and that is when the market goes up 8.4%, it triggers a buy signal. So, that’s the arrows that are pointing up. And then, the inverse of that is obviously when things are looking like they’re going to go down, it’s a 7.2%, which is a sell.
David Nelson:
And what we’re trying to illustrate here is that history says that if the market goes up today, historically, tomorrow, the odds of it going up tomorrow are pretty good. Now, it doesn’t happen every day, and that’s why, again, we’re talking about an 8.4% on the buy and a 7.2% as far as on a sell are a good starting spot for individuals to have a discipled approach to investing money.
Brandy Auterson:
All right. So, why is such special consideration given to watching price trends compared to all of the other things that you keep an eye on?
David Nelson:
Yeah. And the main reason for that is that interest rates, inflation, stock earnings, they certainly play a role as far as in trying to analyze as far as what tomorrow is going to bring. But it’s always in a different environment. The environment that we’re looking at today is different than it was a year ago, versus two years ago, verses five years ago. And so, some of these variables can be distorted because of that.
David Nelson:
Example is interest rates going up, historically, a really bad news as far as for stocks, but yet, this last increase that we saw with interest rates going up, stocks rallied significantly. So, again, following the trend has historically been a much more conservative-type approach to investing.