Dear Reader,
Bullish. There’s no other way to describe the price action right now.
The market continues to defy the sceptics, the bears and the worried. I’ve been all three at times over the last six months.
Thankfully, I put those views aside and focused on what I can control: identifying stocks with upcoming catalysts in the short term.
My subscribers have been reaping the benefit of that in a big way since May.
I’ve been saying for some time that we’re in a stock picker’s market.
The overall index might now just be breaking out of the sideways move it’s been locked in since June.
But passive investors wouldn’t have much to show for the last six months.
Indeed, they’d still be down on the year because the market is still below its February peak.
Unless you’re paying attention to individual stocks, you’re missing out on some incredibly fast moves happening across the small-cap sector.
How to Survive Australia’s Biggest Recession in 90 Years. Download your free report and learn more.
Picking ASX Small-Cap Stocks
Let me pick one example out of dozens. Back on 4 September we had a sharp sell-off in the morning. I sent out an urgent buy alert on the day for a stock called Liontown Resources Ltd [ASX:LTR].
It fell to 13.5 cents on that morning. Two weeks later, it was up nearly 50% when I told my subs to cash in their profits. Hindsight says I cut the trade a little early. See for yourself…
|
|
| Source: Optuma |
This is the kind of move happening all over the small-cap sector. You can dismiss it as the Robinhoodies and rank speculation.
It may very well be. But there are a lot of profits to garner here while it lasts.
How long will this continue for? I have no idea. It’s already gone on longer than I expected. But I have yet to see sustained weakness across the sector.
You don’t have to take a short-term approach here either.
There are some stocks with incredible potential that you can tuck away in your super fund if you’re prepared to invest with a two–three-year timeframe.
Appropriate position sizing can help you cope with the inevitable volatility and drawdowns along the way.
If there is one thing I have learnt over the years, it’s that we all focus way too much on what ‘the market’ is doing on any given day or the ‘outlook’ for the next quarter.
You’re much better spending your time focusing on companies with breakthrough business models and competent management.
I don’t remember much of what the commentary was saying about the world in 2016. I do know that you could have bought Afterpay for around $1. It’s nearly $100 now.
The only thing you needed to do was hold on to the thing.
I didn’t buy Afterpay — or recommend it.
But the team over at Australian Small-Cap Investigator did. Anyone who followed their advice and stuck along for the journey made over a 2,000% return.
There’s another stock called Chalice Gold Mines Ltd [ASX:CHN] I recommended when it was about 12 cents.
I was pretty happy to issue a sell order for it for a cheeky 40% gain in about six months.
That doesn’t look so good in hindsight. It’s over $3 now. Again, all you had to do was hold on to it — through the COVID panic I might add.
Of course, we didn’t know that these two would go on to these monster returns. There are other stocks that crater and die.
But, really, why bother coming to the share market unless you’re going after some big home runs?
The financial industry is more than happy to park your money in the top 50 and take their fees. But, as stated above, the ASX 200 is still down on the year and has essentially done nothing for a decade.
The small-cap sector can cater to you whether you’re an investor or a trader. You can be both. I am. You can also find yield in some stocks here too.
One of the interesting aspects of the small-cap sector is it tends to move on momentum, and, perhaps for want of a better word, ‘fads’.
That means some stocks and sectors can get left behind for a time. That’s where you can find some interesting bargains where nobody is paying attention.
But you have to be watching to see this. If you don’t have the time, or the inclination, hand the task over to my colleague Ryan Clarkson-Ledward at Australian Small-Cap Investigator.
Afterpay is not going to deliver another 2,000% return. But there are stocks out there now that could.
Go here to see how he goes about it.
Best wishes,
 |
Callum Newman,
Editor, The Daily Reckoning Australia
PS: Learn why the property market is unlikely to crash until 2026 and how you can potentially capitalise on this trend. Download your free report now.
Comments