|Market sentiment (behavioral)||Technical analysis||Fundamental analysis|
|Which types of investments||←||Inflation, stagflation or deflation|
|Manipulation, interventions, HFT, behind the scenes actions and activities|
|Investment entry and exit points||Trends|
Simply, it's one complete way to look at the whole area of investing and help to remove some of the inevitable confusion from the area. It's just a framework. The investment words are all linked to definitions, so start there if you're at all uncertain of their meanings.
In investing, one buys & sells at certain prices and doesn't want to fight the trends - that's the lowest element or line of the framework above. The main trend and senior datum that controls which way prices go is the general rate of inflation, and that also controls what types of things in which to invest and that is the next line up in the above chart. Note that manipulation and "behind the scenes" actions or activities apply to all areas.
Fundamental analysis is used to determine both the expected rate of inflation or deflation, and whether the particular investment has good factual and positive data behind it. The combination of market sentiment and technical analysis (as an aside, market "manipulations" also belong in here) helps determine when to buy and sell. The analogy to spirit, mind and body on the top line helps to put it all in perspective.
Please note that the data here is extremely abbreviated and condensed. Many books have been written on each of the topics. It's only intended as a short but hopefully complete starting point. If you're new to investing, we recommend taking this page in small doses since it can be overwhelming. Also note that politics is included in both fundamentals and sentiment.
The basic theory behind our approach and thoughts is that at the highest level in investing is money itself, and both the supply of and demand for it. The central banks and regular banks of the world (like the U.S. Federal Reserve System) are the ones that create the money and are 'in charge' of it. They are also the primary cause of inflation or deflation. So we follow what they're doing, since the amount of current and expected inflation is, in our opinion, the most important factor in successful investing.
Step one on investing is to have some reserves for emergency purposes, like living expenses after unexpectedly losing a job or unexpected medical expenses or just plain unexpected life situations. Opinions vary but somewhere between three and six months basic living expenses is prudent in our opinion, and anything is better than nothing. Investing is much simpler and less stressful if one knows there's a stable base underneath.
If you do not have funds for investment, start putting aside a percentage of your income every pay period into an account. Opinions vary here too, but whatever works for you up to 10-15% is our guideline. If you can't set aside anything, stop right here and get that handled before hoping that investing is the answer to your problems.
The first question to answer is which way is inflation going, since that controls which investments one should avoid and which ones are probably worthwhile. In general, for example, one should buy real estate during periods of significant inflation and one shouldn't get into debt during a depression.
We forecast what's coming up by using proprietary formulas. They're based on adding up all the money types that can be created by the banks, the Federal Reserve and other money creators. Then we subtract another set of figures representing all products and services, one figure of which is the US GDP. See our current general forecasts here, and our current inflation prediction here.
For shorter term investing and timing purposes, and after one is more comfortable with the area, other charts - such as those on our Key stats or Fed watch (warning, very advanced) pages as well as from other sites - may be helpful
The basic theory behind our approach and thoughts is that at the highest level in investing is money itself, and both the supply of and demand for it. The central banks of the world (like the U.S. Federal Reserve System) are the ones that create the money and control interest rates. That is way oversimplified but we have to start somewhere.
Note that this is a conservative general guideline only, and dependent on the individual and the investment. Your opinions will likely be different.
|Expected inflation or deflation|
|Asset Type or Investment||10-15%+ & rising||5%+ & rising||Stagflation||1-5%, stable or declining||0 to -2%||-3% and under|
|Cash, Treasury Bills|
|Collectables & antiques|
|Food, base living supplies|
|Friends & family||Gemstones, other|
|Gold & silver|
|Life insurance (whole)|
|Money market fund|
|Mutual Funds , general|
|Mutual Funds , sectors|
|Real estate, leveraged|
|Real estate, fully paid|
|Color Code||No||Questionable||Depends||OK||Should work||Yes|
1. There always has to be at least one and investing is no different. Although this one is very unusual, failure to see it coming if it happens will have very large negative effects. Its called a currency crisis. |
If we think there's a chance of it happening, to protect our hard earned assets we'd probably concentrate on having plenty of actual cash for day to day expenses, avoiding bonds or stocks of any kind and having as little debt as possible. We'd convert anything else to whatever we think would maintain its value and be exchangeable with as little loss of purchasing power as possible after the crisis was over, as well as things that would help the less fortunate survive the crisis with less troubles.
|2. The other exception that can throw one's plans for a loop is false statistics on inflation or deflation. If the government is stating that inflation is 4% and its actually 8% for example, analysis and selection of types of investments will be incorrect. See the The Consumer Price Index, a big lie page for more of our thoughts in this area.|
So now you've decided on specifically what to buy and why you're buying it, the next step is when.
Or, how to use relationships and tools to help your trades have better entry and exit points. Yes, this is the technical analysis section and you'll need some definitions first:
|RSI||MACD||Stochastics||Williams %R||Market sentiment||Trend line||Fibonacci|
There are lots of other tools here if you're interested, and they can be quite useful. This page is not intended to be a full course in technical analysis, but will get you started with what we think are the best TA tools. We use those tools to determine at which price to buy and sell. Here's some examples of how to use them:
One last switch, this time to the technology index, the NASDAQ. Note that trend lines also work on a very long term chart, and indeed this chart shows a classic pattern of three trends of increasingly steep trends lines. Trend lines work with log based charts too.