Last week, Warren Buffett was in the news (again) after revealing that Berkshire Hathaway had more than doubled its stake in Apple Inc. (Nasdaq: AAPL).
That’s undoubtedly a smart move, but the Oracle of Omaha’s got something even smarter to show us right now.
Here’s the thing, though: Warren Buffett’s achievements as an investor are incredible, but he and I differ on how we view and use technical analysis.
I’m a huge proponent of it because I love working data, but also because technical analysis has revealed trade after profitable trade for me.
Buffett? Not so much. Although there’s a lot value investors can learn from technical analysis, and you can bet he has technicians working for him, the man is the consummate value investor.
But I’m sure we’d both agree that this is a “do-nothing” market we’ve been trapped in over the past few weeks. And, what’s more, we agree on the right move to make.
Let me explain.
When the Going Gets Slow… So Should You
Some traders will say that dull markets are a “stock pickers'” market, meaning that there is not much happening, so any returns you get come from finding a company that’s doing something different.
There’s an element of truth to this, but you don’t want to go “throwing darts” at a list of companies to find something that pays off.
More often, when I ask other traders about trading slow markets, I hear about what to avoid.
Invariably, someone will quote the old Wall Street maxim: “Never short a dull market.”
Now, it has to be said that’s very sage advice backed up by very good research. In fact, Oppenheimer’s Ari Wald shared data in Barron’s that proved when markets trade with volatility this low, price action was typically much stronger in the next six- to 12-month period.
But… those who really have it figured out talk about “keeping their powder dry” during slow periods.
And that’s exactly what Buffett meant when he was quoted in Andrew Kilpatrick’s biography “Of Permanent Value: The Story of Warren Buffett.”
“When there’s nothing to do, do nothing.”
In other words, don’t take on unnecessary risk.
Wait for the market to catch a direction with some conviction before jumping back in. It’s all too easy to go against good advice and “short a dull market” only to be burned once price action picks back up again.
My charts indicate we won’t have long to “do nothing.” The markets are slowly but surely getting to a reaction point now.
The markets are getting to a reaction point, however. We’ve done a good job of trading less in my Stealth Profits Trader service over the past few lackluster weeks (or “keeping our powder dry,” to continue the thread).
But the time when I expect the market to “flex its knees” with a very shallow pullback and then push to its next level of news highs is quickly approaching.
As it stands, we’re right at the top of the box…
This narrow-range, sideways markets is due for a shakeup – soon.
The Bottom Line: A go-nowhere market can tempt investors into risky mistakes, but don’t fall for it. Preserve your capital for when the markets begin to move definitively. It will move soon.
— D.R. Barton, Jr.
Source: Money Morning