The Good, the Bad and the Ugly of Investing in 2018
As President Trump wastes no opportunity to stress, the US stock market saw over 80 record closes in 2017, with the Dow having broken 26,000 at the time of this writing. 2018 has begun with the same sort of explosive growth that the previous year saw, and the earnings season in spring combined with the implementation of tax reform in February will likely see a second wind given to the market rally. However, there are guidelines worth considering in order to fully benefit from the boom on Wall Street.
Firstly, the wise investor must internalize that a company’s stock is simply the manifestation of its success and relevance as an enterprise. For instance, whether one sees lines out the door at the local McDonald’s (MCD) on the one hand or an explosion of interest in healthy foods and dieting on the other is a perfectly reasonable signpost of where one’s investment in the restaurant industry should be directed. By the same token, whether one sees cable TV as a purchase made by friends and family, especially those who are millennials, is a signpost of whether a stock such as Comcast (CMCSA) or AT&T (T) would be worth a purchase, just as seeing whether friends use Snapchat (SNAP) on the one hand or Instagram, owned by Facebook (FB), on the other, is a superb signpost of where an investment in social networking companies should be directed.
Extending the aforementioned logic, one of the largest growth areas in 2018 where market sectors are concerned is the media sector, primarily due to the rapid rate of consolidation in the sphere. Since the author purchased Discovery Communications (DISCA) in late December, there have been over half a dozen 3+% trading-session gains for a one-month total gain of 21%. This performance is due to the mergers & acquisitions occurring in the media world, with AT&T (T) attempting to purchase Time Warner (TWX) and Disney (DIS) purchasing 21st Century Fox (FOXA). Any remaining independent players in the sector are plausible targets in the coming months as this trend continues, making an investment in their stocks a potentially lucrative proposition.
Just as there are “good” investments to be made in 2018, there are “bad” investments as well, with fast food stocks foremost among them. The health foods trend among millennials has combined with disease scares at chains such as Chipotle (CMG) to tarnish the image and brand of the fast food sector, resulting in a decline in share value as well as talk of privatization at various companies. As the millennial generation, which has a less sympathetic view of brands such as McDonald’s (MCD) than their elders, grows in significance as a consumer demographic, the present challenges confronting the industry are likely to multiply.
Finally, there are the “ugly” investments in 2018, which should be on the radar screen of those with a stomach for risk and volatility. For those who are willing to see hundreds of dollars in gains become hundreds of dollars in losses and vice versa in a cyclical manner, cryptocurrencies remain an unparalleled opportunity. The third week of 2018 saw a cratering of Bitcoin prices, sending many investors fleeing in terror and others rushing to double down. The latter group is more likely to succeed in the longer term, as the likelihood of a permanent loss of value are minuscule compared to the likelihood of a cyclical gain-and-loss pattern of the same sort seen in the stock market. As with any investment, the “buy-low, sell-high” maxim is as useful as it is over-used.
For the savvy investor, 2018 poses innumerable valuable opportunities, and the prospects of a market crash appear as distant today as they have ever been. Of course, there is always a possibility that a bear market may come suddenly, however, the odds of such an occurrence are small at the time of this writing. The best advice that can be given to the aspiring investor is to avoid overthinking, as analysis paralysis is the enemy of wealth generation.
