The Best Little Tipsters In The Market
30 Apr 2024

Of course, shares exist to be bought and sold. You see something that you believe means a portion of that specific company, fund or commodity would be a good investment and will deliver some dividends over time, or appreciate it, so you can get more from it than you put in. Simple enough – buy low, sell high.

It’s not as simple to know if a ticker is actually going to go up or down. Nor is it easy to time the market. Nor will every move you make – however calculated and smart – pan out. Every time you buy, you say that you are smarter than everyone else not buying… and every time you sell, the same applies only the other way around.

Of course, there are tons of ways to learn the game. Gurus sell secrets by the bovine bucketfull, and there are books from geniuses and dumbasses – plenty enough to keep everyone going for decades, so we won’t repeat those mistakes here.

But we are also interested in shares, funds and commodities in their alternative function in this little writeup.

Not as investments, but as indicators. That is, watching what they do with the aim of gaining some insight into what other shares, or some wider market, or an economy, is doing.

In that sense, the most pure play Indicator Stocks are your ETFs. The S&P500 is the 500 largest shares on the New York Index… so the S&P500 is a great indicator of how the larger US Economy is doing relative to its peers. The FTSE100 are almost all international companies… so to understand how the UK economy is doing, the FTSE250 (the next 250 down from the top 100) is actually a better barometer. Cue the whiners who will yelp and wail that the stock market isn’t the overall economy and that only the rich care about that while the poor are oppressed and suffering – and ignore them safely – as one always should – because – fair or not, like it or not – whining is a terrible alternative to investing.

You can also use various sector ETFs or commodities to compare one against the other. Ie, Tech is doing better than real estate, or ice versa.

Interestingly, one commodity has such a reputation for being a commodity that many call it a Doctor. Doctor Copper is said to have an uncanny ability to predict major turning points in the global economy. Copper has widespread use and applications in various sectors – from electronics, to power generation, to housing – that growing demand for copper often foretells good economic times are ahead. Likewise, less demand for copper shows a slowing economy is around the corner. A statistical analysis over time does show there is in fact a strong correlation. As always, anything reliable can be gamed, and is sometimes artificially manipulated. The sudden imposition of tariffs, as by the US in 2018, messes with a good thing and can temporarily mess with a diagnosis or prognosis. Nothing is ever infallible, no formula is ever perfect, and no indicator is 1000% accurate all the time. But Doctor Copper does have a relatively solid track record – and it does one very rare thing – it foretells rather than mulls over historic data.

Likewise, the Fear Index, or the VIX (VXX ETF) – measures volatility, and can be employed as a gauge to estimate investor sentiment and market risk. High volatility, high risk, lots of fear. A bit obvious, and a bit historic as well – but something to cast an eye over every now and then to see how things are tracking and trending over time.

You can also get quite specific in what you are looking at indicators for, and which ones to use. Assume you are into ‘travel and tourism’ as an investment theme or mandate, you might want to know how airplane manufacturers are doing. Covid strikes and the sector suffers… and you’ll probably know when we’re coming out of a downswing like that by – watching those stocks and shares that happen before we book tickets for holidays – like stocking up on our supply of passenger planes. What John Deere does now probably tells you a lot about next season’s harvest. Ditto Caterpillar for building, construction and infrastructure spend. Busy times at Waste Management shows you that the economy is producing plenty of waste and powering ahead.

Given how hard it is to pick winners (and if you are going to play, we suggest heavy readings of Benjamin Graham’s two best books rather than anything else sold to you today) – the better your indicators the better your chances. Stock pickers would do well to load up on indicators… and watching a few like a hawk might just turn you into a sage.