Why you should look to the future instead of trying to buy yesterday's returns

There is an old saying when it comes to investing that you can't buy yesterday's returns.

In essence, this means that if an investment rises in the previous year and you don't own it, then you missed out. That said, I believe it also means you can't expect the return to be repeated in the following year.

Unfortunately, many investors attempt to buy yesterday's returns by looking at the best performing sectors or stocks, and invest in the hope they will achieve that return or better in the future. But this is exactly the opposite of what they should be doing, which is echoed in Warren Buffet's statement that investors should buy in doom and sell in boom.

In essence, Buffett is telling us to buy assets that have been performing poorly and to sell what has been rising strongly. Given this, investors should be looking to invest for tomorrow's return, which you can do by following the money flow. For example, in 2020 the Information Technology sector has risen the most, as it is up 40% since January while the Energy sector has fallen 40% over the same period.

Right now, there is an influx of investors buying technology stocks believing the big run in this sector will continue, but if we follow Buffet's advice, we should be looking for opportunities in the Energy sector. That said, I could understand an investors reluctance to buy into an Energy stock like Whitehaven Coal, which is down almost 60% this year, while Afterpay (in the Technology sector) is up more than 200%.

As such, I am not recommending that people just sell their Technology stocks to buy Energy stocks and I am sure Buffet would not be suggesting this either. But if you are looking for stocks to buy, then look at the sectors that have been moving down, as this is where you will most often find the greatest opportunities.

Remember what goes up must come down and vice versa, so it is possible to buy tomorrows returns if you are watching the money flow.

Best and worst performing sectors this week

The best performers so far include Information Technology up more than 4% followed by Consumer Staples, Utilities and Financials, which are all up around 2.5%. The worst performing sectors include Energy up 1.45 percent followed by Materials, which is just in the green and Industrials down 0.27%.

Looking at the ASX top 100 stocks the best performers include Link Administration up more than 23% while Unibail-Rodamco-Westfield, Bank of Queensland and Nine Entertainment Group are all up more than 9%. The worst performers include Aurizon Holdings down more than 4%, CIMIC Group down more than 7% and Flight Centre, which is down more than 8%.

What's next for the Australian share market

Last week I was questioning whether the strong move up in the market was sustainable or whether it was just a sucker's rally, which would be confirmed this week. Since 2 October, the Australian market has traded up for nine days closing higher than it opened on all but one day. Looking back, we have not seen such a strong rally since January and currently the All Ordinaries Index is trading at its highest level since March, and looking good.

That said, it's important to remember that October has a history of being volatile with wild swings up and down. Looking at the history of the Dow Jones Index, we know five of the biggest one-day falls as well as five of the largest one day rises occurred in October. While it is still possible that the All Ordinaries Index could display some short-term weakness over the next couple of weeks to fall away into an October low, I am confident the market will rise up into Christmas and into early 2021.

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