The secret to successful investing? Know where the money is flowing


The secret to investing successfully is to know where the money is flowing although, for retail investors this can be a little challenging depending on what you want to invest in.

But if you decide to invest in the stock market it is very easy to track the money flow, as the data is always transparent and easy to find on the ASX website among others.

The best way to identify where the money is flowing is to look at each sector and how they are performing. For example, since January 1, 2020, the Technology sector has been the top performer up around 40%, while Energy has been the worst performer down nearly 40%.

why you need to know where the money is flowing the secret to successful investing

By following each sector, you can narrow down the potential opportunities in the market, so you only invest in those sectors that are performing. Alternatively, you can take the contrarian view and find opportunities in sectors that are underperforming and likely to turn around, such as Energy.

It is also important to understand that sectors, such as Financials and Materials, account for more than 45% of the total All Ordinaries index and movements in these sectors will have a significant impact on the performance of the market. Energy and Information Technology, on the other hand, only make up around 7% of the market, and, therefore, have a much lesser impact on the market.

For example, in reviewing the performance of the All Ordinaries Index this year, the Financial sector is down more than 14%, while the Material sector is up 2% and, as a result, the All Ordinaries Index is down around 4%. However, this represents opportunity, because if the Financial and Material sectors are falling or going sideways, other sectors in the market are potentially moving up, as we have seen with Technology stocks this year.

That said, as I previously mentioned, it is more important to focus your attention on where the money is flowing rather than where it has been. Right now, I believe Technology has had its run and will slow in 2021, and, as such, opportunities in this sector will be limited. Whereas the sectors likely to see the money flow in 2021 are Energy, Materials and Financials, which is why I recommend investors look at these sectors, as they may present some very good opportunities in the coming year.

Best and worst performing sectors this week

Despite this week being very bullish, not all sectors have performed well. The best performers so far include Energy up more than 14% followed by Communication Services and Industrials, which are both up more than 7%, while Financials is up more than 5%. The worst performers include Utilities and Consumer Staples, as both are slightly in the red followed by Information Technology and Materials, which are both just in the green.

Looking at the ASX/S&P500 top 100 shares, some of the worst performers this year have really picked up this week. The best performers include Unibail-Rodamco-Westfield up more than 39% followed by Virgin Money up more than 35%, while Oil Search is up 26% and Santos is up more than 20%. The worst performers include Northern Star Resources down more than 14%, while Evolution Mining is down more than 9% and Domino' Pizza is down more than 7%.

What to expect from the Australian share market

The positive news of a COVID-19 vaccine this week has seen world markets rise strongly with the Australian market rising more than 3% so far and looking strong. In the eight trading days since the US Presidential election the market has risen more than 7% in a very strong move to confirm it has broken out of the sideways move it has been in since June. Given this, I expect the market will continue to move up into Christmas and continue into the first quarter of 2021. That said, don't be surprised if we experience some short term weakness next week.

The sectors I like for 2021 are Energy, Materials and Financials with many stocks in these sectors starting to look good. Given the volatility in the market of late, I recommend that anyone looking to invest do their research and only buy quality blue chip stocks rather than focusing on what might seem cheap.

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Dale Gillham is chief investment analyst at Wealth Within Limited (AFSL 226347). He also serves as the head trainer at the Wealth Within Institute (RTO 21917). He has more than three decades of experience in the investment industry, and is the author of How to Beat the Managed Funds by 20%, Dale's qualifications include an Advanced Diploma and a Diploma of Share Trading and Investment. He co-hosts the Talking Wealth Podcast, and his work has appeared in The Australian Financial Review, New York Business Journal, Wall Street Select and more.