The art of investing is broken down into the following:
1. Knowing when to enter a high-probability asset based on a proven edge.
2. Knowing when to stand aside on an asset as it displays no edge.
3. Knowing when to let go of an asset, either for a profit or a loss.
Let's compare two well-known brand names and try and answer questions 1 and 2 if we are considering both for the portfolio.
As investors, we want to focus on what price is telling us, putting any attachments you have to the brand aside. The investor in you must be separate from the consumer in you.
Let's start with Tesla Inc. TSLA:
- Went through a significant period of trend through 2020, moving over 1,000%.
- Creating a base in the form of a consolidation which started in January 2021.
- An expensive stock with the current high at circa $900. (There was also a stock split in 2020.)
- A volatile stock with large swings when trending. A breakout from consolidation and a break and close above $1,000 will be significant as this will then see the price move towards $2,000.
However, you first want to see the price break out of consolidation before making a decision.
Buying into TSLA now could see price continue sideways for many months, meaning your risk will be tied up for little growth. Timing an entry is key to maximizing the upside potential efficiently. Below is the daily timeframe.
Let's compare that to Microsoft Corporation MSFT:
- An excellent history of performance going back to 2016.
- A much cheaper stock compared to TSLA at circa $310.
- Trends very well and is a much smoother ride compared to TSLA.
- Breaking out from consolidation.
- Price has been trending since the start of the year.
- Current consolidation is circa two months old. The cons to MSFT mean that there is a high chance, not a guarantee, the price is likely to move into another lengthy period of consolidation at some point in the future.
When that will be, only the price can dictate that. A potential level could be at the $500 mark as this is the next major level of resistance above price. Below is the monthly timeframe.
Summary If I had to choose one for the portfolio based on the above analysis, it would be MSFT. It is a far cheaper stock compared to TSLA with excellent upside potential.
When trending, price movement is linear. TSLA may cover ground quicker but it is a bumpy ride. MSFT has been in my portfolio since last year.
I prefer to build a portfolio around assets that trend well over time, allowing me to compound in the process. Consistent growth is made through a well-put-together portfolio consisting of a number of high probability assets as opposed to getting caught up in the brand name of one.
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