Relax,
A Volatile Stock Market Is Your Dearest Friend
Most
people never forget their first love. I'll never forget
my first trading profit! But the $600 (1970 dollars)
I pocketed on Royal Dutch Petroleum was not nearly as
significant as the conceptual realization it signaled!
I was amazed that someone would pay me that much more
for my stock than the newspaper said it was worth just
a few weeks earlier! What had changed? What had happened
to make the stock go up, and why had it been down in
the first place? Without ever needing to know the answers,
I've been trading RD for thirty-six years!
Looking
at scores of similarly profitable, high quality companies
in this manner, you would find that: (1) most move up
and down regularly (if not predictably) with an upward
long-term bias, and (2) that there is little if any
similarity in the timing of the movements between the
stocks themselves. This is the "Volatility"
that most people fear and that Wall Street loves them
to fear. It can be narrowly confined to certain sectors,
or much broader, encompassing practically everything.
The broader it becomes, the more likely it is to be
categorized as either a rally or a correction. Most
years will feature one or two of each. This is the natural
condition of things in the stock market, Mother Nature,
Inc. if you will. Don't take her for granted when she
gets high, and never ignore her when she feels low.
Embrace her volatile moods, work with them in whatever
direction they travel, and she will become your love
as well!
Swing
Trading - the secrets they want to keep that way! -
CLICK FOR MORE
Ironically,
it is this natural volatility (caused by hundreds of
variables human, economic, political, natural, etc.)
that is the only real "certainty" existent
in the financial markets. And, as absurd as this may
sound until you experience the reality of it all, it
is this one and only certainty that makes Mutual Funds
in general (and Index Funds in particular) totally unsuitable
as investment vehicles for anyone within seven to ten
years of retirement! How many Mutual Fund investors
have retired recently with more liquid financial assets
than they had seven years ago, way back in 1999? There
will always be rallies and corrections. In fact, it
is worthwhile to "go back to the future" to
establish a realistic Investment Strategy. In the last
forty years, there have been no less than ten 20% or
greater corrections followed by rallies that brought
the market to significantly higher levels. The DJIA
peaked at 2700 before its record 40% crash in 1987.
But at 1700, it was still 70% above the 1000 barrier
that it danced around with for decades before... always
a higher high, rarely a lower low. The '87 debacle was
followed by several slightly less exciting corrections,
but the case was being made for a more flexible, and
realistic, Investment Strategy. Mutual Funds were spawned
by a Buy and Hold Mentality; Mother Nature, Inc is a
much more complicated enterprise.
Call
it foresight, or hindsight if you want to be argumentative,
but a long-term view of the Investment Process eliminates
the guesswork and points pretty clearly toward a trading
mentality that keys on the natural volatility of hundreds
of Investment Grade Equities. During corrections, consider
these simple truths: 1) although there are more sellers
than buyers, the buyers intend to make money on their
purchases, 2) so long as everything is down, don't worry
so much about the price of individual holdings, 3) fast
and steep corrections are better than the slow attrition
variety, 4) always accept even half your normal profit
target while buying opportunities are plentiful, 5)
don't be in a rush to fill your portfolio, but if cash
dries up before it's over, you are doing it "correctly".
The
Fibonacci & Gann trading techniques REVEALED! - CLICK
FOR MORE
Most
of the problems with Mutual Funds and much of the increased
opportunity in Individual Stock trading are functions
of growing non-professional Equity ownership. Everyone
is in the stock market these days whether they like
it or not, and when the media fans the emotions of the
masses, the masses create volatility that rarely under-reacts
to market conditions! Rarely will unit owners take profits,
particularly if they have to pay withdrawal penalties
or taxes. Even more unusual are expert advisors who
encourage investors to move into the markets when prices
are falling.
A
volatile market creates opportunities with every gyration,
but you have to be willing to transact to reap the benefits.
A necessary first step is to recognize that both "up"
and "down" markets are forces of nature with
abundant potential. The proper attitude toward the latter,
will make you much more appreciative of the former.
Most investment strategies require answers to unanswerable
questions, in an effort to be in the right place at
the right time. Indecisiveness doesn't cut it with Mamma...
in or out too soon is not an issue with her. But wasting
the opportunities she provides really ticks her off!
Successful investment strategies require an understanding
of the forces of nature, and disciplined rules of portfolio
management. If you can transition back to individual
securities, you will do better at moving toward your
goals, most of the time, because the opportunities are
out there... all of the time.
Do
Not Buy or Sell Another Penny Stock Until You
Read THIS REPORT!
So
let's adopt some new rules for this investment game
and learn to live with them for a few cycles: Let's
buy good stocks new and old at lower prices during corrections.
Let's take reasonable profits on those that go up in
price, whenever they are kind enough to do so. Let's
examine our performance based on the results of these
trading transactions alone and at market cycle examination
points for a smiley faced change of pace. And one other
thing...
Let's
drink a toast to Mother Nature, her uncertainty, her
volatility, and, of course, to our first loves.
Author Info:
Steve Selengut http://www.sancoservices.com;
http://www.valuestockbuylistprogram.com.
Professional Portfolio Management since 1979 Author
of: "The Brainwashing of the American Investor:
The Book that Wall Street Does Not Want YOU to Read",
and "A Millionaire's Secret Investment Strategy"
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