Market Trends & Personal Financial Planning Commentary
This blog site is for you if you are interested in taking advantage of stock market trends or living off of your investments. Trending markets provide the movement for growing investment capital. Dividends, credits, pensions, and interest payments are the fuel that provides cash flow for financial independence. We get into the nitty gritty of both.
Income Investing
Income Investing is the cornerstone of financial independence. Income derived from investing is passive income and enough passive income means retirement or financial independence. We are often asked “How much do I need for retirement?” It is a great question, but impossible to answer on a high level because it is absolutely personal. The good news is that it is easy for someone to determine once they know their objectives. In order to determine your “How much do I need for retirement,” there are three easy steps:
Step One: Determine how much income is derived from your investments annually (how much annual passive income do you generate?)
Step Two: Determine how much annual income it would take you to be financially independent (what is your expected annual budget?)
Step Three: Divide the number from step one by the number from step two
If the number is greater than one…financial independence is upon you! If it less than one, you know how close you are to get to your result of financial independence. For example, if you do the math and .5 is the number you get, you know you are 50% to being financially independent. This number is arguably the most important because it can be used as the goal or benchmark that will help you to create your income investing policies and strategies. Furthermore, these policies will ultimately lead you to making individual investment decisions.
Investment decisions become much simpler when they are aligned to specific results you want to generate. There is less stress therefore less emotion and maybe even best of all, decisions can be made quickly and efficiently. The Income Investing section of the blog is all about income investing strategies, tactics, and systems. When you invest for income, you invest for financial independence.
Stock Market Trends
Have you ever purchased a stock because of valid, logical reasons only to watch it go down in price? Have you seen a stock go much further in the opposite direction than you thought possible given your sensible reasoning? If you have, you have witnessed the irrationality or loss of logic in price action. At the end of the day, there are many reasons why an investment moves up or down; Some are logical, rational reasons and some are not. Most of all at market turning points, the reasons are emotional. Furthermore, it is nearly impossible to determine the reasons why even though it is attempted and justified daily.
Publicly traded investments move up and down because of buying and selling pressure for MANY different reasons. It is that simple. The investment price does not know or care if the reasons for the pressure are rational or not. The overwhelming pressure of one side, regardless of the reason why, is the cause of market trends and market turning points.
Market trends and potential reversals are a big part of the commentary on this site. We are more interested in being aware of the overwhelming evidence of market action and taking advantage rather than interested in the minutiae of why an investment went up or down in value. Said another way, we focus on the supply and demand of investment vehicles through trend identification.
The art and objective of trend following is to let the market work for you and get out of the way when it’s working against you. In the simplest of terms, we practice identifying trends and spotting where they could end. After all, the trend is your friend, until the trend ends.
The main thrust is because the practice of humility is one of the most important, if not the most important, hallmarks when it comes to investing decisions and the execution of those decisions. Being humble can be the saving grace of a well thought out and executed investment blue print.
You see, a well thought out investment blue print has capital preservation of your investment dollars at the top of the list. One way to preserve capital is by cutting losses as quickly as possible. By doing this, you give yourself the opportunity to fight another day. So before you ever buy an investment, you have to ask yourself, “What if I’m wrong?” With too much ego and the absence of humility, the question is never asked. The ego maniac does not consider being wrong because they have never been wrong before…regardless of the cost.
The execution of selling for a loss can be difficult without humility because if you want to keep yourself right you can always justify it by saying “It is for the long-term,” or “You haven’t lost if you haven’t sold.” To take it a step further, you can even stay up late at night and find additional research that proves you are right and the market is wrong. When your ego is so large that you are certain about uncertainty, it is a recipe for disaster.
The absence of humility makes it difficult to sell when the market is moving against you. The longer the loss persists, the more damage it does to your capital and your emotional well-being making each additional investment decision harder and harder. The fact is, losses are part of investing. Nobody is right 100% of the time. Nobody. Knowing the fact that uncertainty is part of investing and that you could be wrong is a big key to investment success. The trick is to know when the investment is not working as planned and cutting bait quickly without hesitation or remorse.
The bottom line is that having humility helps you let the market work for you and realize quickly when it is not. The process is simple…create an investment program rooted in your investment philosophy aligned with your financial objectives, know before you purchase an investment what it will look like if it is working or not working, if it’s working…hold on, if it’s not working…get out and move on.
Be humble, be profitable, and sleep better.
Adam D. Straseske, CMT
Monday Morning Trend Report
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