Just like there are MANY ways to skin the cat, there are MANY ways to invest. The fact is that there is no ‘right’ way to invest. There are an endless number of strategies and tactics and then nuances of those strategies and tactics that can be altered ever so slightly.
One of the most difficult parts of investing is an investor’s philosophy. This is important because from here you derive beliefs and from those beliefs comes action. Those actions can either harm or benefit you financially. I would argue that most investors don’t have a solid philosophy although this is the starting place for any investment strategy or program.
So, what’s the number one sign you’re investing wrong? The answer is:
You’re worried about the stock market.
Look, the stock market is going to go up, it is going to go down, and it is going to go sideways. Furthermore, it is going to do this in different degrees and for different amount of times. There’s no way to get around it. Any belief other than that is liable to get you into trouble. It is IMPOSSIBLE to control the market…I don’t care how long you stare at the computer screen! Believe me, I’ve tried and it DOESN’T work. The point is that your investment strategy must consider these events and furthermore, what you are going to do ahead of time.
The S&P 500 finished the week down 7.05%. It was a brutal week for the bulls. It is like they were hit hard on Monday, fell to the floor, and could never get up. Any bull that has a fixed mindset of the market going up or believing it must go up probably shouldn’t have been in an office higher than the first floor. It was breathtaking as each pause in the S&P 500 turned out only to be a pause in selling, not a turning point.
So what now? Well, we are darn close to getting stopped out. As a matter of fact, we are going to sell any rally in the positions in which the stops are close. Our 12-month momentum measurement is negative and I seriously doubt it will finish positive, so we intend to run a little ahead of it if we get a rally coming into this week. The bottom line is this…we are controlling risk through diversified strategies, position sizing, and stop losses.
So, if you’re worried about the market, something needs to change because this market action is not out of the ordinary. Don’t worry about the market! Let’s have a plan you can live with while sleeping at night and NOT stressing about the direction of the market. Finally, and MOST importantly, I hope you get to spend time with the one’s you love most and have a MERRY CHRISTMAS!!
Adam Straseske, CMT