Attention: Investors who want to protect their profits and NEVER ride a bear market all the way down.
The stock market can be risky. Many investors are fooled into thinking the only way to curtail risk is to diversify assets. The problem with only diversifying assets is that during bear markets, most asset classes tend to correlate with each other taking away the entire point of diversification. Said another way, a falling tide lowers all ships.
I propose an approach beyond diversification. Don’t ride a bear market all the way down! Don’t do it! This approach can be boiled down to two important concepts:
1) Control risk through capital preservation
2) Identify market trends
Controlling risk through capital preservation is deciding ahead of time how much risk one is willing to take in their portfolio. It is about having an ‘uncle point’ in which one says “Enough is enough, I’m going to sell in order to live and fight another day.” Risking more than this amount can cause stress, anxiety, delayed meeting of financial goals and even financial ruin.
Identifying market trends is recognizing the signs of a possible bear market…there are things that just happen before a bear market. Identifying market trends is about using probability and using capital effectively. Markets only do one of three things. Go up, down, or sideways. Identify the up, down, or sideways and act appropriately.
I’ve been in the investment business since 1999 after graduating with a degree in Finance. In 2011, I earned the CMT designation. And in 2017, my first book, “Home Run Financial Planning, Cover all your key financial bases and align your finances with your goals and values” was published. But most importantly…absolutely MOST importantly…
Having experienced what a bear market can do to a person’s financial AND health well-being, I said, “NEVER AGAIN. How can I help clients so they don’t have to worry about a bear market? What can be done?” Looking back, this was the turning point in an investment philosophy.If you don’t want to ride the wave of a bear market down, I can help. I can help you capitalize on market trends, which means GETTING out of the way of bear markets. So if you want to miss the next bear market and smile confidently during the mania…
Sign up for the H.I. (Humble Investor) Bull / Bear Market Report. Each week I’ll email you useful, timely, educational stock market information and at least monthly, give you the details of the markets in bull and bear markets. Do it through the subscribe page.
Investing doesn’t need to be stressful. In order to alleviate stress, know what you’re going to do before the market does what it is going to do. Make plans, have a strategy, and have the discipline to implement the strategy flawlessly. I can help. Call me today (512) 327-4747 or subscribe to the weekly market update or YouTube channel.
Wishing you investment success in all market conditions,
Adam Straseske, CMT
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.