8/3/2019 Relax a Volatile Stock Market is Your Dearest
Friend
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Title:
Relax, A Volatile Stock Market Is Your Dearest Friend
Word Count:
946
Summary:
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! A volatile equity
market creates opportunities with every gyration in either
direction.
Keywords:
Stock,market,volatility,investment,portfolio,trading,discipline,opportunities,quality,profitable,investments,e
quity,eguities,trader,investor,Mutual,Funds,rally,correction
Article Body:
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 forthirty-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 naturalcondition 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!
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
8/3/2019 Relax a Volatile Stock Market is Your Dearest
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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".
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 transitionback 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.
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.
