We hear so much definitive market talk from the financial media, and most of it is careless and quite useless. The best advice is to follow the market action and not the anecdotes and phrases that will put you in the wrong frame of mind. Discipline and hard work trump complacency and laziness, so turn off the noise and be at your best.
‘It will be different this time’ — Mark Twain reportedly said, ‘History doesn’t always repeat, but it often rhymes’. Investor/trader emotions never change, driven by the fear/greed over wealth. Markets have been going higher over a longer period of time, and while there are always dips the track record of the stock market since inception is a pattern that I will continue to follow.
‘There is no Alternative (TINA)’ — We have been hearing this one quite a bit lately as money seems to flow consistently to the US for investment. This fallacy is the result of media hype trying to influence investors to be pushed into a certain country or asset class. The fact is diversification the best way to play markets, the only free lunch you will ever get. We have the choice of different asset classes – equities, bonds, gold, real estate, commodities and cash. The TINA proponents will scare an uninformed public into piling their money at the wrong time into one asset class.
‘There is too much cash on the sidelines’ — I really do not understand this one. There should always be ample cash on the sidelines to take advantage of dip buying opportunities. The assumption with too much cash on the sideline is ‘you better get in before all that sidelined cash rushes in’ and drives prices higher.
‘Time to go all in’ (Suz Smith) — The term ‘all in’ should NEVER be used as it relates to investing. This is just a set up for disaster. I often preach on my webinars, coaching sessions and chat room to always size positions correctly. The all in concept comes from the world of no-limit poker, where you push all of your chips in on one hand and leave it to the poker Gods on whether you will win big or get busted out.
Lotto ticket – (Suz Smith) — How often have you played the lottery and actually won? I would guess not many of you, so trying to play lotto tickets with plays, specifically options is a low probability event for coming true. Sure, sometimes these hit but understand this is not part of a regular investment strategy.
‘You have to buy this dip, you will never have another chance’ — We heard this one often during the 2008/09 financial crisis, all the way from SPX 1200 down to the low of 666. I can’t tell you how many times I heard this one spouted in the social media, yet the market continued under severe distribution. The financial media was telling you to grab a falling knife, but the market was telling you there was more selling.
‘Gold is just an old relic, there is no value or use for the metal’ — For many years gold was seen as a store of value for times of war or as an inflationary hedge. With the unleashing of central bank authority to print more fiat currency it has given rise to the popularity of gold as an alternative. Currencies are in a race to the bottom, and since gold (and other precious metals) cannot be replicated it makes great sense to hold gold in case currencies continue to be slammed (as we saw recently with the British Pound Sterling). Gold is one of the best performing asset classes in 2016.
We’ll have part II next week.