Two things are going on for me this morning. The first is the reality that I lost my first trade in over four months. The second is a bit more positive. I am happy because money is flowing back into equities and it appears the retail investor is coming back.
Losing my trade this morning bummed me out. Intellectually, I understood and do understand that winning cannot go on forever, but, honestly, in some semi-lit corner of my brain, I believed I could go on winning without losing. Of course, that is not the case, and when I sold my trade for a big loss this morning, that truth came rushing home.
After analyzing the trade, I am clear about my issues regarding it, but just to be sure, I will tell you what happened.
My biggest issue is that I broke two of my rules for trading. The first is that I did not place an upside sell when I hit my profit. The second is that I did not have a downside stop set. In both cases, this is bad money management. The reason both of these things happened is that my mindset changed because of my four-month successful run. Instead of simply getting out with a clean but simple profit, I tried for more and instead of taking a small loss, I hoped it would come back and it did not. The good news? I finally came to my senses and dumped it before it could go lower. Even better news, I am now okay. The fact is that my winnings over the last four months more than cover my loss and I am clear that a loss was surely coming my way. As to my breaking my rules, well, I can’t promise anything, but I will surely try to stick to them in the future. Oh, and here is a bit more good news, which, as I said earlier, makes me happy.
Just over $22 billion flowed into long-term equity mutual funds and exchange-traded funds in the week ended Jan. 9, according to Bank of America Merrill Lynch. That was the second-highest amount on record after the $22.8 billion that went into all equity funds in September 2007. Even more striking was the amount of money going into equity mutual funds, the purview of the less-active, more traditional retail investors. Of that $22 billion inflow, $8.9 billion was into these funds, the biggest weekly influx in 12 years. B of A/Merrill Lynch, which uses a composite from Lipper, EPFR and other services, has the data going back to 1992.
The best part of this news is the 2007 part. The market was flying high then and the inflow referenced had been building. What makes this time different and more promising is that the opposite has been true. The retail investor has been on the sidelines, more or less, afraid of stepping in. That has apparently changed, which reflects a certain confidence in the market, and the economy for that matter. As to the 1992 part, well, that is good news as well. Back then, the market was just coming out of a bad spell, which suggests the same is happening now. Me likey both times.
Now, this newly found confidence could melt away as the debate about spending cuts and the debt ceiling comes up. As always, we will see, but for now, the market just might think the cash infusion a good thing. If it doesn’t, I do, and that also makes me feel better about having to take my first loss in some time.
Trade in the day; Invest in your life …
