The other day I was asked by a novice trader how it was possible to make any sense of the stock market over the past few months. This novice astutely pointed out that stocks in the S&P 500 Index fell more than 7% in September, then reversed course and surged nearly 11% in October. So far in November, the S&P is once again down more than 7%.
To be certain, trying to make money in the stock market like this isn’t the easiest task. Many traders have told me that it seems like as soon as they go long, the market sells off. Then as soon as they go short, the market surges. So, how do you keep your head about you during a crazy stock market like the one we’re living through right now?
Over these past several months, I’ve sought out literary material to help keep me calm. The other day I came across Rudyard Kipling’s poem, “If—”. Here’s the money verse from this great work:
If you can keep your head when all about you
Are losing theirs and blaming it on you…
Yours is the Earth and everything that’s in it,
And—which is more—you’ll be a Man, my son!
Yes, I realize that keeping your head in a crazy stock market is easier said than done, but the task can be made a lot easier if you take a few steps to mitigate risk and palliate your fear.
First off, if you can’t afford to lose most of the trading capital you have right now, then you simply should not be trading. What I mean here is that when it comes to trading, you have to be willing to sustain some big swings in a market as volatile and as unpredictable as this. If you can’t withstand the swings, or if the volatility is eating away at your psyche like an insidious cancer, then the best thing to do is cut out the cancer and go to cash.
Second, don’t try to outsmart the stock market. The overwhelming bias right now is to the downside, as indicators like the Chicago Board Options Exchange (CBOE) Volatility Index, or VIX, clearly indicate. In fact, the VIX is up over 9% in the last month, and that reflects the big sell-off that’s taken place in November.
This measure of fear in the market tells us that put buyers are running rampant, and until the VIX comes off its latest highs, we are likely to see more downside pressure. What this means is that you have to be extremely cautions if you are going to be an aggressive long buyer. Be it call options, stocks or leveraged ETFs, if you aren’t willing to take a big hit in these type of assets, then don’t jump in the fight with your trading capital.
Finally, don’t let yourself suffer psychological damage. If some big trades go against you (and I don’t know any trader who hasn’t had this happen to him of late) then accept your loss as part of the game, and consider it a learning experience. Whatever you do, don’t beat yourself up over getting caught in the wrong direction of this crazy stock market.
Just as it’s impossible to have a rational conversation with a madman, it’s also hard to figure out this crazy stock market. You can have all of the right logic on your side, and still your rational choice can get slammed. If you want to play in this wild game, then don’t be discouraged if you lose sometimes. And, if you can’t afford to, or you don’t want to subject your trading capital to potentially big losses, then there’s no harm in waiting things out on the dock until the waters calm.
Doing so may just allow you to keep your head when all about you are losing theirs.
Are You Concerned About Your portfolio?
You’ve likely watched the stock market, and probably your portfolio, move in the wrong direction again over the last few months.
There’s a reason — but more importantly, there’s something you can do about it.
The stock market is ‘trapped’ in what’s known as a sideways cycle — and if history is any guide, it will likely remain trapped for several years.
That means your portfolio is at risk of suffering continued ups and downs — and that makes it awfully hard to generate the returns YOU need for sustainable long-term financial growth.
What You Can Do About It
It’s time to change your approach — with just PART of your existing portfolio. If you have the patience and the desire to achieve long term financial stability, then the following strategy is about to help you.
As you read this, a private circle of investors are already using an innovative strategy — code named the Millionaire Blueprint — to achieve consistent, realistic returns from the stock market and to safely build a million dollar portfolio.