A lot of things in life end badly. They just do.
First trips to Vegas. Housing bubbles. Crab and chili omelets (trust me on this one). And this market.
This market is very forgiving. What I mean by this is that for the most part timing and stock selection have been irrelevant in the current environment. Sure, if you want to maximize your return and out perform the indexes you still have to do your homework, but coming to school unprepared will not be punished in the way that it traditionally has been. And this is not how markets are meant to behave.
Markets are designed to hurt you; and hurt you bad. To seek out those that come to the game the least prepared, with the least flexibility, and with the most emotions, and then to beat their asses so bad that not only do they swear off equites for a generation, but that they become anti-proselytes for participation in the markets. And that’s just not happening right now.
This market, which I have dubbed the “Gift Market,” just keeps giving gifts, no matter what you do.
Buy every dip, get a gift. Buy without regard to technicals, get a gift. Buy without any risk based methodology, get a friggin’ gift. The gift is that everything keeps moving up.
Getting the desired results is too easy right now and it is lulling a lot of people into thinking that they know what they are doing. It’s like going out on the town to get loose, and drinking lemon drops all night. They taste great and go down so smooth, which relaxes you and gives you a false sense of being in control. You feel like you could just drink them all night long. And it’s all good until it isn’t; when you find yourself hugging the porcelain God, as the last thought that goes through your head before passing out on the linoleum floor is “I am going to be so hung over tomorrow.”
There are a lot of market hangovers coming in the future. When that future is is anybody’s guess; six months, a year, two years? Nobody really knows, and the debate as to when it will happen or why it will or won’t happen is just noise. History has shown us time and time again that it will happen, and the only discussion worth having about it is the one that starts with “am I at risk,” and ends with “how can I eliminate that risk.”
I’m the dick that tells you that you are at risk. I seem like a dick because that is a downer message, and right now everything is so rosy. Markets always go up, to the sky in fact. Fortunes can be made with little effort, retirements will come early, jobs will be quit to ride this wonderous bull market to its zenith. In fact, this isn’t even a bull market….it’s a magical unicorn market. No, a Pegasus market; that’s the one with wings, right? Wait, wait, this is a winged unicorn Pegasus market, jetting to nirvana as rainbows shoot out of its ass.
But at some point My Little Pony is going to come crashing down to Earth, breaking it’s back in the process. And as it lies convulsing in its death throes, with flocks of whatever those flying things in Pitch Black were, waiting to strip it to the bones, you are going to wonder what hit you. And no Vin Diesel looking mother fucker is going to save you.
But fear not, you still have time to prepare for this inevitability. Push my dickness aside for just a moment and listen the message I am going to tell you.
You have to use objective criteria to get you into the positions you take, but more importantly, you have to use that same objective criteria to know why and when to get out of positions. Put plainly, make sure you are trading and/or investing with a methodology.
It will be a bit painful at times in this market, using an objective methodology. It will often take you out positions that will then reverse and move up. Your friends who are investing by the seat of their pants will laugh at you, flaunting the fact that they are still in their positions and that they are “killing it.” Pay them no mind, because he who laughs last, laughs loudest bitches.
When this ride ends, and believe me, it will end, and badly, your methodology will take you out of the market, preserving the lion’s share of your gains. You pals will continue to invest, buying more on the way down, waiting for the market to give them yet another gift. And when that gift is not forthcoming they will blow their accounts up.
For more on killing it in the market and then losing everything because you don’t have a methodology, read I’m A Lawyer, No, I’m A Trader, Damn, I’m A Lawyer Again and The Importance Of A Trading Method, Or What Not To Do In Vegas After Getting Shitty Drunk.
If you want to learn more about investing, trading, and the markets, all while helping to kick pediatric cancer’s ass, check out my book, Trading: The Best Of The Best – Top Trading Tips For Our Times. It includes over 200 market tips from 60 active traders and investors, and all proceeds go to the McKenna Claire Foundation to help support research for a cure. Just click the banner below or go directly to Amazon by clicking here.
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