The Greatest Market Indicator – You.
The greatest market indicator is recognizing your gut feeling, and acting against it.
If you have participated in the markets for any length of time, I’m sure you can recall two instances that fit into these feelings.
“What the hell! This is bad, this is really bad. Almost every stock in my portfolio has been cut in half!”
“Damn I am absolutely killing it, I don’t think I have ever made this much money”
What soon occurred after Exhibit (A)?
Your portfolio started to bounce back and it turned out to be a great time to throw more money at your favorite companies.
What soon occurred after Exhibit (B)?
The market went into a standard correction or worse, a bear market ensued.
So, how can you recognize your own emotions, process them, and make rational decisions for your portfolio? You have to do the hardest thing there is, and make moves, when everything in your being is screaming not too. This is investing after all, right? You know, the game most people lose. The game where most professionals cannot beat the index even when they charge clients for performance. Of course the answer is something hard.
When you are staring at your computer contemplating what yacht to buy, or what pen to use to write your suicide note with, those are the times for action. The rest of the time it is similar to watching paint dry as an investor. Personally, when prices are inflated and everything is doing fine and dandy, I prepare myself mentally for my portfolio to take a substantial hit. Maybe not tomorrow, or next month, or next year, but I know it’s coming. I know people will contact me and and ask what the hell is going on. I know the talking heads on TV will sound the alarms. All the things I just mentioned are massive buy signals.
When I’m sitting at my computer in total disgust, and the last words I want to hear are “stock market” that’s when you buy hand over fist. You just buy and buy and buy and ignore the world around you. Look at the sell-off from COVID-19. Everyone thought we where f!@#*d to put it mildly and yet it’s already shaping up to possibly have been a generational buying opportunity. Just about every good company was available at prices that made the risk low, and a positive future extremely likely at the current asking price.
Being a good investor requires inner calmness and an ability to ignore everyone around you. Analyze how you are feeling and do the opposite.