You vs. The Market

I can’t help but feel the urge to write after the recent drop in the markets. I will admit that I haven’t felt great about the recent drop at all, but I also haven’t had much stress about it which I think is the ultimate test of whether my investing strategy is working.

My mind has mostly been spinning about what I am going to do about it… read on!

Here is a weekly chart of the S&P 500 Index:

SPY_Aug21

Here is a daily chart:

SPY_daily_Aug21

In 4 days of trading, we went from 2100 to 1970 or – 6.2%.

Investing Psychology

You trained hard to prepare for the fight against the markets. You finally found your comfort zone and stuck to a disciplined strategy which was paying off.

You had your boxing gloves on throughout a choppy 2015 but then August rolled around.

On Aug 19 the market throws a hard punch. On Aug 20, the market hits you hard again and on Aug 21, the market throws a knockout punch and you’re now on the ground trying to get back up.

At the end of the day, you always have to adapt to what the market is doing. You cannot outsmart it.

The type of investing strategy you use will determine whether you worry about your portfolio 24/7 or if you can sleep well at night.

The market might have thrown a knockout punch yesterday, but I will get back up.

Looking forward

As of the time I write this, futures are down again big time. If markets open at another low tomorrow, not only did the market throw a knockout punch, but it wants to keep us down.

Based on where my portfolio closed on Friday Aug 21, I’m only up 8.75% this year, which is a slap to the face compared to the 20.7% profit I had at the end of July 2015. I’m truly grateful that I can say I still have a profit, but that is largely due to the smart investing decisions I’ve been making. At this moment… I still have a profit on most of my options, but if the markets continue lower that might change.

Days like these remind me that the market can take away the profits it gives in the blink of an eye.

On this Blog I track the performance of only one of my investment portfolios, but at this very moment while my dividend fund is tanking, I am planning to buy more in another investment account. I am preparing my cash position for this. When the market presents opportunities, you can either take advantage or watch them disappear. Cash is king, and at this moment if I have the opportunity to be paid a dividend for a huge discount… I’m taking it.

The long term investor

#1… no one can predict what the market does.

#2… is the market dropping because the underlying business of my holdings has all of a sudden went to zero? No.

Is Apple worthless? No.
Is Buffalo Wild Wings a bad investment because the market is tanking? No.
Is Under Armour a poor company just because the market is tanking? No.
Is Starbucks not worth holding anymore? No.
Is Disney not worth the investment just because the market is dropping? No.

#3… if the underlying business is still strong, you should continue to hold. If you sell, you’re trying to time the market. If you have the time and manage to do it perfectly… fantastic! You’re a pro and probably one of the few out there.

Market corrections present buying opportunities. This year has been nothing but choppy… an extremely BRUTAL set of ups and downs. If the trend continues, after this sharp down move, we should see a sharp up move. I don’t have a crystal ball though…

You do have to ask yourself… how far will the market discount stocks from where they were? How low is too low? This is a decision you need to make for yourself. You need to be at peace with your decision as to how you will react to these kinds of market conditions.

We are in a really challenging time for the market but we still have to find a way to keep our minds thinking right. It might not be easy to be rational when emotions are so high, but we must remain disciplined.

 

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