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Unsolicited Advice for Turbulent Times
While I am not a professional investor, I have been managing my own money for the last 10 years and have seen/learned a lot about the market along the way. I want to pass along some tips I have learned over the years that have helped me when the market doesn't seem to agree with me.
- Downturns/Pullbacks/Recessions/Drawdowns or whatever you would like to call them are inevitable. Not a matter of if but when. These times are where the market tests your resolve. Know and prepare for that. When times are good build a cash position and do not be afraid to use it when the market heads south.
- Have a Strategy and STICK WITH IT. Ideally do not develop your strategy when your hair is on fire and you are in the midst of tech sell off. My "Sober" Strategy is Dollar Cost Averaging. This means that as my positions fall, I take it as an opportunity to add/average down into my existing stocks and to add new positions to build over a long period of time. If you have a different strategy, no problem, just stick to it. Do not let market volatility drive your decisioning. I have seen so many investors, new and old, get burned by capitulating at exactly the wrong time and swapping in and out of strategies. Remember, there are many roads to the top of a mountain. Strategies work when you implement them consistently over time. It is very easy to feel the pain and think "things are tanking, I guess I should pivot and move to a short strategy, those guys seem to be making all the money right now". What often happens is you pivot and things turn around just in time to leave you behind.
- Remember what you are actually buying! You are not just buying a piece of paper or a number on a screen. You are buying a percentage of the company behind the number. Prices fluctuate a lot, stop looking at it like a negative thing and recognize there is an intrinsic value to stocks.
- Give It Time! sometimes the market just sucks for a while.. sometimes it sucks for months or even years. Know your time horizon and plan accordingly. No one wants to hear this because the average mentality these days is very short term and instant gratification is what everyone wants but rarely what the market delivers.
- When In Doubt - Do Nothing. Especially if you are a new investor, you can be constantly tempted to sell, buy, panic, buy again, sell again.. just stop. If you do not know, default to "wait and see". I cannot tell you how many times this has helped me over the years.
- The Market Has A Short Memory - I cannot tell you how many times the market has tanked, doom and gloom set in, and somehow within a month or two we find ourselves right back where we started and stocks have recovered. Look at last year, COVID tanked us in March and we were back to all time highs within the year.
- Trading Is A Tough Game - I personally like to hold stocks for long periods but to "scratch" my trading itch I will play around with options. In times like these, I just cut the options out and wait. Hold onto my stocks and wait for a better time to dive back in. In full transparency, I believe that I might be better off just sticking to stocks and avoiding options.. something I personally have to work on.
Stay the course everyone! Things will be good again, when, is another question but staying in the game is the way to go.
This is great information! I have adopted dollar cost averaging. It makes life easier, especially during times like now.
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