What’s an Investor to Do?
Who will win the current battle for market direction? I don’t know (you’ll never find me pretending to have a crystal ball), and frankly, I don’t care.
Every day there is an opportunity in the market to make money. Every day. Regardless of which direction the market is headed.
But if you want to profit in today’s market, you must play by the new rules of investing.
The 5 New Rules of Investing
1. Buy and hold is dead.
I hate to be the one to tell you this, but “buy and hold” is a marketing slogan, not a proven investment philosophy! It was invented in the ‘80s by mutual fund companies and Wall Street to lure more people into investing.
Ask any investors who used to believe that “buy and hold” was the right strategy—that good stocks would always go higher if they were only held long enough—what they have now to show for it. Mostly lots of losses.
Look at the brutal roller coaster “buy & hold” investors have been taken on over the last 10 years in the DJIA, NASDAQ, and S&P 500 indexes…
…and how the world’s best blue chip brands—companies like GE, Cisco, Intel, Coke, and Microsoft—went down 30% or more over this same period.
The key to profiting in today’s market is to actively manage your money. Learn how.
2. Diversification won’t save you.
You’ve heard the bromide that says you can survive anything with a diversified portfolio? It’s wrong. In a down market like we just lived through, everything goes down.
One of the distinguishing features of this bear market has been that all asset classes, economic classes, industries and regions are now correlated with each other. It’s about 90%, the highest since at least 1974, according to one study.
Financial, utility, technology, energy, drugs, steel and real estate stocks… they all went down 52%, 32%, 42%, 38%, 62% and 45%.
Diversification didn’t offer a lick of protection. Just ask the president of Harvard University, who announced not long ago that her school’s well-diversified $37 billion endowment was preparing for “unprecedented” losses that would lead to school-wide spending cutbacks.
3. Speed is in.
Unfortunately, people think they lack the intestinal fortitude to trade more frequently, but what they don’t know is that it doesn’t take guts to trade. It takes flexibility and a good plan. I’ll give you both.
In today’s market especially, it is critical that you take advantage of advances. We have seen—and will continue to see—plenty of big knee-jerk reactions to news that present big profit opportunities for the nimble.
4. Don’t take a knife to a gun fight.
In today’s market, you must use every weapon at your disposal. A mercenary uses whatever weapons work—you don’t just go into battle with your .38 caliber, you take your knife, bazooka and poison with you, too. You never know what weapon will get the job done. Think Jack Bauer — not the Marquess de Queensbury.
The same goes for us. We will use whatever tool gives us the best chance to win today—stocks, options, bonds, leveraged funds. If it can help us make money, it’s in our investing toolkit.
