Toughen up princess
Thursday, 25 October 2018
By Ryan Dinse
- A chance for glory
- How will you play it?
Markets hate uncertainty…
It’s a cliché rolled out with mind-numbing regularity by pundits and politicians alike. And it’s a phrase that really gets on my goat…
I mean, we all have to live in an uncertain world. Who are these people who feel they should have the privilege of certainty while others have to scratch around in the unknown?
Personally, I love uncertainty.
Especially when it comes to the markets.
Uncertainty creates opportunity.
Volatile markets create buying opportunities for long term investors. They create trading opportunities for short term traders. And they put pressure on lazy corporate boards to actually do some work.
These types of markets sort the wheat from the chaff.
Speaking of the markets, let’s look at how they fared overnight (spoiler alert: ‘plunge’, ‘nosedive’, ‘off a cliff’, and ‘sea of red’ will be words you read a lot today).
Overnight the Dow Jones Industrial Average closed down 608.01 points, or 2.41%.
The S&P 500 fell 84.59 points, or 3.09%.
In Europe, the Euro Stoxx 50 index finished down 10.61 points, or 0.34%. Meanwhile, the FTSE 100 gained 0.11%, and Germany’s DAX closed down 82.65 points, or 0.73%.
In Asian markets, Japan’s Nikkei 225 is down 753.25 points, or 3.41%. China’s CSI 300 is down 1.34%.
In Australia, the S&P/ASX 200 is down 150.90 points, or 2.59%.
On the commodities markets, West Texas Intermediate crude oil is US$66.29 per barrel. Brent crude is US$75.64 per barrel.
Turning to gold, the yellow metal is trading for US$1,236.63 (AU$1,748.16) per troy ounce. Silver is US$14.74 (AU$20.84) per troy ounce.
One bitcoin is worth US$6,484.74.
The Aussie dollar is worth 71 US cents.
A chance for glory
Nerve wracking times? Yep, sure are.
But if investing was just one long bull run, how boring would that be? It would mean no rewards for skill, no rewards for experience, and no rewards for brains.
If, like me, you invest your own hard-earned in the belief that you can beat the market, this is your chance to prove it.
Of course, there’s no guarantee you can do it. The future is uncertain, it always will be.
But relish the chance to give it a go.
Whether you do or don’t succeed, I applaud you if you have the guts to give it a go. Not many people do. They’d rather wail in angst about the lack of certainty.
They’ll blame others for their own mistakes.
‘It’s that darn gubbermints fault I tell ya,’ they’ll cry.
Or insert favourite scapegoat here.
Maybe it is, maybe it isn’t.
But tough luck. It’s the way it is. You want to invest, you have to deal with the markets as they are. Not how you wished they’d be.
You’ve no right to expect the markets to be kind to you. If you expect that you’ll be punished. The markets have no emotions, no favourites and no sympathy for you at all.
Now maybe you know all this.
And instead you’re salivating over the current market falls. Well, that’s step one. But you still have to have a steady system to play it smartly.
How will you play it?
Emotions are the worst indicators you can use as an investor.
After reading today’s press you’ll probably feel like selling out of your equity positions and moving to cash. ‘Ahhh, that feels better,’ you’ll think after you do it.
The primal urge to ‘get the heck out of there’, driven by your emotions while you read about the market carnage, will have been satisfied.
Your reptilian brain will reward you with a wave of endorphins.
But then, next week or next month, if the market comes roaring back and you’re sitting on a pile of cash, earning peanuts, how will you feel?
It could happen.
Or maybe instead you’re an Evil Knievel type of investor, standing ready to buy the dip. You’re loving the share price falls and have put in some low-ball bids on your favourite blue-chip shares.
These trades will set you up for the next few years you think…
Contrarian investing like this can work. But without a system, it can be a nerve-wracking way to invest. What will happen if your low-ball bids get hit, but the share price keeps falling?
Will you just hold on?
Will you sell in a panic?
Investors that took this approach in the GFC would have been hit hard as the market fell further and deeper than anyone thought possible.
Commonwealth Bank [ASX:CBA] shares at $25 anyone?
Hang on you think, first you say don’t panic and then you’re saying things could be bad?
Well, which is it?
Frankly I don’t have a clue…
But that doesn’t mean I’ve stopped investing or trading.
You see, I use a system which will lose me a bit of money if things fall and will gradually take me out of the market. But if things rise again and the fear turns back into greed, I’ll be positioned early to get the big bucks.
The idea being, my potential gains if I’m right will be far higher than my potential losses if the market goes against me.
Whatever system you use, you need to have it ready before the market makes you act.
If there’s one point I want to get through to you today, it’s that your investing method has to presume the future is uncertain. And always will be.
Devise your system to account for this fact.
Then place your chips and play your hand.
Or as I read recently in a psychology journal, ‘It is how we embrace the uncertainty in our lives that leads to the great transformations of our souls.’
PS: Want an insight into how a professional trader approaches volatility, risk and markets like these? Last Friday, in Port Phillip Insider, we featured a guest essay from a trader with a long history of success in every kind of market conditions. He has put his highly sought-after skills and system to use for some of the world’s largest institutional investors, as well as high-net worth family offices and individuals. That’s why we call him ‘The Billionaire’s Trader’. And now he’s revealing his system, and the principles that underpin it, to Port Phillip Insider readers.
If you missed his first article you can find it here. And keep an eye on your inbox tomorrow afternoon, for his second piece in tomorrow’s Insider.