Humble considerations for staying in the saddle in the market

My humble considerations for staying in the saddle in the financial markets. A reaction to https://thereformedbroker.com/2022/01/21/the-rules/

Dear Joshua Brown

Thanks for your perspective and ten rules. As I recently expressed to your colleague Ben Carlson, CFA , this was related to the magic money, I always wonder why these type of rules are posted after market corrections. Why is there not more emphasis on investing guiderails when markets are advancing, and things look so easy and fun?

I also wonder whether current market correction justifies the extent of concern and nervousness that we now read everywhere, just three weeks after the 2021 Santa Claus rally, a year where the US equity market posted 70 all time highs. All we know today we already knew three weeks ago. Which is, stock markets go down, and they go down a lot. Short term risks are high, long term risks are low if you believe in human progress. And the reality is, no one knows what the Fed will do when, what interest rates and inflation will do. Even the Fed does not know it…

Current correction is nothing compared to what we endured during the dotcom crash in the late nineties, the housing bubble / great financial crisis in 2008 and the European debt crisis following that, and the March 2020 pandemic crash. Those times it really felt as if the world was ending. From all those market crashes I have very vivid memories, it was scary, chaotic, and extremely uncertain how the future would look like. Armageddon. We thought about barter trading, eating tulips (from Amsterdam) or zoo animals. Your posts suggests as if New York is already filled with soup lines. After a correction from all time highs in the stock market…….which is normal. Russia can invade Ukraine, Kim Yong-un's cat can touch the nuke button on his desk, but those things will be forgotten in ten years time. There is always something to worry about.

I will share you my humble considerations for staying in the saddle, and as a derivative from achieving financial goals, have a good life

Determine what you are, a trader with a short(er) term focus, or an investor with a long(er) term focus. Linked to this you need to set very clear goals about what you wish to achieve, and whether you have an edge. The edge determines which goals you could achieve and directs you towards the type of asset classes you could be exposed to. The goals help you to either benefit from or ignore market volatility

Know what you own, and understand the difference between value and price, and understand the purpose of price. A stock represents a company, it is not a lottery ticket

From anyone you read articles or watch items in the media (mainstream and socials) ask yourself two key things; what is this person’s credibility & track record, and what is this person’s interest to share this information or opinion? A huge amount of financial media is entertainment, it is their business model. They don’t care about you and take no accountably for what they say

Time in the market is more important than timing the market. And the latter very little people are able to do well or consistently

You need to find an approach which suits your own character and goals. Following others is not sustainable. This includes doing your own homework. Doing a technical analysis course does not tick that box. Technical analysis is way overrated for achieving consistent positive results in markets, but it appeals to many as it suggests this is a tool from the pro’s and anyone can draw a chart and feel sophisticated. Also its use for applying stop losses and take profits is detrimental as the focus is on price rather than underlying economics which Mr Market often ignores. What does tick the box is determining your risk tolerance, meaning, knowing how much financial loss are you able to deal with, while it not having an impact on your life, sleep or people close to you

I have had about ten years exposure to the pension fund industry. My assessment from that period is that there a lot of intelligent and dedicated professionals in the financial industry. But they cannot predict the markets. As one says, predicting is difficult, especially about the future. There is a lot of in-depth knowledge, but this does not mean at all there are predictive powers in it. Their value in predicting short(er) term market movements is very low, it is like trying to predict the trajectory of a down feather in the wind. They can’t.

Doing little or less is better in the stock market. The Wall Street gravy train has an interest of course to let you do as much as possible, but you need to resist this. See the former comment, they don’t know either.

Stay out of the hype and the hot stocks. You read this in every credible book on investing, but I think this is the most broken rule. This includes the magic money

In addition to subscribing to the newsletters of your excellent colleagues Ben Carlson, Michael Batnick, CFA , Nick Maggiulli and yourself you need to read books from credible people which have passed the test of time; my favorites; “Reminiscences of a stock operator”, “One up on Wall Street”, “The Little book of common sense investing”, “The essays of Warren Buffett” , “A random walk down Wall Street” and “What I learned losing a million dollars”. All you need to know

Even when you don’t make money, or have a losing streak, you will learn. Isn’t learning and progressing as a person what life is all about?

Find stocks difficult, try cocoa futures! The goal is not to shine but to survive