It’s just normal for many traders and investors alike to try to come up with some winning predictions when it comes to the market. I keep hearing, “the market will do this, the market will do that”, yadda, yadda, yadda.
Sorry, but trying to predict what the market will do next is about as worthless as a velvet picture of a monkey’s ass.
In the world of investing, we can take two approaches. Either we try to prognosticate (a fancy word for predict) where a stock or the market is headed, or we adapt to market conditions and act accordingly based on the information we already know.
My approach is to adapt. That means I prefer to take my cues from current data and make a decision whether to act on it or not. To do this, one must have a system in place that screens through all the market bullshit, and faux-advice from the media, and generates reliable and useful information to help structure trades or an investment portfolio.
The most useful methodology that I’ve found is to use the relative strength approach. That is, looking for securities that are outperforming or underperforming relative to the general market and their peers. Most of us already do this: look at strong sectors, then look at strong stocks within those sectors and go long those stocks. Or, look at weak sectors, then look at weak stocks within those sectors and go short those stocks. This is not rocket science for dummies.
However, most Joe Blow investors and their brokers think the market is like a complex maze of events, kind of like a rubiks cube / jenga party. Unbeknownst to them, it’ s quite simple when you break it down logically. I didn’t say it was easy.
The alternative to adaptation is to try to predict where the market is headed. This is quite difficult without the aid of a time machine. You’ll have a better chance of getting a date with Pamela Anderson, than being able to predict the market consistently. It follows that, If predicting the market consisently was possible, Pamela Anderson would be banging Dennis Kneale during lunch breaks. It ain’t gonna happen.
Now that earnings season is upon us, it behooves us to ignore the cries from CNBC for “gloom and doom”, or a “bounce / recovery from here” and focus on what the next move is based on what we already know. Not by predicting, but by thinking through at least three possible scenarios and working up a game plan ahead of time, much like a head football coach would do.
“What do i do if oil keeps going up, or if it goes down? “What will I do if earnings on financials are better than expected?” Don’t chain yourself to one particular scenario, stubbornly holding on to your opinion because you’re afraid of being wrong. Be flexible enough to switch to the other side efficiently and elegantly.
Adapt to the changes as they come.
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