The volatility spike that occured at the second half of 2014 is one that is not seen since 2011. This causes a lot of confusion among the public on whether 2015 will be a good year. Regardless of what the general consensus are, if you are discipline and have the right investment/ trading strategies, 2015 should not be a big problem for you. So here you are, 7 key takeaways that one could learn from the happenings in 2014 which will help you in becoming a better trader/ investor, not just in 2015, but in all your trading/ investment years.
1.) Cash is a position. Staying at the sideline is a decision. While it is true that only by participating in the market that one could earn a return, it is also true that the best way to stay out of trouble is by staying at the sideline. Always remember that you always have the option to hold cash. Do not participate in the market at times of uncertainty.
2.) It is not how much you make in one week, one month or one year that matters. It is how much you consistently make throughout your trading/ investment journey that matters. Don’t compare your weekly/ monthly trading performance with your peers such that it gives you unnecessary pressure that leads to reckless trading. Keep an independent mind and trade only when the time is right and you have the confidence.
3.) It pays to be a contrarian. When your social media homepages are flooded with post of joys from gains in the stock market and there is a noticeable increase in the number of “predictions” made by the general public, the market is about to turn south soon. Stop being aggressive when you see such a phenomenon happening. Likewise, the best opportunity to buy is when everyone started comparing the market with the previous bears.
4.) Simple Technical Analysis work wonder in protecting your portfolio. You do not need to learn advanced technical analysis if you are not keen in trading but as an investor you should definitely equip yourself with simple technical strategies that could protect your portfolio. Simple techniques like trendline or support and resistance allow you to identify a change in trend before the mass does. This helps a lot in minimizing your losses and maximizing your return.
5.) Patience is a virtue, in waiting for the right opportunity and in holding on to your winning stocks. Yes, one should participate in the market in order to earn a return. But no, you shouldn’t be in the market just for the sake of being in the market so that you could earn a return. One must have the patience to wait for the right opportunity to come before seizing it. That means they are times when you should be out of the market for weeks, or sometimes even months. When the opportunity comes, strike big and have the patience to hold on to your winning stocks.
6.) While fundamental prevails in the long run, sentiment always win in the short run. Regardless of the strength of a company, if the public losses confidence in the market, you can be sure that your company’s share price will fall with the market. That is why you should learn how to identify a shift in sentiment and sell your holdings so that you have the cash to buy back at a cheaper price. You could only afford to ignore short-term sentiment if (1) you are rich and can afford to hold your shares for unknown period of time before seeing gain in your investment, or (2) if your holdings are so huge that it’s impossible to liquidate in a few days.
7.) Be a bull in the long run, and bear once in a while. Most market spent 7-8 years in a decade trending upward, so it pays to be in the market. But here’s the problem. While the bull last longer, the bear has greater strength. Often than not, one year of bear could wipe out the gains made in the previous 2-3 years of bull. So knowing when the market is turning bearish once in a while definitely helps. But you don’t want to be so bearish such that you don’t know how to act when the right time comes. Remember, bear don’t last (A simple way to avoid disaster is by reminding yourself at all time that at least 2 bears – 1 minor and 1 major – occur every decade and that the market is most vulnerable in April/May and August/ September).
So there you go, 7 simple conservative advice for everyone to have a better trading/ investment journey. Always remember that the pros win because they focus more on capital preservation, not on maximizing their gains. If you can’t loss, you will win eventually.
Happy New Year folks!