I’m primarily a swing trader and value investor. This means I like to look for turning points rather than ride trends. I’m much more comfortable at inflection points than sitting in the middle of a long-term trend. At inflection points, I have a whole bunch of data points telling me to either buy or sell. The strength and breadth of these data points determine my overall level of confidence with the trade.
In the middle of a major trend there are far fewer signals to analyze. In fact, there are usually a bunch of false signals that may get you to abandon the primary trend. So for someone like me, who relies on a certain set of data points and research to trade on, this time of little information or conflicting data points is the toughest for me to decipher. BUT because compound interest is the most powerful way to make money this is also the most crucial time to stay invested in the primary trend. This is why traders like to say, ‘cut your losses and let your winners ride.’ It’s their way of putting compound interest to work in their favor.
This gets back to another point I made recently: sometimes the hardest thing to do is to do nothing. We all feel, as human beings, and especially as Americans, that in order to accomplish something we must work at it:
About the only thing that comes to us without effort is old age.
You cannot plough a field by turning it over in your mind.
Much good work is lost for the lack of a little more.
I am a great believer in luck. The harder I work, the more of it I seem to have.
The difference between try and triumph is a little umph.
The only place where success comes before work is in the dictionary.
Nobody ever drowned in his own sweat.
You can find hundreds of more quotes from Americans pretty much saying the same thing: the amount you achieve is directly related to how hard you work for it. This is just part of our national ethic and it’s something to be proud of. The problem is that this works against us in the stock market. It inspires us to try to do too much (unless it inspires us to earn more to put toward compounding).
This is one of those times where I think it’s best to just leave well enough alone. Most of what I’m seeing tells me that the uptrend in stocks is still in place. Stocks are fairly valued and investors aren’t overly enthusiastic about the market right now. For these reasons, it’s probably best to just sit on my hands right now. Warren Buffett has said that his performance over the years would have been much better if he had just gone to the movies rather than feel obligated to do something in the investment portfolio. Maybe I’ll go see “The Hobbit.”
Chart of the Day
The Euro has formed a head and shoulders bottom pattern that looks pretty bullish for the currency. If the Euro were to continue to rally this would be bullish for the stock market, as well. Over the past few years, the dollar and the stock market have been inversely correlated – they move in opposite directions. So if the dollar were to decline I would expect stocks to do well.
Hit the Links
- Apple reportedly to roll out low-cost iPhone for emerging markets in 2H13 (DigiTimes)
- How Wall Street Dines Off Your Ignorance (The Globe And Mail)
- Youth unemployment in the EU is staggering (Business Insider)
- Traders are buzzing about a gigantic asteroid that’s not far from earth (Business Insider)
- The 10 American Cities that Brew the Best Beer (AMOG)
- What trick can you learn from the most successful sales person ever? (Farnam Street)