Another day of the market drifting slightly up with some stocks like oil service stock CGV blasting up almost 5% and gold regaining its 50 day moving average line (an important bull/bear indicator among traders). Large tech (MSFT, CSCO, INTC) was rather dull and the dividend payers I mention frequently like Verizon have been taking a rest after hitting new highs before the new year. I think investors are trying out this “growth thing” as the markets move above key resistance. If that fails, I’m wondering if investors will return to the dividend stock/US Treasury “safety” trade they had going on in 2H2011.
Right now, indices like the S&P 500 are above their 50 week moving averages so many investors have green lights to buy. I would expect this to continue until it doesn’t!
Student of the Market…and of Market Participants!
The more I have become a student of the market over these past 17 years (more so the past 7), the more I have come to enjoy the various investor types scream at each other about the superiority of their own style and inferiority of other investment styles.
Value guys hate the momentum guys (especially when they sell that stock they’ve held for 3.5 years for a 70% gain only to see it rise another 150% in the frenzy of momentum traders:). Traders think buy and hold investors are dumb. Deep value investors find the most obscure stocks. And stock pickers often like to picture themselves as above the fray – because being a “stock-picker” is so generic, they can avoid being labeled as any of the other characteristics.
All in all, when looking from above, the wrestling free for all often witnessed on financial TV among various investors is simply delightful. I personally can appreciate all of them and know investors who have good long term track records in various investment strategies.
Which brings us to this week – looking at the market, with lower than average volume and steady creeping moves up, I see nervous buyers. At the same time, some stocks are launching out of good trading set ups and gaining 4, 5, 7, 10% in one day. So there certainly is no shortage of available investment cash to invest if a stock shows promise.
Temptation to Lose Discipline
One problem that can arise out of a market like this is envy – certain investing disciplines may not be producing opportunities for some investors. And if they see stocks popping 10%, they may be tempted to become day traders. Don’t do it – unless you are a serious day trader! Yes it is a skill (I don’t have training in it). And it’s a skill, like value investing, and trend trading, that requires some discipline. Don’t be the guy (it’s usually a guy) with no discipline who loses $200,000 out of his $1M account before he figures out what’s going on ok?
I personally have risk managed almost every position. As much as this market crawls up, I know that people will have no problem selling big at the sign of any trouble. I also know that if there is no trouble, this beast (the market) could likely keep crawling up. So being invested in good ideas with a risk management plan is how I choose to play this. Others may choose a different strategy but this is what makes sense to me most.
What is my risk management strategy? I won’t say because what works for me might not work for you. You may think that is a cop out but I’m quite serious. You need to develop your OWN investing plan, and use the help of a competent investment manager to help you FLESH OUT how you feel about investing so that you can create a plan that you will stick with (i.e. discipline). OK? Don’t go bugging other people’s plans off them – they won’t likely work for you.
At the time of this writing, I or my clients own the following investments mentioned in this column: Gold
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