Everyone says there’s a massive recession coming. It’s stated over and over in the financial headlines; even your Uber driver said it’s going to be a bloodbath. When the prevailing sentiment leans so heavily to one side, you know exactly what to do – and it’s not what you want to do.
That’s what’s so difficult about successful investing. It’s actually pretty simple from an intellectual standpoint: You buy assets at low prices and hold them until the prices are higher. Everybody knows that, right?
It’s the emotional part that gets people tripped up. Plenty of traders wanted to buy gold at $2,000; hardly anyone wants to buy it at $1,650. The world loved Bitcoin at $69,000; they hate it at $20,000.
The commonly asked question is: What if it goes down more, though? Chances are, if you buy a stock, commodity, cryptocurrency, etc., after it has gone down a lot, it will go down some more. That’s because we can’t expect our fallible selves to catch the exact bottom of the price move.
As an investor, it’s not your job to be perfect. Heck, you don’t even have to be the smartest guy in the room. Plenty of highly intelligent people lose money and quit investing altogether. The problem is that they didn’t have the right mind-set.
As I’m writing this, Google/Alphabet stock and Microsoft stock are down because they missed the earnings expectations set for them by analysts on Wall Street. It pains me to think that some people will panic-sell these stocks because analysts aren’t happy with their earnings right now.
They’ll end up buying back the same shares they sold, but at higher prices when it’s emotionally easier to do so. And, that’s exactly why so many amateur traders lose money. They’re thinking so much about stocks that they’re not focusing on the companies that those stocks represent.
Legendary investors like Warren Buffett and Charlie Munger think about companies, and they don’t worry about day-to-day, week-to-week, or even month-to-month share-price moves. Remember, Warren Buffett’s favorite hold time for a stock is forever. Are you willing to wait that long?
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If it’s a good company, you won’t have to wait forever, but you should be willing and able to “go the distance” like a professional boxer can fight for 12 rounds. It helps you to have more stamina if you don’t pour all of your investable capital at once. The idea is to gradually scale into a position, knowing that you won’t catch the bottom the first few times.
Another challenge will be patience, which the markets will test again and again. Silver is a textbook example of this: How many more times will silver rally to $21, only to get beaten back down again?
Courtesy: Yahoo Finance
For all I know, it could happen a dozen more times. Or, silver might unexpectedly zoom to $25 before the year is over. Then, there would be another issue for many investors: Should they take their profits and run, or stay in the trade?
Just as you can scale into your position instead of going in all at once, you can also scale out gradually. The strategy is to take some of your winning position off the table but also let some of it ride. After all, just as you shouldn’t expect yourself to catch the exact bottom, you also shouldn’t try to catch the exact top of the move, either.
The whole concept of a “top” is much less important when we extend our time frame like Warren Buffett does. What exactly is the “top” of Apple stock, or of silver or Bitcoin? There is no top because they can always print new highs, sooner or later.
Meanwhile, there is a limit to how low they can go; unlike with temperatures, there’s nothing below zero when it comes to stocks, commodities, or cryptocurrencies. Besides, does any reasonable person really expect gold, silver, or Apple stock to go to zero anytime soon?
Ask yourself: Will the Wall Street analysts cover my expenses if they make a bad call and I lose money because of their “overweight” and “underweight” ratings? Of course not, so bear in mind that no one cares about your money as much as you do. If you really want to be like Warren Buffett, think independently and don’t be shortsighted; otherwise, you’ll probably end up taking bad advice, making bad trades, and ultimately getting bad results.
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