Stairs up, elevator down – that’s how the markets are supposed to function, right? The times have changed in the 2020s, however, as algorithm-based trading can make rallies happen as fast and as violently as market downturns. Are you able to change with the times, and take advantage of frustrating, unpredictable stock and commodity price moves?
If not, then the institutional investors will chew you up and spit you out. You can see them in action, waiting for the amateur traders to buy at the top of the market and then panic-sell when stocks turn around and head south. Then, the seasoned investors gladly buy shares from the amateurs at reduced prices.
Friday showed us what the retail panic-selling looks like, and Monday was a perfect example of controlled, deliberate hedge-fund buying activity. On both days, there were price moves in the major stock-market indexes of more than 2%.
That’s why I don’t hesitate and try to time the bottom of a market downturn. Instead, I start accumulating shares of my favorite companies and continue to scale in as the market goes down more. I know and accept ahead of time that my timing will be imperfect, but I’ll still catch the majority of the move back up.
And, the move back up will be swift. Just look at how fast the stock market rallied after the March 2020 COVID-19 crash. Again, we can point to sophisticated algorithmic traders as the driver of that move, though retail traders who suddenly discovered stock-market apps during lockdowns were also a contributing factor.
Fast-forward to September of 2022, a time when the government’s post-COVID over-stimulation of the economy led to high inflation, and suddenly the Federal Reserve had to engineer a slowdown of the economy. Across the board, practically every asset class was down for the year: stocks, bond prices (not yields), gold and silver, Bitcoin, you name it:
Overall, it was the worst September, third quarter, and year-to-date in years or even decades. As Deutsche Bank’s Henry Allen put it, “Q3 was a very volatile quarter for financial markets, with an astonishingly wide set of declines across all the major asset classes.”
But again, assets can go up just as violently as they went down. Silver, which has had a terrible 2022 so far, shot up 9% on Monday. That’s great if you were already invested in silver or stocks with silver exposure. Otherwise, it’s frustrating to watch an asset run away from you like that if you weren’t already in the trade.
But then, people who were already in the trade also struggled through months of slow, downward pressure on silver. Then, they woke up one morning and their accounts looked a whole lot better. That’s why investing is all about having “time in the markets,” not “timing the markets.”
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It’s surely no coincidence, then, that central banks are currently adding gold for the fifth consecutive month. Just in the month of August, the world’s central banks central banks added 20 more tons of gold to their reserves; so far in 2022, they’ve collectively added more than 300 tons of gold to their holdings.
Clearly, they’re not trying to time the exact bottom of the gold price. They’re putting time in the markets, knowing that gold’s reversion to the upside will be lightning-fast when it occurs. In the meantime, they’re storing their wealth in an age-old asset that has maintained its value for centuries regardless of governments’ persistent policy errors.
Silver price, 10/3/2022. Courtesy: ZeroHedge
The point is, don’t let the sudden rallies deter you from investing in high-conviction assets. You didn’t “miss the move”; you only missed part of a much bigger move. If gold goes to $5,000 and silver returns to $50, a few percentage points here or there won’t matter so much.
Hence, you can certainly still park your investable capital in stocks and sectors that have upside potential over the long term. Consider scaling into assets with exposure to precious metals, uranium, Bitcoin and/or Ethereum, artificial intelligence, cybersecurity, and the Internet of Things.
While you’re at it, you can do your due diligence on dividend-paying stocks – but that’s probably the topic of another article. In the meantime, don’t let the market’s down moves shake you out, but don’t let the violent up moves deter you either.
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