The plunge today certainly has the media buzzed up and filled with more doom and gloom. The best I can tell any investor is to look beyond the doomsayers and ignore them. They have been wrong as long as I have been investing which is since the early 1970’s.
Why Doomsayers Are Never Right
The problem that doomsayers have is every dip they jump on as the beginning of the next big decline. This means they have just no credibility. They have lots of followers because people in general worry and when they worry they are looking for someone to read and listen to. Anything is more comforting then worrying. Even if the doomsayers’ words are downright frightening, they are still someone to listen to. Even in the bear markets I have been through the doomsayers have no credibility since they are quick to point to every single dip as the start of something bigger. It’s like calling wolf. The truth is they all want to say they called the next crash “first”. So I guess if you call every dip the start of a crash you can go back to your subscribers and tell them you “called” the crash. For me, I cannot invest through such rhetoric. It just adds losses to more losses.
In 2007 when the market was topping out, the first pullback in July 2007 saw the doomsayers pointing to the pullback as the start of a huge collapse. Instead the market recovered and made a second higher top in October 2007. Every dip in 2008 was the start of the next big collapse. Finally in September they were right and the media with filled with “who called what, when”. But they offered no concrete ideas on how to profit from the collapse.
In March 2009 Doomsayers were warning that with the market down almost 50%, there was a “second shoe” to drop which would wipe out another 25% of value. Honestly with Citigroup trading for 99 cents and GE down at $6.88 along with hundreds of other companies at multi-year lows, how much lower did they think stocks had to go?
One aspect that has always puzzled me is how rarely doomsayers tell investors to buy stocks. On October 17 2008 when Warren Buffett wrote his famous article “Buy American. I Am.” he offered the best advice of just about any analysts or advisor possible. Stocks did fall about 15% further but for many stocks it was indeed a great time to be picking up some stocks.
This brings us to today’s plunge. All the doomsayers are back again as a day like today with big drop numbers draws them to the media outlets who are quick to give them ample time to spread the doom and gloom. Do you ever notice how the Dow is the index mentioned on days like today. It’s because being down 254 points sounds much worse than being down 29 on the S&P or 61 on the NASDAQ. But this is of no help to the small investor. What does help is if analysts show investors where we are today, what brought us here and where we may be heading next and how to profit from the next move.
If you look at the 3 year S&P chart below you can see that we have a long way to fall to break the uptrend line in the present bull market. The pullback of October 2014 which took the market down to 1820.66 would have to be broken before concern could be expressed that the bull market was in trouble. Indeed the market actually would have to fall to below 1750 before we could indicate that the bull market may be over. So keeping today in perspective is important. Rather than reading all the doom and gloom articles, why not read the profit-making idea articles instead and concentrate on keeping income flowing into portfolios but staying with cautionary investing strategies which is what we have done at FullyInformed.com most of 2015.
There is still more to this bull market in my opinion but we have to first work our way through the upcoming possible December rate hike from the Federal Reserve. Even though analysts had advised that the first rate hike was “baked into” stocks, it obviously is not. Investors always worry. We are small retail investors who work hard for our capital. Many of us have gone through two market collapses in the last 15 years so we have a right to worry. But it also is important to learn how to adapt to the changing market environments so we learn how to profit from corrections as much as we can from rallies. Doomsayers offer us little to no methods to protect and profit our capital in pullbacks and corrections and that is why they need to be tuned out.
We are entering one of the more bullish periods in the market. Annually the Christmas season has been kind to stocks. While the plunge of oil and the rise of the US dollar is certainly not helping stocks at all, I do not see a correction of more than perhaps 5 to 7 percent occurring at present.
For my portfolio I am busy shopping and for the type of trading I do I see a lot of potential trades unfolding. My strategies tend to focus on protecting capital first and generating profit second. That means my trades are already structured to protect capital even in this downturn. That’s why a pullback such as this one, which could take the S&P down to 2000, is an opportunity to add more profits to my portfolio.
I am not listening to the doomsayers. I have no time for them. I am too busy setting up trades and building my watch list for further profit opportunities.
Why The Doomsayers Are Never Right – Quick Comments – Nov 12 2015
This is an excerpt from the FullyInformed Members site. The second part of this article looks at trade ideas for Friday and into next week. Consider becoming a member to learn how to protect your capital from market gyrations and instead profit from them. Investors can become a member or read about the benefits of a membership through this link.
Disclaimer: There are risks involved in all investment strategies and investors can and do lose capital. Trade at your own risk. Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed and presented are financial or trading advice or recommendations. Everything presented and discussed are the author’s own trade ideas and opinions which the author may or may not enter into. The author assumes no liability for topics, ideas, errors, omissions, content and external links and trades done or not done. The author may or may not enter the trades mentioned. Some positions in mentioned stocks may already be held or are being adjusted.