Five Letters To Keep You Sane During A Correction
Shell shock from Asian exchanges continues to spread to the U.S. market.
On Wednesday, the Dow dropped 248 points to close below 15,800 and the broader S&P 500 lost more than 1%. That puts the index down nearly 10% for the year so far, and down just over 14% from the previous 52-week high that was set in May last year. The Volatility Index, which measures the market’s mood based on sophisticated traders’ positions in options contracts, has recently jumped to nearly 30, about twice its normal reading.
#-ad_banner-#That’s a wrap-up of what you’ll hear on the financial channels.
And that coverage misses the point.
I’ve been sounding the alarm bell about China for a while now, and with such rampant uncertainty about the fallout — when and where it will end and how far it will fall — the global picture is probably going to get worse before it gets better.
But here’s what you need to keep in mind. Here is what no one else is going to mention…
The mainstream financial media is there to broadcast a story. I’m here to temper their adrenaline with a little hyper-rationality.
A critical element of successful investing — and one that, when mastered, will not only make you money but improve the quality of your sleep — is to understand the difference between the daily fluctuations of our global financial ecosystem. Or, to put it another way, I’m talking about the difference between macroeconomics and the day-to-day microeconomic changes in the businesses of the companies listed on those markets.
What am I talking about? What do I mean? What is my advice?
First, breathe. Calm down. You’re fine. You will be fine. Feel your feet on the ground. Listen to what Green Bay Packers quarterback Aaron Rodgers famously told anxious fans when he and the team got off to a slow start in 2014: “R-E-L-A-X” (Rodgers went on to win the league’s MVP award last season after leading the team into the playoffs.)
Second, remember your system.
For readers of my premium publication, Game-Changing Stocks, it means we do not trade the market. We do buy securities that track it. On a day-to-day basis, the value of that large asset will change. So does the value of your house — but you don’t worry about that on a day-to-day basis, and you don’t need to worry about the market in this way, either.
When asked what the market would do, J. Pierpont Morgan icily told a reporter three words: “It will fluctuate.” Truer words have never been spoken. And better advice cannot be given than to ignore the daily changes. Focus on the long-term historical average return, the sum total of the ups and downs — what Shakespeare called the slings and arrows of outrageous fortune — which are far more stable and predictable than today’s global financial mania would suggest.
While my Game-Changing Stocks investors and I do not trade the market, we do take long positions in companies with a compelling narrative and the potential to deliver results in excess of the market. Here lately, the prices of some of those securities has fallen. But their future is still bright.
The narrative surrounding these outstanding companies and their products, technologies or services has not been and cannot be altered by what has admittedly been a rough start to trading for the year. Warren Buffett said he buys companies with the idea that the exchanges could close for five years and he would be fine. He also says never to buy a stock whose value you are not prepared so see halved by myopic traders who ignore the company’s intrinsic value. That’s good advice.
To recap: Relax. Breathe. Focus on companies and their business, not the numbers or charts or silliness of talking heads whose primary job is to fill airtime on 24-hour channels, not to assist you in determining the best course of action for your family’s financial future.
That’s my job. And I’m telling you, it’s not time to worry yet.
P.S. Even though the market looks rough, there are still a handful of opportunities that are set to deliver big gains in 2016. In fact, my research team and I have compiled a list of ten under-the-radar investments that we think could give investors triple-digits gains — but only if they get in on the early stages before they take off.
I call this list my “10 Shocking Predictions for 2016.” If you’d like to watch a brief presentation that outlines all of them — and see how you could profit from each of them in 2016 — I invite you to click here.