If you do not enjoy investing you shouldn’t do it. Investors really need to think about that. The present stock market for two and a half weeks has been moving lower. The debt crisis fiasco has taken centre stage pushing stocks lower. Meanwhile do you even remember Syria?
Sell Signals
Investors have pushed stocks to the point where long-term signals were beginning to flash sell signs. The Dow yesterday broke the 200 day moving average for a short while before closing back above it. The bears who love any opportunity to point out everything bad about the economy, America and the world in general were rumbling from their caves and the media has turned decidedly bearish. Two prominent blogs, Marketwatch and Seeking Alpha were definitely turned to the “dark side” as more and more articles discussed the coming “eventuality” as so many writers pointed out that we are near all time highs and “you know what that brings”.
Market Direction Back Up Triple Digits
Fast forward to today and here we have the market direction pushing back up hard on the news that an interim solution to the debt crisis may be at hand. I get emails from investors constantly asking me “how can anyone invest in this kind of market”. Maybe because I have been investing for so long, my attitude is different. Today’s market is no different from the markets I have been in since I started in 1973 right at the height before the big crash of the 1970’s which ushered in a bear market that economists claimed would be the undoing of America. The oil embargo, Vietnam, spiraling inflation, no savings, government overspending, arms race, Communism, you name it, they jabbered on about it. Even when the markets finally recovered by the end of that decade, analysts talked incessantly about how stocks were at “all time highs” and “you know what that brings”. Sounds familiar doesn’t it.
Being An Entrepreneur
Perhaps the difference among those who invest is why we invest. I invest for the challenge and the love of growing capital. I don’t invest for money.
Just like an entrepreneur loves to build a business, watch it expand, seek out new customers, new locations and new products, I love to watch stocks, seek out opportunities, look for trades where others might not, build my portfolio, add new stocks, seek out prospects for possible future growth. You see, I love investing.
I Love Investing
I have never woke up one morning and said, “That’s it I have had it. I can’t stand the volatility. I hate studying stocks. I hate how I think I have it right and then find out I was wrong.” That’s just never been me and throughout all the years of investing the best investors I have met all love investing. It’s not the money, or the profits, its growing our businesses. We are entrepreneurs.
Making Your Fortune
To each person who writes me complaining about the volatility, the political nonsense, the “futility of investing”, I always say the same thing – perhaps this is not for you. Maybe you need to look into “a new line of work”. Remember that for every person who has made their fortune in stocks, far more fortunes have been made by people not invested in stocks.
Baked Into The Market
Intraday has certainly been exciting. Lots of investors, myself included, believed that any hint of an end to the debt ceiling would bring a strong rally. Lots of analysts disagreed of course. They love using the phrase, “that’s already baked into the market”. Whenever you hear that phrase, consider the opposite. In 2007 when stocks had pulled back to the 200 day moving average, the majority of analysts claimed that we were on the verge of moving back up to new heights. They said that any further issues with housing and banking issues was “baked into the market”. You know what happened next.
In 1999 as the Dot com bubble was already breaking and the NASDAQ sat at all time highs, analysts said that any downturn was “baked into the market”. Need I say more?
Hostages
The past two a half weeks investors have felt like hostages at a bank robbery. We just never know what’s going to happen next. With the police surrounding the bank, the robbers become erratic. Time is ticking away. The robbers want to get away. The police could storm at any minute. TV Crews arrive and media outlets scream the worse outcomes possible. Analysts are brought in who discuss on media outlets the “eventuality” of it all. Among the hostages someone has a heart condition, a woman is 9 months pregnant, another is secretly texting to loved ones while other hostages are plotting to take control away from the robbers. Police helicopters swoop overhead and as the day turns into night and the clock keeps ticking away, the level of sweat and fear rises. My goodness anything is possible now. The hostages all hope it goes well, but we fear for the worse. It’s only natural. We are human.
Investors As Hostages
The same emotions run deep among investors and indeed much of the country when there is an unknown crisis at hand. With the debt ceiling investors and the nation have been held hostage by political stalemate. As we are held hostage and the clock ticks closer to what is believed to be financial Armageddon the media outlets are filled with the worst predictions possible. Timers appear on our screens everywhere. Everything kind of social device is lit with debate, anger, fear. Everyone hopes level heads will prevail but side remarks, leaked reports and comments from politicians can quickly raise the level of fear. Some investors sell while others buy thinking they are getting a “deal”. Two days later that “deal” looks like no deal at all as investors keep selling. So those who got the deal, sell out, adding fuel to the fear.
Baked Into The Market – Really?
You can see then that rarely are major events baked into the stock market. Analysts love to think they are, but they are not. They never were. The belief over the last several days is that by the time a resolution to the debt ceiling is reached, even if just temporary, the rally won’t happen because, “it’s baked into the market”. The reality is that emotions run deep and investors mood swings are erratic at the best of times.
Two Things To Remember
Two things my mentor taught me just before the crash of the 1970’s. “Never Assume Anything” and “Nothing Is Ever Baked In”. Remembering those two phrases has saved me a ton of grief.
Selling Options As A Strategy
This is why using option strategies is the bulk of my investing strategy. I see a great company, good earnings and a falling stock price and I begin to look for opportunities. I am after all an entrepreneur. I am looking for the next “expansion” of my business. When that opportunity arises I have to decide is the selling going to stop, why is the stock remaining so weak, is this an opportunity or a trap. I then study my charts, look at investor trading patterns, see where the volume and price tell me the selling could stop and then begin to build a position in a company that is just below support levels. My hope is I am right, my naked puts are never assigned as the stock holds. The stock then begins to turn and I can earn even more if I buy some stock or follow the recovery with selling more puts.
The Advantages of Put Selling
There are so many advantages to Put Selling in markets such as the one at present, I cannot name them all. But the biggest advantage has to be that Put Selling teaches discipline and how to value a company and its stock. It teaches me that I can’t just simply sell puts or buy stock and hope I am right. Instead it forces me to study a company and understand how I am investing my money.
It teaches me that I can be profitable in any kind of market no matter what is being thrown at me and finally it teaches me patience. Patience, discipline and value. This combination is what has given me the ability to withstand every conceivable event to date and have made my business of investing profitable, successful but most important of all, enjoyable.
You can tell, I love my business of Investing.
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