Trade the media talk for your own stock codes
From the low on June 4 to the high of a couple of weeks ago, the market had jumped 29.56 per cent and clearly a lot of people are now thinking that enough is enough.
Volatility is up, the S&P ASX 200 Index has moved more than 50 points eight times in 25 days and has crossed the 5000-point level seven times. A sure sign of a herd that has had its run and is now pawing the ground, wondering where to charge next.
And while it makes its mind up, I and every other commentator are talking and writing endlessly about "the market".
In the past month we have all rather laughably become experts on Cyprus, making one profound declaration after another from a position of no insight or knowledge beyond what everyone else has read. Regurgitating what's just happened and why and icing it with a bit of harmless commentary and utter guesswork about what's going to happen next.
The market debate absorbs untold hours of financial effort. The newspapers are full of it, the TV commentators obsessed with it, the economists talk about nothing else and even I find myself obliged by my members to constantly refer to "The Market" and what is going to happen to it next.
When investment boils down to what stocks you hold when and whether they are going up or down you have to ask, are we all wasting our time taking about the market?
Really. If all the kings and queens, presidents and heads of state, the central banks, banks, investment banks, regulators, CEOs, brokers, fund managers, financial planners, accountants, investors and even the taxi drivers didn't know there was going to be a global financial crisis, then what hope have you or I of making an accurate call on what happens next?
Yet this is what the market debate implies, that we are building up to some big decision to either buy or sell the market.
But let's be realistic, making that 'big call' is almost impossible for the average investor. Are you really going to make a decision to sell all your stocks at once or to invest all your cash at once. It'll never happen. The magnitude of the decision means it never gets made because its too onerous, its too big a decision; and because of that, despite endless hours of high brow about the market, most investors are constipated by inaction, or, more likely, acting far too late, like selling in the depths of the GFC or buying on the all-time high.
Sorry, but anyone who allows themselves to be distracted by a potentially valueless macro debate hasn't really worked out what making money from the stockmarket is all about. It's about the stock codes on that spreadsheet, the number of shares, the current price, their current worth and that number at the bottom that adds them all up and tells you what you're worth. The market is bunkum unless you actually trade the index, which few people do. In which case your time will be far better spent dealing with 'stocks', with the stocks that you hold, and through that you'll find the market calls are made for you.
By listening to the charts on individual stocks, selling individual stocks as their up trends end, or buying individual stocks as their down trends reverse, you are incrementally going to make a call on 'the market' without having to. You don't have to make a 'big call"; it is made for you. And by the time you hear about a market correction on CNBC, a correction which leaves all the 'moron portfolio' investors in a cold sweat about whether they've left it too late to sell, you will have sold everything already.
Turns out that the way to time the market is not to try to time "the market" but to try to time individual stocks and, in so doing, "the market"; then your portfolio timing will take care of itself.
It's a heck of a lot easier to break the big decisions down into a lot of little ones.
Frequently Asked Questions about this Article…
Recent volatility — for example the market jumped about 29.56% from the low on June 4 to the high a couple of weeks later, and the S&P/ASX 200 moved more than 50 points eight times in 25 days — is a reminder that headlines and big swings are normal. For everyday investors the practical takeaway in the article is not to panic about the noise, but to focus on the stocks you actually own and how their trends are behaving.
No — the article argues that trying to make a single ‘big call’ on the whole market is almost impossible for most people and is often driven by media noise. Instead of reacting to every macro story or TV debate, investors are advised to pay attention to their individual holdings and let stock-level signals guide decisions.
The article recommends breaking big decisions into lots of smaller ones: sell individual stocks as their uptrends end and buy individual stocks as their downtrends reverse. That incremental, stock-by-stock approach lets you manage risk without the unrealistic step of selling all your stocks or investing all your cash at once.
The article points out that trading the index is not what most people do, and for most investors it’s more productive to concentrate on the stock codes on your spreadsheet — number of shares, current price and worth. By trading the individual stocks you hold, the timing of the broader market is effectively made for you.
Charts on individual stocks show trend changes: they help you spot when an uptrend is ending (a sell signal) or when a downtrend is reversing (a buy signal). Following those chart signals lets you make many small timing decisions that, together, handle the question of ‘timing the market’ without having to predict macro events.
The article warns that most media debate recycles events and guesswork and can distract investors. By the time the TV or newspapers are discussing a market correction, the article suggests you’ll have already made the sensible stock-level moves if you’re watching your own holdings and charts.
A single, large decision — like selling all stocks or investing all cash at once — is emotionally and practically difficult, so many investors either freeze or act too late. The article recommends smaller, routine decisions on individual stocks so you avoid paralysis and reduce the risk of selling at the worst moment or buying at an all-time high.
Common mistakes highlighted in the article include getting distracted by macro debate, acting on media panic, selling in the depths of crises (like the GFC) or buying at market peaks, and failing to break big choices into manageable stock-by-stock decisions. Focusing on individual stock trends helps avoid these pitfalls.
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