Embracing Stock Market Corrections: A Four Pronged Strategy

One of the great things about being a professional trader is the opportunity one has to apply his or her long-term experience to the investment environment unfolding (or coming unglued) in the present... and in different directions for differing portfolios.

If nothing else, most successful traders develop a consistent strategy that allows them to take advantage of short-term changes/opportunities in a somewhat unemotional manner. You can always tell a "newbie" by a "let's see how you do for a year" comment, or a "what's hot" question.

Wall Street would like us to ignore the fact that the stock market is a cyclical beast that changes direction periodically, and almost never at the turn of a calendar quarter or year--- cycles vary in length, breadth, and direction. Inevitably, less experienced investors get caught unprepared for changing market realities.

Similarly, Wall Street wants investors to look at income purpose securities (bonds, income CEFs, preferred stocks, REITs, etc.) with the same total return analytics they use for equities. They too are expected to grow in market value forever, even though it's the income that the investor should be focused upon.

  • High total returns usually mean missed profit-taking opportunities, and rarely signal an increase in spending money... they do nothing for traders
  • Nothing in the nature of income purpose securities (debt instruments) should suggest that they will react to external forces in the same directional manner as equities (ownership instruments).
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