The Market May Or May Not Crash But Even If It Does, You Don’t Have To Follow It Down

I just searched “stock market bubble” and Google returned “About 127,000,000 results.” Changing “bubble” to “crash” boosted the total to 268,000,000. Steve Sjuggerud opened his  March 15, 2021 Stansberry Daily Wealth commentary by announcing that “The Melt Up will end sometime this year” (but not necessarily right now). Does this remind you of the 2000-02 tech wreck reflected in the 73% collapse of the tech-heavy Invesco QQQ Trust Series I ETF (QQQ) between 1/2/00 and 12/31/02 (with an interim “maximum drawdown” of 83%). If you’re worried, now is as good a time as any to remind you that you are a decision-making investor — not the market.

© Can Stock Photo / ginosphotos

Market Timing: Do We Dare?

This can be a tough topic. Many dream of trying to pick tops and bottoms. Many others warn it can’t be reliably done.

For most of the past 40 years, when falling interest rates and strong economic activity pushed stocks higher and higher, this wasn’t that critical a topic. Score one for buy-and-hold.

There were bear markets along the way. But looking back on them feels like watching an old WWII movie. We know it was awful at the time. But we can relax. We know the good guys won. Score two for buy-and-hold.

Now, following a massive multi-year melt-up for many stocks and ETFs, which accelerated in 2020, there’s now concern that a new crisis may be near. Even if it happens, investors twenty years from now will probably look back on it the way we look back at the 1987 crash, the 2000-02 crash or the 2008 crash. It was bad, they’ll say. But those who were patient were better off over the long term.

How about . . . No!

No matter how mundane a calamity may appear when dispassionately analyzed by future historians, those who are there at or before the start can and should think about how to survive. It’s not necessarily easy. Market timing really is hard. But it’s not all or nothing proposition. As challenging as market timing is, we don’t have to choose between doing it or closing our eyes and hoping for the best.

You Don’t Need To Be Psychic, Just Smart

You don’t have to try to predict each up or down market move. You just need two things.

One is a set of reasonable expectations. Understand that as humans who can’t see the future, we won’t catch the very tops or very bottoms unless we get lucky. Aim at holding losses to tolerable levels, rather than fantasizing that you can entirely eliminate them.

Second, develop a systematic way to look at the investments you hold (this is more important than watching market indexes). Focus on facts, not emotion, and react logically to new information as it comes in. And this is not the 17th century Dutch Tulip mania. It’s the information age; new information will keep coming to you.

By the way, being systematic (a good thing) is not the same as being rigid. It’s OK to enhance your “system” with common-sense.

Being Smart By Using Power Gauge

The Chaikin Power Gauge ratings and the way they are presented on Chaikin Analytics gives you the tools you need to stand safely on reasonably high ground (not necessarily the peak — let’s be realistic here, but on reasonably solid ground) and wave “bye bye” to former high fliers as they continue to careen lower and lower.

Power Gauge is a 20-factor model that incorporates all of the elements that make stocks behave as they do. Consistent with what many quant models examine, Power Gauge considers valuation and quality/business risk.

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Disclosure: Long ARKK, XITK, OGIG

Disclaimer: None.

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William K. 4 weeks ago Member's comment

Thanks for a good mix of information and insight and some education. And let me add my observation, which is that to make profit selling stocks you must have buyers for them. That observation comes from an engineering background. It is quite brutal but certainly true.