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Trading Lesson: Another 2008 on the Horizon. When to Take a Detour
08/15/2018 1:10 pm EST
As everyone knows, we’re heading into the longest bull market in history. There are dozens of reasons for the market to go down, but it keeps climbing that ubiquitous wall of worry, says Mike Turner, who’s presenting at MoneyShow SF and Dallas.
And when this happens, we start hearing a chorus of investing “experts” who tell you that “buy and hold” can’t be beat. Of course this is wrong. But not only is it wrong, following this road can delay your retirement by ten years or more. What a disaster that would be. Especially since it’s avoidable.
It’s like this…. here we are in the dog days of August. It’s hot, but you’re getting ready to take your family on a driving trip. It’s a couple of weeks before school starts and everyone is looking forward to having a good time together.
You’ve been on the road for a few hours, all is well, and then you see some detour signs that you hadn’t expected. But rather than take the detour, you keep going straight! Your family is incredulous. They ask you why you’re going through the construction. It’s dangerous! It doesn’t make sense.
Relax, you tell them. “My trip advisor told me to just go straight and everything will be alright.” At the end of the trip, you survey the thousands of dollars of damages and you think maybe your trip advisor, the guy who owns the body and repair shop, didn’t have your best interest in mind.
Of course, this sounds ludicrous.
But wasn’t using a buy and hold investment strategy during the financial crisis just as ludicrous? And how did “buy and hope” treat you during that period of time? It took years to recover and break even. And that’s if you didn’t lose all faith and got out of the market completely. Many people still haven’t recovered, even 10 years into a raging bull market.
There’s a better way. Take a look at the following chart that shows what could have happened had you been using a Market-Directional strategy.
See the straight red line in the chart of the SPDR S&P 500 (SPY) below? That’s the detour. Moving into cash. When conditions got rough, you would have pulled off the highway and stayed on the boring detour. And you could have avoided all the potholes that the market threw at you for 17 months.
There’s another 2008 on the horizon. I don’t know when it will hit and nobody else knows either. But it doesn’t matter. Because the warning signs will be in place. And you’ll be able to pull over into the detour and miss the devastation. That’s what the Market-Directional strategy was designed for. Measure where the market IS, and then act accordingly.
Next week, I’ll tell you about the “Alternate Route” that you see represented by the green line in the chart, above. This is the route that bypasses the construction zones and avoids the detours, too. It’s the scenic route that really makes for a profitable excursion!
Last week, we talked about a famous hedge fund investor who has already lost 18% this year. His rationalization for the loss was because “value” stocks underperformed “growth” stocks. We showed that the reason he lost money was not because of the value stocks, it was because he turned small losses into large losses. If you missed it or want to read it again, you can click here.
By the way, the MoneyShow San Francisco is coming up next week – and yes, I’m glad to be getting out of the Central Texas heat for a few days – and the Dallas MoneyShow just a little more than a month after that. I’d like to meet you and talk Market-Directional investment strategies with you. Here’s more information about these important events.
Stop guessing and start measuring.
If you’re interested in learning more about how I manage money using the Market-Directional Investing methodology, you can read more here.
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