"It is hard to fail, but it is worse never to have tried to succeed."- Theodore Roosevelt
I get feedback from a variety of different subscribers across all the newsletters I compose. And the thing I hear the most often is fear. Sometimes it’s about one specific position—and any single position will be risky, especially an options trade. Often it’s about the broad market itself.
I get it. Many have lived in fear since the housing market fell a decade ago and the banks collapsed. Having your money in any bank stock in 2008 was a recipe for disaster, as those companies saw their shares decline 80-90 percent. A decade later, some have recovered that severe decline, but most haven’t.
I’ve had concerns about the market’s overall valuation for the past few years. And at times, I’ve acted on it with hedge trades or by taking some positions off the table even though they could have (and often did) run far higher.
How you position yourself to sleep well at night is up to you. You could do something aggressive like buy put options against the S&P 500 market index, as I like to do from time to time. Or you could hedge your specific positions with covered-call writing. It will offset some of a decline, but not all of it.
That’s fine. Our brains are still wired to caveman instincts. We see shares in a freefall and think it will continue forever. Or we see good times in some company and buy just before the long uptrend ends. It happens to the best of us.
The important thing is to have some perspective and remember that the good times far outweigh the bad.
That’s a hard thing to do. Our emotions are telling us something completely different at the time. And knowing that a recession tends to last 12-18 months is one thing when you aren’t going through it. But with markets slowly inching their way back to all-time highs after nearly six months trading flat, the bullish case is a stronger one than a bearish one.
Corporate earnings have been fine overall. Economic data still shows growth—and strong growth at that. Job openings exceed official unemployment numbers. Wages are starting to grow. GDP numbers are coming in over 4 percent quarterly, although not quite at 4 percent on an annual basis.
Of course, that pesky market valuation is still high. And this earnings season, Mr. Market has been extremely discriminating between good numbers and bad numbers. Companies that have done well have been well-rewarded. Apple (AAPL) reported solid numbers and became the first company to have a market cap of $1 trillion. Facebook (FB) reported great numbers relative to the number of scandals it faced earlier in the year, and shares got shredded.
Now’s not the time to be taking exceptional risks, but it’s still not time to head for the hills either. This market could be setting up for another move higher. But there’s always the possibility of a selloff as well. Not knowing the future, but knowing that markets tend to go up far more than they go down, prudent hedging is a solid idea.
And risk-adverse investors can find plenty of ways to profit from lower-volatility names. I’ve been pounding the table on bargains like AT&T (T) the past few months. The company’s huge yield at current prices can offset a lot of risk. The company is fine, but is struggling with an attempted acquisition and overcoming a slew of negative news otherwise.
The worst thing to do right now would be to prematurely panic. Or to sell off on the first bad day. By all means, take your riskiest trades off the table if you fear a market downturn. But staying mostly invested, even when times are tough, is the closest way to guarantee investment success. Getting out at the first sign of trouble is a guaranteed way to fail ever time.
Just set yourself up for success. Think about what companies you’d like to own. Start with products and services you use on a regular basis. Put a little bit to work, and try not to sweat the market’s daily moves. Chances are, something you use on a regular basis is made by a publicly-traded company. And it’s probably worth owning over the long-haul.
That’s how I’ve found some of my best returns in companies like Google (GOOG) and Nvidia (NVDA). It’s also how I’ve found some solid dividend payers, which help to, and often more than help to, offset what I’m paying those companies as a consumer.
If individual stocks are too much to keep track of, there are plenty of ways to approximate a portfolio of what you want with one of the myriad funds and ETFs out there. Over time, the fact that you’re playing the investment game matters far more than what you specifically play. As long as you’re buying a basket of great companies, you’ll do fine, even if some of those firms end up going out of business.
The fear will always be there. Over the long-term, you can ignore it. Over the short-term, you can hedge against it. But it’s worth remembering now, when things are going well: It won’t always be so sunny out. Prepare an umbrella, and even if you get soaked, it’s not the worst thing in the world. You’ll dry out in time.
Andrew Packer is a Senior Financial Editor with Newsmax Media. He currently writes the Insider Hotline investment advisory, serves as investment director for the Financial Braintrust, and writes the monthly newsletter Crisis Point Investor.
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