I was having a conversation at work today with some of my co-workers about....finance and the markets..of course!
As the grim state of the market was discussed, I once again brought up the topic of ways to manage one's funds to reduce risk and limit loss. And once again I was met with immediate resistance that anyone can time the market with any accuracy knowing when to move their funds out of stocks into safer investments.
I tried to explain that it's not about timing it right, but more about moving a percentage of funds into safer investments when the market is making highs rather than being greedy and always expecting the market to only go up. That money put aside can then be used to re-enter the market if the market should fall.
I explain that one can use simple technical analysis of market charts to determine where buying support should be as well as selling resistance. I am told that technical analysis doesn't work and the longer the time frame you use, the less effective it is- which is the opposite of what I know to be true.
If this was my first discussion with them, I'd take it in stride and think little of it, but I've had numerous conversations with basically the same folks and there are a vocal few who have challenged me from the time the market was over 13000 to the 7500 range it hit this week. You would think that attitudes would change as the market deteriorated, but that's not the case. I can tell you it can get frustrating to see folks just refusing to open their minds to a new way of thinking and accepting that buy and hold isn't the end-all and be-all of investing as that method has done nothing but lost loads of money this year.
Finally after hearing someone make a point on how technical analysis is pointless and doesn't work I could take it no longer and told them technical analysis told me to get out of the market last year. The response? Silence. I was then asked if I was 100% out of stocks in my 401K and I said yes. More silence. At this point they can no longer argue with FACT. I'm living proof that one can manage one's finances and not leave it up to the whims of the market. Case closed. After that reality check I was finally able to state the case for managing ones funds without resistance....at least for today.
Switching to "Defense Mode" During the Market Turmoil!
Wow- September and October will go down in history, and unfortunately, the memories won't be happy ones. What a market plunge and revelation of how seriously bad shape our economy is in.
This of course makes it a challenge to invest with a long term point of view, unless you really stretch it out to over 10+ years in a perfect storm recession.
The key word now is "defense". The market has dropped quite a bit from its October 2007 highs. Many folks feel "trapped" in the market- not wanting to do anything since if they move their money out of stocks and stock funds, they fear locking in their losses if the market recovers. The thing is, the market could drop further still, increasing ones losses so there's risk either way. The reality is we all need to be more active in managing market risk, unless you are fortunate to have a financial manager who actually knows what he is doing. In volatile times like these....if you wish to remain in the market, you have to take on the responsibility of managing your risk and market exposure.
If you do have a financial manager, this is a good time to grade them by comparing your returns to that of the S&P 500 or Russell 2000. A financial manager should be able to show a better rate of return than the standard index tracking funds. If not, you're better off just investing in an index fund and saving yourself from paying financial management fees.
However, there is one positive aspect to all this market volatility is that there is money to be made if you switch to short term trading....on the order of just a few days to at most a few weeks. It does require more attention spent on research and risk management, but the returns can be worth it. Stocks are making hugh percentage moves in such a short time, that it's possible to make a years return in gains in just a matter of days.
When the smoke of this Bear Market clears, there will be some excellent opportunities for the long term.
As for now, profits will come to the nimble and swift, which is what I intend on being.
