Chasing the Market

Another over 1% rise in the market yesterday and many must be thinking why did I not get in earlier before the run up or even better if it is headed up why not get in now since I can at least catch some of the upward move.  The first point here is this market is a perfect example that buy and hold is not dead. Yes, you hear repeatedly that buy and hold no longer applies to stocks and funds, but do not believe it.  If you are an retirement investor, an investor just wanting to make some long term money for a certain purpose like a home purchase putting money consistently every month into the market will work over the long term. 

We are traders and we trade monthly at a minimum and even with us almost 50% of our net portfolio is in buy and hold low cost mutual funds. Here is a fact, there is almost a 100% chance you can not hit it big and win the lottery in gains by buying a stock and expecting it to move up quickly. The gambler in many of you and especially the risk taker in Generation 13 keeps the trigger finger itchy and wanting to do just that. Avoid the foolishness unless you want to lose significant capital. 

All this is to point out that the market of the last month is fools gold. Indeed it might keep going up for another month or more, but chasing stocks and markets only brings pain and sorrow. Trust us we have been there and refuse to participate. We ourselves keep looking at the upward trend here and keep looking at our watch list and thinking there just MUST be a buy or sell here where we can make some serious short term money. Fortunately experience and the reminder scars keep us from chasing this market. 

The key to making money in any stock purchase is to buy value and then wait for the market to recognize that value. We have a friend who is new to this options game and we note to them repeatedly when they want to place some assets to keep an eye on 52 week lows or near 52 week lows. The odds are much greater there for profits and the chance of loss much much less. When we published our watch list a couple weeks ago we noted some stocks that had sold off significantly in the past few months on the list and those stocks are where we look for forward value. 

Yes, there are opportunities in stocks representing good companies doing profitable business currently, but most times those stocks are fully valued and only represent momentum plays. A momentum play like Apple is prone to take falls in stock price when just one day of bad news hits. Better to have stocks with bottoms in and chance of loss slim. In those stocks just one day of good news can move the stock up significantly and reward the holder.  In trading you look for these values and then make money via options. Once the stock has moved past the value stage you stop trading it and look for another value. If you do not find one you keep your powder dry. More mistakes have been made in trading when money is looking for a place to trade is invest without regard to value. 

Keep the faith and values will reemerge for the part of your portfolio that is for trading. In the meantime fully enjoy the part of your portfolio in long term buy and hold as the up trend either continues or stops.