“Should I be an investor? A trader? Or both?” This is a question that I get asked all the time. But before I begin, I should add that personally, I’m in both camps – investing for the long-term as well as trading for the short to medium-term. Where do you see yourself? I really believe
Read More1. Firstly – do you have a long-term investment portfolio, a trading portfolio or both?
Segregating your portfolio into either a long-term investment portfolio or a shorter-term trading portfolio is a must. Why is this important? For long-term investments, a volatile market that is on a downward trend opens up new opportunities. You can either add new stocks that are undervalued and have finally ‘gone on sale’ or you can choose to purchase more of your current holdings at a lower cost. When it comes to short-term trades, don’t forget to ensure that you have tight risk management parameters such as stop losses set up. To avoid being tossed around in a volatile market, make sure that the majority of your portfolio is back in cash. If you don’t mix your long-term and short-term investments, you are less likely to panic and sell at low prices which, in the end, will affect your long-term outcomes.2. Secondly, ask yourself if you would still buy the current stocks you hold in your long term portfolio if you get another chance?
Knowing the answer to this question will help you make a decision when you find yourself wondering whether you should sell what you currently own or purchase more of what you already have. If you're confident that you would still purchase the same stocks even if the market takes another downturn, then it's likely that these are long-term investments that you should hold onto. However, if you're not sure, it might be a good idea to sell your positions and wait for the market to stabilize before reinvesting.3. And finally, are there any sectors or industries which have clearly been oversold in this panic to take advantage of?
Think of the market as a machine:- When looking at the short-term, the market is a voting machine – people vote to buy and sell based on media headlines and emotions like fear and greed.
- In the long-term, the market is a weighing machine. The true story and numbers behind a company do not lie – if a company is lacking with its numbers, no amount of good news or positive thinking in the short term will change what it shows on the scale.
Maximize these 3 Action Steps by Preparing for a Market Crash in Advance
So to summarise, today we covered these action steps you can take during market panic. These steps are:- Segregate your portfolio into either a long-term investment portfolio or a shorter-term trading portfolio.
- Decide whether you will buy more of what you have, or sell what you have.
- Buy the strongest companies which will not only survive but prosper during hard times.
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