It has been a horror week on global equity markets with the credit crisis claiming another high profile victim, and the US government being forced into bailing out yet another major institution. Credible market commentators are even starting to say that the US economy could face a depression, and that it will take many years before the financial system and wider economy starts to recover.
In short, it’s all doom and gloom and the casual observer could be forgiven for thinking that the world is coming to an end. But let’s step back for a moment and take a cold hard look at the situation. The first thing to observe is that what we are seeing is in no way a “black swan” phenomenon. That is, this most recent market event is not unprecedented nor was it completely unforeseen. We have seen other credit crises before and bear markets are simply a fact of life.
If history can tell us anything about these events is that after the dust settles, productive enterprise gets back on its feet and markets inevitably recover. I’m not trying to trivialize what we have seen, it is certainly a very unpleasant experience and no one likes to see their portfolios drop so drastically in value. What I am saying is that we shouldn’t throw our arms up in defeat and walk away from the markets. For if we do, we have no chance of making any kind of a recovery.
Something else we can learn from history is that the best time to invest is after a market correction. After all, investing is all about buying low and selling high and things are pretty damn low at present. The most common objection I hear to this is “what if the market drops lower?” Well so what if it does? The point is that you got involved in the market when it was close to the bottom. Forget about trying to pick the exact bottom – it’s a fools’ game. Do you really think that in the year 2018 you will care that you picked up BHP at $35 instead of a possible $30?
The more active traders always roll their eyes at this kind of thing. They want profit and they want it now!! Well to them I say you should also be rubbing your hands with glee. The most important thing for short term traders is volatility – after all, its solid and sudden movements that generate returns. And at present we are seeing lots of volatility. Up, down or sideways, it really shouldn’t matter to a trader because they should be able to profit in any of these events. Granted, you need to be careful with your risk management, and the technical signals can be harder to judge in this environment, but you wouldn’t be a trader if you were passive and risk adverse, would you?
So stop sulking around and crying foul. These things happen to markets from time to time, and it’s our choice whether we admit defeat or turn the situation to our advantage.
I leave you with a quote from an unlikely philosopher.
“Strength does not come from winning. Your struggles develop your strengths. When you go through hardships and decide not to surrender, that is strength.” – Arnold Schwarzenegger.
Make the markets work for you