HOW DO I INVEST?! - PICK YOUR POISON
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Pick your Poison
I remember when I started out investing I spent a lot of my time looking up stocks that I was interested in and found myself drooling over the charts thinking "Wow if only if I could have bought this back then, I would be up XYZ amount by now". Over time, I realized that this is a classic mental fallacy to have as an investor. If you bought Amazon ($AMZN) at $38 a share in 2006 would you have the stainless steel guts to hold throughout the financial crises of 2008? When you sell shares of a good company (because of a massive stock crash or global pandemic for example) you may initially feel high and mighty when the market goes down because you exited the position in the nick of time. However, now you have the extremely difficult task of having to enter back into the position you just exited. Let's run through this thought process real quick and see what “poison” you want to choose.
Option 1:
Don't sell positions, just accumulate positions as the market goes down (informally known as HODLing)
Possible Pros: The market could violently rebound and you accumulated more shares of good companies at a cheaper discount and now you are making even greater gains.
Guaranteed Pro: Less stress and grey hairs from staring at the green and red candles 24/7 until your eyeballs fall out. Receive dividends from stocks you own that have dividends as time passes.
Possible Cons: Could possibly catch a falling knife, the company you hold on to/buy more of bankrupts and you lose a significant amount of money. Companies you own could halt their dividends or cut them.
Option 2:
Sell all positions and go strictly cash
Possible Pros: Market makes a huge dive after you sell your positions and you feel like Einstein, dodging foreseeable losses.
Possible Cons: The market doesn't react to the news as you expect it would and you lose out on gains. This then leads you to the guaranteed con of...
Guaranteed Con: Not only do you have to succeed in timing the perfect exiting of the market (practically impossible) you have to then figure out and time perfectly when to enter back into the market. You also won't be receiving ANY dividends since you exited all positions (the only free lunch in investing)
Now, as you can see the obvious and reasonable choice seems like Option 1 due to the fact that it doesn't seem to have a major guaranteed con - only possible cons. You can also practically eliminate the possible cons by buying companies that are here to stay for the long run and have amazing balance sheets. An extreme example: if a company like Apple ($AAPL) goes bankrupt within the next year with their hundreds of billions of dollars in cash you will have bigger problems on your hands than figuring out what stocks to buy trust me. By that point, there will probably be no market to speak of and we will be scavenging around for water like Denzel Washington in the Book of Eli. Yes, I am aware you can play both sides of the coin and short the market when you see fit like I did with my $TVIX and $SPXS plays months ago. I only recommend this for more seasoned traders who have a laid-out plan. If you have large amounts of stocks that you don't want to sell but are confident the market will go down you can hedge your bet with put options and other option strategies.
So what should you do if you are skeptical about the future of the market?
CASH IS KING! Sit back, relax. Have a beer, and research all the amazing companies that you want to buy at a discount. All the while keeping the paychecks (or stimulus checks coming in) and waiting for when to add to your current or new positions. I have been spending most of my time quarantining researching and setting alarms on stocks I want to buy so if they dip I can get in on the action.
If you think you can time the market then go-ahead try, let me know how that works out. Please be an organ donor so scientists can study your brain and figure out what genes produce the luck you are composed of. Warren Buffett is quoted as saying he has yet to find someone who consistently is. Remember, Greenlight Capital? The firm that won big in 2008 with their short positions. Well read this article:
https://www.investopedia.com/news/einhorns-greenlight-capital-has-fallen-25-year/
Long story short: Greenlight Capital is getting burned these past 3 years like no other. Warren Buffett is probably still laughing with a blizzard in hand at these hedge funds that 'timed the crash' knowing that they got lucky. He knows that next time they won't be. Don't make something more complicated than it needs to be. Eliminate guaranteed cons and eliminate unneeded stress. Don't be a hero, let someone else storm the beach. Just win.
Winner's only,
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