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"Stocks skyrocket on word of economic depression"
I have yet to read that headline, but many have been close.
For those of us that get our daily dose of MSN money, CNBC, the Wall Street Journal, Forbes, and the like, we are constantly bombarded with news. A company's management team will be chided for serious blunders on one day, and the next day that same company will be touted as a possible "Buffett buy". What to make of it all?
Nothing.
That's right, there is nothing to make of it. As traders we need to learn to separate our emotions from the latest headlines and concentrate on sticking with our trading strategy through the thick and thin. How many times have we seen a favorable news article about a stock we own and get that silent elation causing us to do mental fist pumps? What about when we read a bad news article about one of our stocks and we start to sink into the depths of depression? Who wants to wager that those SLO players with Apple in their portfolios are feeling the latter since the news of the iphone price slash is out and commentators aren't as bullish about Apple anymore? Be patient . . . those commentators will be back on the Apple cart in no time.
News stories abound about September being the worst month on average for stock market returns, although you need to search to find that it hasn't been the case for the past 3 years. Some news stories will tell you the subprime problem isn't that bad, while others continually cite the subprime problem as a drag on stocks. The FED will cut rates, and now they won't. Don't bet the farm on a favorable news story, just stick to the strategy.
Emotions are a difficult thing to control, after all, I foresee a downturn in the market that I expect to run at least 12-24 months, but so far, it really hasn't materialized. My strategy has been to profit from the market downturn, and though I have been hurt in the short term, I will stay the course. I still have about $125k in cash that I will divide among my 4 lowest performing short ETFs on October 15th. In any market downturn, there will be sectors that stay afloat longer before the trend pulls them down. I am diversified across all sectors, so the sectors that have been beat up the least is where my money will go, and then ride the market down until the finish in December.
The tide turns quickly in this monster we call the market. Anyone selling any Apple stock?
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