As the market continues to be volatile, we’re taking a moment to share some investing and trading advice that seems particularly relevant right now. You can always check out our current holdings and ratings here, and we’ll have more individual stock write-ups soon, but this article is about 3 horrible trading mistakes that many investors unfortunately make at times like this (i.e. when the market is very volatile).
Mistake #1: Trying to time the Market
Timing short-term market moves is essentially impossible. There are many people that will tell you they can. But they can’t. Don’t be fooled by their “get rich quick” ploys. For example, it seems in recent trading sessions, big up days have been immediately followed by big predictable down days. It can be tempting to buy the dips and sell the rips. And while this can be an exhilarating strategy, it’s also a general recipe for disaster. Sure, you may try it and get lucky a few times. But as soon as your confidence goes up, you start placing bigger “bets,” and it will sting bad when you eventually get it wrong.
Further still a lot of geniuses are writing about how they quickly moved to all cash at that start of this sell-off, and they’re now only deploying cash to specific opportunities. Don’t listen to these jokers. Most of them didn’t correctly time the sell off (if they did they got lucky), and those who do move to all cash will miss the rebound when it arrives. Rather than trying to time short-term market moves (which is generally a fool’s errand), disciplined long-term investing has proven to be a winning strategy over and over again throughout history. If you are an income-focused investor, stick to your long-term strategy, Don’t try to time the market’s short-term moves. It’s a mistake, and often a costly one.
Mistake #2: Losing Sight of Your Long-Term Goals
It’s okay to be a little bit opportunistic in this volatile market, but for goodness sake don’t lose sight of your long-term goals. For example, if you are an income-focused investor, don’t go dumping your nest egg into 100% volatile growth stocks or dangerous call options because you think we’re due for a violent rebound. That’s just crazy. Instead, if you have a little extra cash that you’ve been meaning to invest—now is a decent time to do it (things are on sale versus market prices just two weeks ago). We have been writing about such compelling opportunities (a lot of attractive stocks are on sale—it’s like Christmas for those with cash), but remember your long-term goals, and only do things that are consistent with those goals. Otherwise you’ll get off track, and that could amount to some extremely costly mistakes. If you start placing out of the ordinary trades now—you’re going to look back down the road and wonder what on earth were you thinking. Stick to your long-term strategy and goals.
Mistake #3: Overconcentrating Your Portfolio
A lot of investors think of themselves as “REIT investors” or “Energy Sector” experts, for example. However, that’s a horrible way to invest your money in real life. It’s foolish to concentrate your investment portfolio in only REITs or only Energy stocks. Similarly, it’s foolish to even put most of your nest egg dollars into only one or two or three of your favorite styles or sectors. Instead, you are far better off prudently diversifying your investment portfolio across many styles and sectors that are consistent with your goals. For example, if you are an income-focused investor—there are attractive high-income opportunities across REITs, BDCs, Energy stocks, preferred stocks, bonds, closed-end funds, utilities, and many many more. It’s just better investing to reduce your risks by prudently diversifying.
It's actually sad to see when someone’s entire portfolio is just REITs. Don’t do that. It’s too risky. At Blue Harbinger, we write about attractive investment opportunities across many different types and styles to help investors reduce risks. And for our members, we share several complete investment portfolios, carefully diversified across many investment types and focused on specific investment goals. It’s just a better, smarter, more profitable way to invest.
The Bottom Line
The market has been volatile, and this is unfortunately a time when many investors make horrible trading mistakes. We’ve highlighted three such mistakes above, and we encourage investors to resist the urge to make these mistakes. Instead, disciplined, prudently-diversified, goal-focused, long-term investing has proven to be a winning strategy over and over again throughout history. Despite the violent market sell off, be smart. Remember your long-term goals, and stick to your strategy. It’s pay off handsomely in the long-run.