This post is not an easy one to write, on one hand, it might sound like I am suggesting to investors to buy index funds otherwise it can also mean that I am encouraging the buy and hold strategy. However, my intention is neither of the above but instead to tell you guys how to stay objective rather than second-guessing the market. This is common advice but many of us, including me at times, is unable to follow suit for various reasons. In this post, I will be highlighting tips on how we should react in some general situations so that we can utilize them when it happens.
Profit target achieved but indicators are still bullish
Most of our profit targets are set way beforehand and usually, those targets are pretty modest and achievable especially when we bought those stocks at a low when the market was filled with pessimism. That said, when a particular stock in our portfolio is about to hit our target, always review those positions to see if it is indeed approaching key resistance levels or are already overbought in the near term. If the signals are still pointing towards a higher price point, it will be possible to hold your positions so long as you are not doing it out of greed. The key condition in this scenario is to use indicators in addition to news items or financial reports to increase the justification for your decisions.
Have not hit profit targets but signals are outright bearish
This goes without saying as it sounds like the opposite of the first point but it really is not. Basically, as investors, we are trained to think that if our stocks ever go south, we should just average down no matter what. This scenario is not about stocks in the red but in fact situations when your stocks that are in the black (positive yield) dip due to poor quarterly performance relative to analyst expectations. In such cases, it will be prudent to sell it at a smaller profit and buy back later and averaging down if necessary. This tip is extremely crucial to smaller portfolios with smaller amounts of capital because your ability to average down is very much limited. Therefore, my suggestion is to sell first if it is still in the black when indicators and or news are pointing towards the negative.
Managing stocks in a constantly fickle-minded market
The market is hardly tamed because there are just too many stimuli affecting it on a daily basis. These stimuli also build up during the weekends and are unleashed when the market opens again on the coming workday. That accounts for why we should obey major indicators rather than trusting rumors about an impending correction or rumors about positive news items. To circumvent these distractions, review news sources about the market or companies you invest in and act appropriately with the two above scenarios when necessary. Chances are that not every “stimulus” will be effective in keeping the stock up or pushing it down during the next hour or trading session. This is because regardless of the impact brought forth by the media, market sentiments might still triumph over those stimuli.
Closing Thoughts
This quick wordy post is written in view of the recent rallies around the world including the STI. As usual, many investors are acting based on feelings and emotions, which leads to illogical decisions and resulting in less ideal portfolio performance. A gentle reminder for us all to review our positions objectively and always take into account the indicators which may point to the trajectory of our portfolios and counters in either direction.
