Are there no shortage if things market players need to worry about? It’s amazing how long that ‘wall of worry‘ has been up. Yet, the market doesn’t seem to be showing it, in fact we are seeing high complacency exist, which may not be a good thing over the long haul. But I have to believe the mountain of concern in trading markets is way overblown, and the market shows it’ll continue to overcome cautious behavior. Ideal for a market to rally further than anyone expects.
We can come up with a million excuses to sell, which is the action of too much worry, doubt and uncertainty. Shoot first, ask questions later, right? Yet over the long haul trying to time the market ups/downs is a loser’s game. I can understand the worry over future uncertainty, there are many of them today that are unexplainable. When will the Fed raise rates, how long with it last and are they really upset over market valuations?
Many of these worries are out of our control. We are only left with a response, and hopefully it’s not too late if/when the ‘stuff’ hits the fan.
How about bonds? Will yields continue to rise? What is the message here? Oil prices and other commodities have risen of late, the dollar has cracked lower – how is that going to effect the economy? And we haven’t even started to talk about economies overseas – China is probably slowing more than anyone would like to admit, the Euros are entwined in a very dicey game of QE, the result of which is yet to be determined.
The market will ‘do its thing’ and respond to events accordingly. However, if we remember the stock market is a great discounting mechanism then we can soon understand that market prices today move on the economic expectations about six to eight months out. Today’s market is reacting to the economy for the beginning of 2016! Keeping the time frame context in perspective is important in understanding the current sentiment and worry. While markets react on ‘current’ news and numbers we often find those moves short-lived if they are not greatly impacting the future.
We cannot begin to quantify or estimate the damage of events to the markets. I suppose the massive drop from the financial crisis in 2008/09 is still fresh in everyone’s mind, and nobody would like to replay that disaster. Strikingly, I read a piece recently published in the 1950’s interviewing some ‘survivors’ of the Great Depression, and their chief concern back then was a replay of those events. Interesting, because it was in the 1950’s we saw some good economic expansion, low interest rates and the first pop higher post Depression.
Does it make sense to constantly worry? Of course not, but we can wipe out that worry by simply applying a bit of protection or insurance. In options trading, we can do this by layering a small amount of put options (buying) as protection against any events we cannot foresee. If we own stocks and are in a very low volatility environment such as we are in today then buying this protection is rather inexpensive. But remember, insurance need NOT pay off, as we know with other things like homeowners, health and auto these could be an expense.
Much of the worry for traders these days is the fear of losing before they ever can get comfortable with a trade. Can you be patient and let your trades work for you? What puzzles me most about certain traders/investors is the need to pull money off the table too soon! They worry too much about losing rather than being worried about not winning! Naturally, we do not know what the future holds yet we often get off the train far too early and end up paying for it, not only in our accounts but in our minds.
How many times have you said to yourself, ‘if I had only stayed with that trade a bit longer’. Even the greatest investor of all time, Warren Buffet said ‘The stock market remains an exceptionally efficient mechanism for the transfer of wealth from the impatient to the patient.” Indeed!