American Consequences - August 2020

the global pandemic hit. You can’t know how bad something like that will be, or how far your stocks will fall. So we followed our rules in my financial newsletter True Wealth and sold positions when we hit our stops. This is how we protect our wealth. Now, based on our 1996 rules, it’s time to get back in. Last month, the Nasdaq hit 10,000 for the first time in history – an all-time high. Don’t get me wrong. I don’t mean that COVID-19 is behind us. I don’t mean that we can’t have a second wave or that there won’t be more struggles ahead. What I mean is that the stock market has already assessed these factors, and it’s not worried. To me, this means that the market has moved beyond COVID-19. It means that the Melt Up can pick up where it left off. And it means that stocks can soar far higher than anyone can imagine. Most people won’t believe it. Most people don’t understand that the market looks ahead . It has already priced in yesterday and today. The market has assessed the economic threat from COVID-19, and it has moved on. Don’t get me wrong. I don’t mean that COVID-19 is behind us. I don’t mean that we can’t have a second wave or that there won’t be more struggles ahead. What I mean

(That doesn’t mean you have to get back in – a new high might be too expensive for your taste.) 2.If No. 1 doesn’t look like it’s going to happen, then you need a “ cooling-off period ” before you are allowed to buy again. The first rule takes care of the math. The second rule takes care of the emotions. For the first one, the principle is straightforward. A new high means that the investment has unequivocally erased its loss. And therefore, whatever caused that loss is likely behind us. That keeps it simple and sensible. For the second one, think about it like buying a gun. There’s often a three-day “cooling-off period” involved. This way, a person can’t just get emotional, buy a gun, and immediately take the law into his own hands. The three- day period gives him time to come to his senses. It’s probably not scientific – it’s just a measure in place to control emotions. We set our cooling-off period for investing at six months. So if a beaten-down investment doesn’t hit a new high to erase the past, you then have to wait past the cooling-off period. These rules are incredibly relevant right at this moment. COVID-19 came out of nowhere and clobbered the stock market. Nobody saw it coming. And stocks fell into an official bear market faster than we have ever experienced in our investing lifetimes. The Melt Up was just getting going... Then

American Consequences

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