Investing in the stock market is never easy, no matter what you are told by those selling get-rich-quick software. In fact, rather than try to make it sound easy, I start my book The Magnet Method of Investing with two quotes intended to remind you how hard it really is. Please do not get me wrong, I never try to discourage anyone from investing in the stock market because I believe the market provides the best opportunity to accumulate wealth. The real key is to proceed at a comfortable pace. Like almost anything else, the biggest mistakes come when you try too hard.
There is an expression on Wall Steet, ”There are old traders and there are bold traders–but there are no old bold traders.” When you are young and inexperienced, there is a tendency to try too hard. In the stock market, trying too hard manifests itself in many ways, and I have made many of the common mistakes myself. I now have almost 30 years in the market professionally and I remind myself it is a marathon, not a sprint race. If you find yourself in a hole, stop digging!
One of the greatest risk managers in the industry, Aaron Brown, reminded the listeners to my radio show years ago that there are periods of the market cycle to take your foot off the accelerator and just back off. I believe we are in one of those times right now. I expect the market to provide a pause that refreshes here, maybe even a short period that is outright scary! When the road feels rough to me, it is not time to grip the wheel tighter and go faster.
I am not suggesting to “sell everything” or predicting the sky will fall in and we see a full market collapse. I simply began to feel the market has gotten harder here and want to make sure I do not try too hard. When I am in my best form and the market is cooperating, gains feel like they come very easy. Right now I am feeling a rougher road under me, and with my experience, that means to do a little less, have smaller positions, and use tighter stops. Like baseball and golf, the best results come from a controlled swing. Trying too hard and pressing at the wrong time leads to the worst results. In my opinion, this is one of those times to take a few days at the beach, play small ball. Just don’t try too hard!