One of my former colleagues used to say that all major market corrections happened, while he was on vacation.
Thus, this year’s “September Blues” have arrived a bit earlier in August. Probably, this should not be surprising given the extraordinary high level of geopolitical and domestic uncertainty and disorder in many regions and countries. Even the 2024 Olympic Games managed to become controversial at the first opportunity. This reflects very well the current moral turmoil around the world amid economic stagnation.
However, this is a very good opportunity to revisit investment rules again, while waiting and praying for a market rebound.
1. Sell losing positions quickly. Do not sell winning positions too early. Minimize positions showing poor price performance or sell them during market bounces.
2. Do not invest without an investment objective and goal, thus exposing yourself to unreasonable financial risks. There should be a plan of action in case of success or failure.
3. Emotional biases should be avoided when making investment decisions. This implies that the best approach is to open and close investment positions based on certain rules defined before making a trade.
4. Follow the trend. The overall performance of your investment portfolio will be largely determined by the dominant market trend. The most successful long-term investments tend to have a moderate but consistent growth rate.
5. Never allow a good profit to turn into a loss. If some stock has recorded rapid price gains, it would be prudent to take some profit on it. This primarily applies to speculative trades.
6. Your chances of success are significantly improved when fundamental analysis is supported by technical analysis. If these two approaches agree, you will join both those traditional and technical investors.
7. Avoid adding to losing positions. This “averaging down” is rarely effective. This also implies that it is better to stick to the principle of diversification and avoid “putting all your eggs in one basket.”
8. During a bull market, remain largely invested in risk assets. During a bear market, increase the size of your cash balances.
9. If markets deviate significantly from long-term trends, trade against the “crowd” by opening positions in the direction opposite to the opinion of the majority of investors.
10. Practice what you preach and do what you believe. This implies that your investment rules must be practical and actionable.
11. Manage your investment portfolio so that there are at least two or three profitable trades for each unprofitable one. In the long term, consistency is the key to success. Otherwise, you need to reassess your investment strategy.
12. Focus on controlling your risk and volatility rather than your profits. “Young” traders think about profits, while “old” traders think about losses.
Happy August holidays! 🙂
Autors: Oļegs Jemeļjanovs, LinkedIn profile
