Smart investors start in a strong defensive position. That means owning high-quality stocks and bonds, index funds, and exchange-traded funds. Forget about gambling your hard-earned capital in risky plays.
You should also have an exit plan. That doesn’t mean you leave the market at the first sign of trouble. Rather it means you run a trailing stop behind individual stock positions, allowing yourself unlimited upside potential with strictly limited downside risk.
The key in investing is also to learn along the way. You will make mistakes because this is inevitable. But don’t make the same mistakes all over and over again.
Many investors put money at risk only when they feel optimistic about the economy, the stock market and the future in general. Things go well for a while but then the inevitable happens. For many reasons the stock market will experiences a sharp correction or will fall in a sudden bear market.
You should then know well in advance what you’d do in such circumstances. Experienced investors see sudden sell-offs as opportunities. When everything drops in value at the same time, prices get detached from values and from reality. We saw this at the beginning of last year’s pandemic. Which created the fastest bear market in history. There were so many bargains around. Not just in stocks, yet many investors froze and did nothing. At least not until the market was already back in a strong uptrend.
Conclusion:
1. Invest from a defensive position.
2. Learn from your mistakes.
3. Know in advance what you’ll do if the market is on sale.
Sven Franssen