Focus is a challenge when it come to managing your portfolio. Focusing on the positive in a down market is even a bigger challenge. My point is not to be positive and focus on the long term. It is to simply look for the positive aspects of the market generating growth. For example, several years ago alternative energy was discussed as the next boom for the energy sector due to the price of oil climbing so high. This new sector became one of the leaders driving the markets higher. That is the focus on the positive I am talking about. As crude rode to $147 per barrel everyone kept saying it couldn’t go higher. But, the positive momentum kept pushing it higher. Focus on what is positive. Coal, natural gas and refiners all benefited from the move and were worth our focus.
The key is to find where the trend is going and then look for what is driving the trend. This keeps you focused on the positive. Sometimes however the trend is down. There is no real difference in playing the downtrend as the uptrend except direction. In fact in math when you multiply two negative numbers you get a positive. With inverse ETFs it makes it easier for you and I to play the downtrend. We can now take advantage of the trend in either direction. The trend is you friend, so take advantage of it to create positive opportunities in your portfolio. Focus on the positive even if the trend is negative.
I have talked with many investors over the years and it never ceases to surprise me how they insist on fighting the trend. An example would be trying to pick the bottom of a correction. This is a method of fighting the trend. Bottoms are process and not an event. Thus, trying to pick the bottom is trying to determine when the negative sentiment will change. In other words we are trying to time of predict the trend change. This is not easy to do. Let the trend change and it will be evident. On a trip to Las Vegas I was walking through one of the casinos and noticed a big crowd around the roulette table. Stopping to see what the excitement was about, there was a pile of money on Red. Why all the money on Red? For the simple reason that 10 or 11 numbers in row had been Black. So the simple logic was the trend of Black has to switch to Red. After several more numbers were Black the Red hit. Everyone dispersed since the trend was broken. Trying to predict or wish a trend to change is not an effective way of investing. Focus on the positive and the trend really will be your friend.
Currently the market is in a 13 month downtrend. Had you started playing the downtrend when it broke and confirmed it was a downtrend, you would still be playing currently and you would have made a nice return on your money. In fact the positive is that the trend is still in play. The crowd has gathered around the table because they think the trend is going to change. But, for you and I we have to stay focused and let the trend change first then play. Find the positive in the market and focus you money there.
This is the third step in “Helping Yourself Build a Winning Strategy”. Step four is, “Holding Long Term Positions is Okay”.