This is crazy. Wish we were ‘traders’ but sadly we are not. This is the most fun we’ve had since 1998, pre-dotcom boom. And we all know how that story ended – gulp.
We’ve told this ‘how to avoid a bear market‘ story before – as we’ve been through numerous market corrections and crashes since 1973, when we first started as a runner on the Chicago Board Options Exchange (CBOE). There, after the market closed every night, we went up to the traders clearing office for free beer and backgammon with the floor traders. Hello.
Being in high school it was pretty clear we didn’t need a guidance counselor for career advice! Beer, cute ‘optionettes’ on the exchange floor and a workday ending at 3:30? Meaning we had first dibs on happy hour barstools in Chicago – reveled across the nation for its packed happy, happy hours! Pretty easy life decision there!
(The legendary Ceres Cafe, the happiest of happy hours. What a great way to grow up. Barring early-stage NASH of course.)
Anyway, the way you can keep playing today when the market is at all-time record valuations – is rather simple and almost foolproof. Here’s how not become a victim of the next bear market (Yes, Georgia, it’s coming).
When your feeling like a genius and everything you touch quickly goes up 20, 30, 40% or into the hundreds of percent’s (think Tesla, up 8-fold) stop and reflect. Are you a really genius or are you in a bull market? Answer: It’s a bull market, so play on playa.
Now on the flip side: If you buy a stock and it goes down and you buy another stock and it goes down and another — pull the plug, when 5th loser comes long. Or pull the plug when only one out of five go up. You didn’t suddenly lose your geniusality and become a Wall Street loser. You are in, or maybe in – what is the start of a BEAR MARKET. Remember it as the ‘5 and Done’ technique.
And the most important rule — DO NOT AVERAGE DOWN. Not ever.
Averaging down is what takes many of self-anointed ‘brilliant-traders’ out of the market permanently. “It was just $90, it has to be a bargain at $30. I can’t sell it here.”
If it can happen to Amazon, it can happen to Tesla. Trust and believe.
We’re not saying don’t bargain hunt. We bargain hunted on BioSig (BSGM) and now we’re up 100%. What we’re saying if you buy something at $30 that is down from $90 and it falls to $26 – GET OUT. If you bargain hunt and lose five times in a row, pull all your chips off the table and start paper trading up until everything you touch on paper (your genius is back) starts going up again. It’s truly that simple. Five and done.
Stocks don’t have memories. They don’t know where they were and they don’t know where they are going. Okay enough of that.
This is in our opinion, is an excellent long-term play. The air-pocket in October was simply a good entry point into a good long-term play.
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