The last two months have been a roller-coaster ride.  It all started with the August plunge that panicked many investors. September began with a 5% rally that alleviated some of the pain for many. However, we ended closing at the August lows by the end of the month exactly when we got the Carl Icahn Danger Ahead Video.  October started with a bang; a non-stop grind up that got back all the losses from August, it was like August never happened, a bad dream, a blur.
Here are few lessons from this recent action;
  1. The market goes up and down not up or down.  In late August, many were calling for a 1987 type day and sold at the lows thinking that the market would never come back and right when fear was at its highest the market rallied and rallied hard.
  2. Stock market crashes are rare, it doesn’t pay to bet on them.  10% corrections are normal, and they don’t always lead to a crash.  Here’s the SP500 field guide to corrections, LINK.
  3. Losses are unavoidable, they are part of the game, there is no reason to try to do the unavoidable.
  4. You always have to have some exposure if you are anything but a day trader.  Trying to time the exact low or the exact top is futile.  If you miss the low, you will sell yourself on why it will come back and retest them; if you miss the top, you will stay out until you get the pullback. Once you get the pullback, you’ll be scared and think that it is the beginning of something bigger.
  5. There’s an old saying on Wall Street; “stocks take the stairs up and the elevator down”. The fact is that stocks nowadays after they take the elevator down are now taking the elevator up as well. They are taking them up just as fast as they take them down.
  6. Fear sells, nothing, grabs attention like a title that reads something like; A crash is imminent, here is why. Tune out the noise.
  7. Shorting the market or buying VXX, UVXY, TVIX, after the market is down multiple days in a row is sure way to the poorhouse.  Snapback rallies in corrective markets are the most powerful.
  8. A little bit of margin is good to heat up the house, too much will burn it down.  Stay away from margin.
  9. Fear has no idea what support and resistance is.  Fear does not know or care that your company has great earnings, a great product, great sales, etc. correlation goes to 1 during sell-offs. Fear works on the way up and on the way down.  Currently, there is a fear of missing out. Sentiment can be a very powerful thing.
  10. You are not that smart, and the minute you think you are the market will humble you.
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