Stock Market Going Great? Here Are Three Things You MUST Do

When the stock market is going great, and most of your stocks are up, it’s all too easy to get carried away with enthusiasm and get reckless.  Which is what most investors do in this situation.

Why would they do this?  Why would you do this?

I’ll tell you why.  Because it just feels like the good times will never end.  And you’re getting reinforcement on that “good times feel good” story from everywhere.

The news channels talk about how great the market is.  Their experts start making extraordinary predictions about how much higher it is going.  There are effusive headlines the newspapers.  And even a few of your friends, who have shown no previous interest in the market are talking about getting in.  And every day your portfolio seems to be worth more.

But when you find yourself in this happy situation, there are three things you must do or you are going to find yourself in an unhappy losing situation in the future.

First, try to curb your enthusiasm.  Remind yourself that markets can also go down.  And this happy market situation you are in is going to go down too.  They always do.  Professionals even have terms for this like “reversion to the mean” and “50 percent retracement.”  That’s just fancy talk for rising markets going back down and losing at least half of their gains.

But we’ll keep it simple here.  The professionals know rising markets will eventually fall.  So remind yourself of this daily.

Second, be very careful about buying more stocks.  Actually, be biased against buying any new stocks, and only ones that you know are still undervalued and cheap even in the frothy market you are in.  Because you win or lose in the stock market based on what price you pay for a stock.  Remember the rule to buy low and sell high.  And remind yourself that right now you would be buying high, not low, and that could cost you dearly when the market starts to fall.

And third, pay extra attention to limiting your losses in case the market starts going down.  Make sure you know exactly how much you will let your stocks drop in price before you will sell them.  You must do this to limit your losses.

After all, there’s no point in making money on your stocks if you are just going to sit idly by and give it all back as the market corrects.  You do not want to be one of those people that turn a win into a loss as they ride their stock back down, hoping, wishing and praying that it will turn around.

Much money has been lost in the stock market just this way.

So enjoy the ride up and the good times.  But be sure to keep your enthusiasm in check, be slow to buy and know when you will sell.

And if you do just these three things, you’ll greatly increase your odds of success.  And you’ll come out okay when everyone else starts losing as the market inevitably corrects.

To your health and prosperity – John Roberts

Leave a Reply