The +10% rally in stocks over the last two months caught most market participants flat-footed and underinvested.
2011 marked the 6th consecutive year of mutual fund outflows. Anecdotally, the general population still seems to very much hate Wall Street, and any bullish column Breakout has posted of late has been met with levels of vitriol and contempt that are impressive even by the standards of the Internet.
All of which is beside the point. Missing rallies happens in the world of trading. It's happening to a lot of people right now. As is the case with anything non-fatal but unpleasant, learning something and recovering are the goals.
I've missed rallies and survived my share of life. Let me push you up my learning curve, Purple Crayon style. Here are three steps to take when you miss a huge market move:
Step One: Stop whining, carping, complaining and basically cementing yourself into an ideologically untenable position.
The rally isn't "stupid" and making money is the whole reason to invest in the first place. Braying about the idiocy of those who've profited from this rally is akin to howling at the moon: it gives you a sore throat and the moon doesn't care.
Losers complain. Winners adapt.
Step Two: Trade in the now.
It doesn't matter how we got here but the S&P500 is now at levels last seen in late July. The market is long overdue for a pause but it hasn't happened yet, regardless of unimpressive earnings.
That's the basic situation. View it dispassionately and position yourself accordingly, not out of spite.
Step Three: Pace Yourself.
For individual investors the idea of trying to "catch up" to a one-month rally is lunacy. 12% is a big move but it's not going to be the last chance to make (or lose) money if your time frame extends beyond April of this year.
Pros have a harder time missing these moves, thanks to hyper-competition between funds and the fact that most of them have clients calling them all day, every day asking how much the fund is up over the last three weeks.
We're barely halfway through January; there's more than enough time left in 2012 to catch up to the market or blow the gains you have now. This is not the time to put your whole portfolio into a single stock with the hope that the company reports good earnings.
Hopefully this advice doesn't apply to you because you're up even more than 12% since Black Friday. Just know that if you aren't you're in good company. The week of January 11th marked the first time in 20-weeks of net inflows into mutual funds. Folks are falling in love with stocks again after the rally. It may work for them but chasing stocks seldom ends well.
Smart money doesn't chase yesterday but attempts to determine what's going to happen tomorrow. Whether you're up or down for the year the best strategy is assessing your personal situation and start trying to generate some gains today.
64 comments