Josh Brown, Fusion Analytics vice president and renowned blogger at The Reformed Broker, sat down with "Breakout" with some time-honored pearls of investing wisdom applicable to a market that has almost exactly doubled in the last two years.
Brown is preaching the gospel of discipline -- with a dash of willful ignorance.
"Follow the price (of your stocks), manage your risk and tune out as much of the news as possible," Brown told Nesto and me. If that sounds paradoxical, consider the spate of perfectly good reasons to sell stocks over the last two years, not to mention the last month.
Yet stocks continue to creep higher in the face of a classic wall of worry consisting of European unrest, Asian disasters and endless government tampering. If the media seem gloomy, it's most likely because the news has been fairly dire. But big picture concerns are not an investment thesis, as those who've remained on the sidelines for the last 24 months are learning the hard way.
So what's an investor to do if they've missed the rally? That's where discipline comes into play.
Don't "throw (all your funds) into the market hoping for another double in the next two years," says Brown, noting that history is decidedly not on the side of another 100% getting tacked on in the short term. Those feeling the pain of missing the move should practice what the pros call "scaling in," according to Brown.
"Take a third of the normal-sized position you would take," he says. "Get in with a straight face without feeling like a clown."
For those lucky (read: good) enough to catch the rally, Brown says they should take a personal inventory of their time frame and objectives, then set firm stops to control losses. Where to set the stop? Brown threw out the figure of 15%, but says it's really a matter of an individual's threshold for withstanding volatility.
The main theme is keeping one's head while others lose theirs. The time to make an investing plan isn't with the futures lock-limit up or down. That makes the relatively benign tape of recent months an outstanding time for contingency planning; taking a cue from our interview with Josh Brown, and his blog at The Reformed Broker is an excellent place to start.
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- learning the hard way