To say that this is a tough market may be the understatement of the year.
Lots of areas are getting beaten to a pulp daily, the economy has sputtered, the masses have been fooled by the direction of interest rates, there is a new so-called crisis every time you turn around and, as a result, it has been oh-so easy to be in the wrong stuff at the wrong time.
Yet through it all, the Dow Jones Industrial Average and the S&P 500 remain just one day off their all-time highs.
From Worst to First And...
Then, to make matters worse, all the things that performed poorly last year seem to be doing pretty well this year.
That's right, those emerging market ETFs like iShares MSCI Emerging Markets Index (NYSE: EEM) would be making any investor smile right about now. Europe ETF iShares MSCI EMU Index (NYSE: EZU) is marching higher, while India ETF WisdomTree India Earnings Fund (NYSE: EPI) and Turkey ETF iShares MSCI Turkey (NYSE: TUR) are rockin'.
Real Estate ETF iShares Dow Jones Real Estate (NYSE: IYR) is movin' on up and agriculture--PowerShares DB Agriculture Fund (NYSE: DBA)--is a great position these days. Lastly, those bonds that everyone was so afraid of coming into 2014 have been working nicely, as shown by iShares Barclays 7-10 Year Treasury Bond Fund (NYSE: IEF), iShares Barclays Aggregate Bond Fund (NYSE: AGG) and iShares IBoxx $ Invest Grade Corp Bd Fd (NYSE: LQD)
In short, the stuff that wasn't working is now working. And the areas which were working, now aren't - at all. So, make no mistake about it; it's tough out there right now.
But Don't Despair
Believe it or not, this quick review of the market situation is not intended to discourage. Just the opposite actually. Investors must recognize that sometimes the market's game is a piece of cake and making money is a snap. But other times it seems nearly impossible to make any headway in a portfolio. Now appears to be an example of the latter.
This is the type of environment where individual investors - especially those trying to trade the markets - can lose their way. People give up on their strategies; the grass looks greener on the other side of the indicator fence. Folks tend to throw up their hands in frustration.
Remember: this too shall pass. At some point, perhaps soon, a meaningful move will begin. Traders need to be ready, willing and able to take advantage when it does.
Readiness Is Key
When the time comes, having a clear head will be important. A few losing trades shouldn't stop traders from continuing to enter new positions. Traders have to step up to the plate with confidence.
To do that, traders must have a plan or a strategy designed to tell them that the game is about to get easy again.
Easier said than done, right? So, the question is how does one accomplish this task? How do traders deal with the nightmare that is 2014's stock market and still have the ability and the courage to make the move that could wind up making the year?
One answer is to have a disciplined approach to believe in and the commitment to stick with it during the "sloppy" times (like the current market conditions).
To be sure, such an approach isn't for everyone. First of all, finding a system or a strategy that works well during most environments can be a challenge. Then, there is the issue of being able "live with" a chosen approach for the long-term.
But, Please Understand...
After choosing such a path, please understand that faith in a chosen approach WILL be challenged at times. Sticking to a strategy can make any trader feel like a dummy for doing what they are doing on occasion. You WILL want to quit. You WILL be told you are wrong. And you WILL most definitely want to "tinker" with your approach or strategy when things get tough.
However, IF you believe in your approach, then by all means, have the tenacity to stick with it when the road gets bumpy!
Understand that there is no such thing as a "Holy Grail" in investing. All strategies have flaws. All systems struggle from time to time. And every single approach to the market will make you question them from time to time.
Want To Be Like Buffett?
Perhaps the best example of this point would be legendary investor Warren Buffett. Today, the "Oracle of Omaha" is viewed as one of, if not the greatest investor of all time. When Buffett talks, people listen.
"Buy when there is blood in the streets," Buffett opines. Buffett did just that when he saved Goldman Sachs (NYSE: GS) in 2008. In the short term, that investment wasn't pretty. Eventually the deal worked out really well for Buffett and his partners - because they believed in what they were doing.
Buffett was also the butt of jokes in the investment community as the tech bubble raged in the late 1990's. Mr. Buffett proclaimed quite publicly that he didn't "understand technology" (which was later revealed as meaning that he believed the valuations in tech had become ridiculous) and he wasn't going to partake in the tech party taking place on Wall Street. History proved him right.
The point this morning is to understand that sometimes the market's game is hard and that you've got to have a little faith in what you are doing. While this sentiment may sound incredibly simplistic, experienced investors will concur that sometimes a little pep talk can go a long way.
So, here's wishing everyone the best of luck out there!
Positions in stocks mentioned: SPY
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