Don't Be Scared Into One of the Easiest Investing Mistakes You Can Make Now
There's plenty to be worried about in this market environment, but you'd be wise to heed the words of famed investor Peter Lynch.
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The S&P 500 closed at a new all-time high on Tuesday, but this is a very messy and tentative bull market. Skepticism is running at the highest level in years and there are worries about tariffs, inflation, and valuations.
The easy response to these conditions is to anticipate a market top and prepare for choppiness and increased volatility. The smart response is to focus more on individual stock picking rather than try to guess the direction of the indexes.
While the indexes and macroeconomic conditions may look precarious, it continues to be a very good market for investors and traders who are focused on picking individual stocks in shorter time frames. Although the S&P 500 only gained 0.3% on Wednesday, there were 760 stocks hitting new 12-month highs. The action was in these stocks, which still have good momentum, and not in the indexes, which are struggling with relatively poor performance in the Magnificent Seven MAGS names.
One of the easiest mistakes to make in this sort of investing environment is to focus too much on the indexes and overlook the many stocks that are still performing well. Famed investor Peter Lynch said, “Far more money has been lost by investors trying to anticipate corrections than lost in the corrections themselves.”
When you are constantly preparing for disaster, you miss out on many good opportunities that still exist. That doesn’t mean it will be easy to find good opportunities, but if you stay focused on price action rather than macroeconomic narratives, you are more likely to be rewarded.
There are plenty of things to worry about right now, but with breadth running positive and money rotating into many stocks that have lagged for a long time, there is also opportunity if you are focused on finding the stocks that are acting best.
The easy thing to do right now is to be extremely cautious and anticipate a pullback. The harder, but more rewarding thing to do, is to stay focused on stock picking and managing positions tightly while navigating elevated volatility.
The pontificating pundits are going to try to scare you as they anticipate disaster. However, this is a market for trading.
We have a quiet start on Wednesday morning, with the Fed minutes due later in the day.
At the time of publication, Rev Shark had no positions in any securities mentioned.
