Did You Miss the Big Day?
Traders and investors alike are checking out how they did when several days of selling ended with a stunning reversal. Did anything really change?
At ‘A Dash’ we are mostly concerned with major themes for the individual investor. We hope that our work provides a useful backdrop for our trading friends, who currently make up most of the online audience. Our concept is that the makeup of this audience will change dramatically over the next few years, with many more individual investors seeking help.
When the markets make dramatic moves, we digress from our normal writing agenda to provide some commentary. Usually this focuses on understanding the sources of market action, and emphasizing valuation of the overall market and certain stocks that we find especially attractive.
Over the last two days we advised readers who were out of the market to take a partial position if they were in doubt. We also exposed the error perpetrated by many bearish pundits who have erroneously focused on November 15th as the day that major financial write downs will be announced. We appreciate the emails from readers who were helped by this advice.
Hats off for Bill Rempel, who also emphasized the need for system and discipline rather than panic.
Something Left Unsaid
When writing over the last few days we were tempted to cite a good source that discussed investment performance if one missed the biggest market days. We left out this analysis because one also needs to talk about missing the biggest down days. We look for balance and the best evidence.
How does one capture the gains, and avoid the losses? On a random basis, there are always some traders who succeed. There are others who get it exactly backwards! We would all love to have a system that reliably captured these moves.
A Balanced Interpretation
The problem is that big down days and big up days frequently occur in close proximity. A little research led to an interesting analysis from Paul J. Gire, CFP. He took the care to look at both sides of this issue. His excellent article is well worth reading. The key finding is the consistency of buy-and-hold. Getting the big days right is important, if you can do it. Here is the key table:
One successful investing method is to be on the right side of major trends, something we try to do with our TCA-ETF system.
Another method is to depend upon fundamental analysis. This provides the confidence to take advantage of buying opportunities and to know when to exit.
And finally, it is important to have a system that you have tested. Only then can you have the confidence to make the right decisions.