Stop wandering through your investment choices dazed and confused and ditch the economic predictions altogether - adopt a different strategy for dealing with the markets.
If you’re the kind of person who likes making your life more difficult — I’m related to a few of them — then reading the never-ending stream of stock market predictions is definitely for you.
One news service will feature an article that the markets are going nowhere but up — qnd the next piece on the same site will caution how it’s high time to take money out of the banks and start stuffing it under mattresses. A third article found elsewhere on the same site may merely call for some small volatility that ultimately leads nowhere over the next few months.
Moreover, each will quote a bevy of statistics and experts to back up its beliefs. When one is citing The Wall Street Journal, another CNBC and the last Gallup, it may very well seem impossible to figure out which advice to follow and which to discard.
It’s enough to induce some serious headaches.
So again, if you’re the kind of person who likes making your life more difficult than it has to be, by all means, keep on wasting your time on that type of news and bring on the migraines!
But if you’re tired of wandering through your investment choices dazed and confused, then it’s time to ditch economic predictions altogether and adopt a different strategy for dealing with the markets.
You’re not stupid
If you’ve ever wondered why you can’t make sense of the jumble of economic analysis you’re bombarded with every day from dozens of analysts, it’s not because you’re mentally incompetent or knowledge deficient.
Other than the fact that you’re listening to them in the first place, there’s nothing wrong with you.
It’s them — the talking heads with their three-piece suits and furrowed brows and long-winded explanations. They’re the problem.
The truth is: Nobody knows whether markets will rise or fall.
Pay attention to individual companies
That’s right. Nobody knows the answer. Not when it comes to market movement, at least.
This past year should have taught us as much with its unexpected dips and ultimate highs, both more often contradicting experts’ opinions than validating them.
That’s why Investment U shies away from making big-picture predictions. We’re much more comfortable throwing around analysis on individual opportunities.
It’s quite simply a lot easier to calculate what a distinct business or even a single sector will do. There are far more definable factors involved, such as price-to-earnings ratios, product demand, stock price history, management style and insider buying.
Those past figures and present facts offer valuable insight into what’s up ahead. And while they still don’t act as well as one of those ever-elusive crystal balls we keep hearing about, they do make investing far less of a guessing game and far more of a business venture.
To protect yourself even more, capitalize on a wide array of businesses offering different services across various sectors. Do your research on retail companies, tech stocks and food suppliers. Buy into opportunities in the U.S., Europe and emerging markets. Have some holdings in precious metals and short-term corporate bonds. Even keep some cash on the side.
That diversification is necessary precisely because we don’t have the power to see the full future. If one stock falls or a sector crashes, you’re not all in. Your other portfolio positions will protect you.
But what if the hardcore bears are right after all? And let’s face it, there is that chance.
That’s why it’s best to set trailing stops. If that price gets hit, you’re out. No questions asked.
Those are all ways to make your investing life a lot easier.
Unless, of course, you prefer the rough road. In that case, keep checking out those expert economic opinions.
Jeannette is a member of the Investment U research team. You can read more by her here.