Kids, it's not all bad, no matter what others say.
There are times that stock markets will react in ways you were not expecting. There are other times when they react exactly how you expect! What does that prove though? It proves that the stock market is almost a living and breathing creature. It is a reflection of all participants thought in one place at any onetime. The right, the wrong, the informed, the not so well informed. What you will try to do is be more informed than most, that way you try to stack the cards in your favour.
You can see such moves in the early part of 2014.
When the Fed finally moved in December, the ramifications were pretty clear, things change. The issue is, what things? It was Emerging Markets last week. Anything with Emerging Market exposure at some point last week had a bad time. Then, some poor data from the US had people fighting over how bad a growth scare would be.
Let's look at growth scares. They come in all forms, they can be triggered by any piece of data at any time. However, not all growth scares are created equal. The nastiest US growth scares usually start from the bond market. When bond yields rise too fast, there is every reason to sit up quickly and take notice. The trouble with yields moving higher quickly is all about positioning, that is mortgages, convexity, hedging instruments and how people can get offside too fast. When people say something as bland as "too far too fast", it means something in bond land!
Do not ever underestimate the power of the bond market during these times, they rule.
What about other growth scares triggered by events we couldn't even think about? They are all navigable using the panic days that have been discussed in earlier posts. You just have to keep your head while all around are losing theirs. You will be pleasantly suprised at the benefits of buying panic in a bull market.
There will always be panic, there will always be someone trying to convince you this is 1929, 1974, 1987 or 2008-9 all over again. Those events are extremely rare and shouldn't be counted upon to repeat regularly.
Do not ever get upset that a growth scare threw you from a bull market, that is precisely what they are intended to do, you will sell what you love, buy it back higher and kick yourself for being so trigger happy. You should, it's a great learning experience, it has happened to me more often than I can tell you or care to admit.
Try to understand the cycles that you are in, they are remarkable. They are repeatable and very rewarding.
Over time, you will trust your instincts more than the musings of lightweight reporting and young inexperienced professionals. With some luck, you will recognize the genius that actually is the stock market itself and the language that it speaks, it's a journey of ambition as much as anything else. Keep a level head and clear vision, they will serve you when the growth scares are encountered.
Always strive to learn from these episodes, keep your balance, understand the emotions. It's the same as your skiing, fear is there to learn from. You have mastered some lessons already. Mum and I continue to be amazed at your progress.....
Queen takes Pawn
