Well that was unexpected. Then
again so was Brexit. Both events were a good reminder that, as investors, we need a plan for
such situations. This plan should obviously be relatively developed
beforehand...
The Trump election result was a great example of what can happen if your focus is on the short term. At one point in the afternoon US stock futures were down 5% and the NZ/Aussie markets followed suit and closed down more than 3%. Overnight the US markets actually ended up closing up 1%! Following this the local markets regained the previous days losses at the opening bell. That is seat of your pants stuff!
If you weren't well prepared you could quite easily have found yourself selling during the carnage only to watch the market rise again while you are sitting on the sidelines.
There are many reasons why I am a long term investor rather than a trader. The above is one very good example that backs this up.
Most commentators predicted negative sentiment in the markets if there was a Trump victory. Initially that was the case, but a day later if you saw the stock indexes you would have assumed Clinton won. It shows just how difficult it is to anticipate market movements.
Now I'm not saying the market won't suffer due to the Trump victory. I am simply using the last day or so as an example to discuss my investment philosophy.
In the long term volatility (by itself) does not matter. It only matters if you want to buy or sell stocks at certain times. Volatility to the downside offers good buying, and vice versa. If you take the opposite approach of selling when the markets get scared then you crystallise losses and risk missing out on the upside. Most volatility in the market is unrelated to company fundamentals, therefore it does not make sense to act on it.
The Trump election result was a great example of what can happen if your focus is on the short term. At one point in the afternoon US stock futures were down 5% and the NZ/Aussie markets followed suit and closed down more than 3%. Overnight the US markets actually ended up closing up 1%! Following this the local markets regained the previous days losses at the opening bell. That is seat of your pants stuff!
If you weren't well prepared you could quite easily have found yourself selling during the carnage only to watch the market rise again while you are sitting on the sidelines.
There are many reasons why I am a long term investor rather than a trader. The above is one very good example that backs this up.
Most commentators predicted negative sentiment in the markets if there was a Trump victory. Initially that was the case, but a day later if you saw the stock indexes you would have assumed Clinton won. It shows just how difficult it is to anticipate market movements.
Now I'm not saying the market won't suffer due to the Trump victory. I am simply using the last day or so as an example to discuss my investment philosophy.
In the long term volatility (by itself) does not matter. It only matters if you want to buy or sell stocks at certain times. Volatility to the downside offers good buying, and vice versa. If you take the opposite approach of selling when the markets get scared then you crystallise losses and risk missing out on the upside. Most volatility in the market is unrelated to company fundamentals, therefore it does not make sense to act on it.
If a company has fundamentally changed then the above does not apply.
Sometimes you have to sell when everyone else wants to too.
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