Lost in the Stock Market? Take a Step Back To Define a Relevant Strategy for the Months To Come.
This simple exercise will help you greatly.
The evolution of the financial markets for several weeks now gives you few guarantees. Uncertainty is king, but in the midst of it, we see something more and more prominent: investors are lost.
They do not know what to do: one day up, one day down, one day up, ...
There is no real direction, even if the trend has been generally downward since January 1, 2022:
The markets seem to have no compass. They make conflicting arguments. Thus, Investors are lost.
The evolution of the different American stock market indices, from the Nasdaq to the S&P 500, illustrates this perfectly. One day, investors think that the drop in prices is a great opportunity to buy at a good price. The next day, they doubt and wonder if they should sell everything to hide their cash under a mattress while waiting for a big stock market crash.
This market feverishness can be explained by the fact that we have rarely experienced such a complex and unclear macroeconomic situation. Investors are therefore even warier.
One day, the rise in prices and the resulting rise in interest rates are causing everyone to panic. The next day, investors take the time to deconstruct the rise in prices and they say to themselves that in the end the rise in prices is only linked to the rise in energy and food commodities which will not last.
Another day, there is again the talk of transitory inflation. The next day, pessimism (or realism, it's your choice) prevails, and everyone is talking about sustainable inflation. The next day, we hear about an inflation “bump”, and then about a fall in inflation, but at a level that will always remain higher than before the crises.
Increasingly confused, investors then hear talk of stagflation. The specter of the stagflation of the 1970s in America resurfaced. So much so that 81% of Americans now believe that America will enter a recession by the end of 2022.
Take a step back and define the best possible strategy for your profile with this simple exercise
All this confusion seems to me to stem from one major problem: you are finding it increasingly difficult to distinguish correctly between the short term, the medium term, and the long term. This is a key ability for any investor. This is because we have just had two major crises in quick succession, the effects of which overlap, sometimes amplifying or offsetting each other.
The best advice I can give you for the future, in 2022 and beyond, is to take a step back and distinguish between short-term expectations, medium-term expectations, and long-term expectations. Even take the time to make a table under each time horizon with the positive and negative factors for the economy, and the positive and negative factors for inflation.
Keep this table with you, and continue to add to it in the days and weeks ahead based on upcoming economic and political information. This will help you better define a direction for your investment strategy in the months and years ahead.
You will stop letting the short term dominate your emotions and give you the impression that the market says everything and its opposite since the beginning of the year. You will come out a winner by adapting your strategy as best as possible about your profile and the current realities of the world in which we live.
Feel free to share with me the details of your table for each time horizon in the comments of this article. I'll give you the rest of my thoughts in a future article.
Some reading
The IMF Confuses Cause and Effect by Pointing to the Greater Use of Bitcoin in Corrupt Countries. Bitcoin is a weapon against inflation and money oppression.
5 Reasons Why the Lightning Network Is Essential for Bitcoin’s Future. LN will make Bitcoin a large-scale means of payment for everyday life.
Uncertainty Is Back in the Bitcoin Market, but Here’s Why You Shouldn’t Panic. BTC reserves on exchange platforms continue to fall.