I used to make a decent amount of money from intra-day trading. I have since shifted into being a longer term investor. The massive swings and knowledge keep up just don’t make up the opportunity cost in keeping up with all of the data. At the end of the day, it was too often gambling and educated guess work.
Since the market began crashing because of the fancy new virus I’ve been part of several discussions with friends, family, and several excited strangers on the merits of buying stocks in the bear market. Seems like just about everybody has a theory or idea on how to leverage the slugged market to become a millionaire. None of these people seem to have ever “traded” stocks in the market before.
From my perspective serious investors break into three categories, pros, long-term investors, and lunatics. Pros and long-term investors have each seen a dozen bull markets and have mentors or professionals to guide them through this. The lunatics are the intra-day traders making put options on apple that expire in four days. Lunatics either don’t last long or make and lose large sums of money quickly.
ETFs, index funds, mutual funds and annuities should be the main engines of a healthy long term investment portfolio. There seems to be a movement of online “advisors” pushing an index fund only agenda these days. Most of the complaint comes from not being able to beat the market with less passive managed funds. While this is a valid reasoning, funds with more active management can provide a solid basis for those accounts that can handle a higher built in risk. Having access to professional management or trading on or against a total market provides tangible protections to the investor. Each of these investments has advantages and disadvantages, but they are all great wealth increasing engines.
Trading in non-ETF securities themselves is a different game. Stocks, commodities contracts, bonds, treasury bills, futures and options are not a solid basis for long-term investment accounts. They may provide a great asset in a longer-term portfolio, but they don’t have the consistency to form the base for consistent increase of wealth. These investments carry substantial risk and have various potentials for going to zero. When someone tells you they have a new “investing strategy” or that they saw a YouTuber with investing advice to make them a pile of money, most of the time they mean trading these types of investments on a short-term basis.
Normal investment wisdom is to invest in bonds and treasury bills to protect your portfolio against market headwinds. An important distinction here is the difference between a bond fund and purchasing an individual treasury bond. Each portfolio needs to be different for each individuals goals and selecting if you are investing in a fund or security is a choice that needs to be made on deliberation.
In a bull market growth on most securities is common, value in companies tends to grow higher at a consistent pace and corrections represent buying opportunities. Bear markets don’t provide this type of predictable tendencies. Investors don’t have any real tools available to tell how an individual security will do with real accuracy. Traditional advice during a bull market doesn’t always hold true in a bear market.
COVID-19 has created a new type of market that most investors haven’t had a chance to experience. The market collapse was near immediate and the rally could be just as quick. It also could be as slow-burn down and a crawl back up. No one has any real way to predict the future here. There are huge upsides to investments like GE, but the downsides could hit out of nowhere. Securities don’t have “coronavirus 2” or “price war on rubber” built into them. The oil price collapse proved the market could be hit by multiple disasters at the same time.
The big question here is to bet how fast we are going to rise from the bottom. We know that there is going to be a bottom whether we have hit it or not. Deciding to buy or go short on a security is going to be based on that rate of growth. For longer-term tools, there is assurance of growth, but for most investors it creates the opportunity cost of having cash if another better opportunity comes. Securities can often be liquidated faster.
From my perspective, hording cash is the way here. The COVID-19 crisis is going to end one day. Those who have cash when businesses can turn back on will be able to take advantage of the real growth during that time. This path misses out on the extreme sales on some companies, but it takes into account the new reality. The world is a different place and disasters like this are possible and unpredictable. Being a lunatic is a lot harder in the middle of a bear market and it may show to be fatal in a coronavirus market.