Important Suggestions for Navigating the Current Financial Environment – Introduction:
Globally, the financial markets look great. In the United States, the major averages are near an all-time high. The same is the case in Europe and in the emerging markets. With the markets at these highs, investors don’t know what to do. Do they close their trades and initiate new positions? Do they add more to their positions? Do they place short positions in anticipation of a correction? These questions are genuine and investors and traders should always ask them. In this article, I will explain several suggestions of what you need to do.
- Avoid envy
Envy is very common in the world of investments. If you have seen your friends make money on cryptocurrency, you might be tempted to buy them too. For example, the recently launched bitcoin cash has soared more than 100% in the past week. Bitcoin has doubled this year. The same is true with Ethereum. The three currencies now represent a market worth more than $100 billion. It is okay to be envious of your friends who have already made money in these currencies. However, you should avoid it and stick to your investment expertise. Remember, what happened yesterday might not repeat itself in the near future.
- Don’t lower your standards
Another suggestion is that you should not lower your standards just because the markets seems to be going up. Remember, in the Dow’s journey to 22,000, we have seen several near ‘corrections’ where the Dow has had several double-digit losses only for it to recover within a few days. Traders have therefore been using a strategy to buy the dips. As a trader, you should not lower your standards to this. You should avoid a situation where you use a strategy just because it worked recently.
- The news of the day
One of the things I have constantly warned against is relying on analysts’ forecasts and predictions. Analysts in banks like Morgan Stanley and Goldman Sachs have a history of being wrong. In fact, before the financial crisis, these analysts were bullish on the market. In fact, a week before the collapse of Lehman Brothers, its analysts were busy recommending what to buy and what to avoid. As a trader, you will constantly watch financial news and follow the debate on Stocktwits. However, I recommend that you avoid being over-reliant on the news. Always make your decisions independently.
- Take Profits
If you are investor long companies that have been excellent performers this year like NVIDIA, I recommend that you take profits. Several companies have had double digit gains this year. I believe that investors should take profits in such companies. Remember that too much of everything is poisonous. Even when you take profits now, you will have performed excellently this year. Therefore, take profits and search for companies that have not performed as well to invest in.
- Expect the worst
A common problem with many investors today is that they have become complacent. They believe that Trump’s policies will fuel growth. However, they have ignored the notion that being complacent is actually risky. For example, they believe that tax reform will be good while ignoring the impacts of a border adjusted tax on business. They are also ignoring the fact that Trump has proven that he is not a very good negotiator. Therefore, it is very important for investors to hope for the best but anticipate the worst. Doing this will make you have a great time as an investor by putting in measures to protect their accounts in case of a downside.