The Bull Hunters Guide

In the last couple of installments, we’ve talked about things like acknowledging that slumps and temporary downs are a normal part of the stock market, as well as the fact that analysis of past performance is not in any way a reliable indicator of future performance. Today, we’re going to put those two principles together to understand a little bit about how to deal with situations that look truly bleak; how to handle them without resorting to panic.

Panic is the enemy of your finances

Panic is the enemy in any situation regarding finances. Financial matters are extremely important to all of us because they represent more than our bank account or our portfolio, but also our livelihood and the quality of life that we are able to lead. As such, every financial decision is one that warrants a lot of sound deliberation and consideration before committing to it. It’s unfortunate, then, that the fast pace of the stock market sometimes encourages people to make rash decisions, especially when they think they see dark clouds looming on the horizon.

The downward trend of panic

Say that you have money invested in several different stocks, and you’re beginning to notice an overall downward trend. For whatever reason, this leads to a panic. You start to picture how it would be to lose every cent that you’ve invested and be reduced to nothing. You sell off every stock you own and adopt a totally new strategy, investing in a number of totally new stocks across the board, whose performance seems more likely to live up to your standards. However, in doing so, you miss out on a unpredicted surge in the stocks you just sold.

Adjust your investment strategy

If you had taken just a little more time to think about things, you might have realized that your stocks were in a sound industry, one that had been around for years. As such, the risk of a total bottoming out is virtually nil. You could have adjusted your strategy and maybe invested in some other stocks without totally selling off your current interests. However, panic robbed you of that potential.

Panic is the enemy. Let rational, sound judgment be the basis of your financial life, not it.

See you next week for part 5 of Basic Investment Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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This time we’re going to talk a little bit about the ups and downs that are inherent in the market. The reason the stock market has such an alluring draw to many people isn’t just because of the potential to make a lot of money at it, but also because of its fast paced nature and it’s sense of adventure. Anyone who plays the market can literally be riding on a huge wave of success one minute and be totally wiped out the next. Everyone hopes to be the person who “got out just in time and made off good” or the person who “got in just in time, right before the spike hit“. This element of strategy and constant fluctuation is one thing that makes investing so enjoyable. Because of that, it’s important to remember that this up and down fluctuation is just an inherent feature of the stock market. When you see stocks wiggling up and down over a week’s time, think nothing of it. Such behavior is perfectly normal, and it’s long term trends that tend to reveal more useful information about a stock’s future projections.

Watch The Big Fluctuations

As hard as it might be to swallow, this advice applies to big fluctuations as well. Many times in the past, and many times in the future as well, the market has and will go through periods of decline known as “slumps“. When these happen, stocks across the entire broad tend to drop in value sharply, and it often takes people totally by surprise. Those who are unprepared for it might begin to panic. They’ll wonder if their long term strategies that seemed so sound yesterday were really so hot after all.

After Every Slump In History…

Changing your long term plans in the face of a slump is always a bad idea. If you want to put money into the market, don’t be afraid to do so. Remember that there’s no where to go from the bottom but up. This isn’t just useless optimism, either. After every slump in history, there’s been a corresponding spike of activity known as a rebound. Those who remain confident and continue on their normal course of activity throughout a slump are those who will be there to reap the rewards of the rebound as soon as it happens. Stick to your guns, and weather the slumps as best you can.

See you next week for part 3 of Basic Investment Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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