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What
Bear
Market?
There
is no such thing as a bear market. There are only bear sectors.
While many of us would like
to think that the demise of technology issues in the year
2000 created a "bear market," few have noticed that
utilities, drugs, energy, healthcare, insurance, gaming and
tobacco stocks rallied to unprecedented highs during this
same, recent time period.
So where was the broad, sweeping
brush of the bear market? The fact that technology stocks
were previously the craze is no reason to ignore the market’s
message---that some place, somewhere there is always a bull
market.
Listen to the market’s message
and go with the winning sector. You can’t beat the market,
so you may as well join it.
Interpreting the market’s
message is one of several services offered in GarsWorld. Become
a member today; click the Market Forecast link, updated daily.
Learn what’s hot and what’s not. Swing the probability in
your favor.
"...the demise of technology
issues in the year 2000 created a "bear market,"
few have noticed that utilities, drugs, energy,
healthcare, insurance, gaming and tobacco stocks
rallied to unprecedented highs during this same,
recent time period."
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Remember, your opinion means
nothing in contrast to what the market is trying to tell you.
The most formidable enemy of the trader is his own set of
provincial ideas. Thousands of people lost their money in
the year 2000 because they just couldn’t let go of notions,
such as the notion of technology.
The Market's Message
The key to successful trading
is to hold a position while it is favorable and to close the
position when it is not (or will no longer be).
This may seem overly simplified
and overly obvious, yet timing a position to a winning level
of accuracy is the paramount problem that every trader faces.
The legendary Jesse Livermore
stated the problem clearly, “…The insidious purpose of the
market is to rise up, on its own, with as few people on board
as possible.”
These words, uttered in the
early 1900’s, are timeless. They are painfully familiar to
so many who have chased that elusive prize trying to beat
the market.
It took me thousands of trades
and tens of thousands of dollars to realize the inalienable
truth about the market: if you can’t beat it, join it.
To fully understand what this
means, first we must define what the market actually is. The
market is the composite, or “collective” actions of all the
people engaging in trading. Without the people, there isn’t
any market. As obvious as this may seem, nearly every trader,
professionals and amateurs alike, refer to the market at one
time or another as some sort of external “entity” that has
a covert, mysterious intention other than their own. Frequently,
I read daily advisories discussing how "...frustrating
the market has been for so many traders."
Yet, the frustrated traders
are the market---at least a part of it.
Indeed, the trader who fights
the market is fighting himself. His downfall begins when he
perceives himself as separate. Once the market is perceived
to be “against” him, it would behoove him to remember the
famous words, “We have met the enemy, and the enemy is us.”
The secret to beating the
market is to join it, to listen to its message and go along
with its story. The market is never wrong, only the trader
is wrong who hasn’t listened.
In 2000-2001, many investors
suffered devastating losses holding technology stocks through
one of the worst technology bear markets in decades. Were
they “right” and the market “wrong?” They simply didn’t listen
to the market’s message and that is all that happened. Had
they put aside personal opinion, ignored “expert” recommendations
and just listened to the market’s tune, they would have abandoned
their positions long before getting buried.
Worse yet, the market was
attempting to hand them silver platters of bullish sectors
in healthcare, insurance, energy, drugs and utility stocks
– all of which hit all-time highs during the technology downslide.
But many investors, expertly advised, held on to losing issues
because that was the “right” thing to do.
To be a successful trader
you must listen to the market to learn what is “hot” and what
is not. If the market doesn’t like drug stocks then don’t
buy them; if the market loves the Internet this week then
go for it. Realize that your opinion, no matter how educated,
doesn’t mean a thing compared to the message of the market
itself.
Again, the market is composed
of people, all of which have emotions and are speculating
as well as making financial decisions. The idea is to get
into the minds of these people; at that point you will be
able to accurately forecast the “market.”
This applies to individual
stocks as well as the general market. At what price will investors
consider a stock a “bargain?” That price is your entry point
(the point at which you should buy). At what price will the
public want to take profits? That is the point you should
sell. Go with the crowd and you can’t possibly be wrong.
Notice that it is always best
to forecast the crowd, not the stock itself, nor the
underlying company. It amazes me how many hours investors
will pour over company fundamentals, balance sheets and profit
projections, finally to take a position on a stock because
of the company’s potential growth. And yet, none of these
fundamentals mean anything until the crowd perceives
them to mean something. Such an investor’s time would be better
spent studying the crowd and to predict their behavior---not
the company.
It’s all about speculation
of the speculators!
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