[Edited for brevity]
Investors tend to be impatient when market direction is [uncertain].
I saw on the forum a posting from an investor anxious to get his capital working.
My Reply: Think Safety and Have PatienceThis past weekend I was asked how I have managed to do so well over the past decades. The answer of course is simple. I have a lot of patience and I know that successful investing is about protecting your capital.
Making money in stocks since the spring of 2009 has been easier simply because stocks had room to run higher after losing more than half of their value in the bear market. But with the Fed pulling liquidity out of the markets, the hint of interest rates rising on the near horizon, an economy that is expanding at home but not abroad, problems in Europe, Russia, Asia, the rise of the US Dollar, collapse of oil and commodity prices, investors, I think, need to step back a bit and keep cash at the ready.
Investing is not always having your capital tied to the market and hoping it works out. There will be opportunities ahead but I prefer a cautious stance right now. Over the past 2 week I have posted a dozen trades but all are conservative and smaller than usual.
Think Beyond A Few WeeksWhen it comes to investing, think longer term than a day, week or month. Think years. 2015 right now looks volatile.
VIX Index For JanuarySo far this month we have had just 11 trading days and on none of those days has the VIX Index fallen below 16, let alone below 14 or 12 where I prefer to set up trades. Above 20 in the VIX Index is a definite warning to be cautious, build cash and keep it at the ready but safely out of harm’s way.
Review and PlanThis is an ideal time to review last year’s trades. It’s a perfect chance to figure out what trades worked and why and which ones failed and how they could have been corrected. It is also a chance to remove stocks from your watch list and add new ones. It’s an opportunity to decide which stocks you want to be trading this year. It is also a great opportunity to adjust longer-term trades and figure out where you will be placing your capital next, depending on what direction the markets may be heading.
Investing is about becoming a better investor, not just always being invested.