Meet Ron and His 6-Year-Old-Like Investing Habits
“I’ll never do THAT again!”
My 6-year-old Caleb is good for about one funny quote a day. If you’ve ever watched the TV show Kids Say the Darndest Things, you know exactly what I’m talking about.
After attempting to slide down the banister and breaking both bones in his forearm, Caleb was quick to promise he’d never do something dangerous like that again.
But this week he changed his mind.
Caleb started taking some gummy vitamins designed to help stimulate bone growth. The kid loves the vitamins so much that he announced he wanted to break his arm again — just so he could get more vitamins!
But as crazy as it sounds, Caleb’s cavalier attitude about breaking his arm is similar to the way investors think about losing money in the market.
Fortunately, there’s a way for you to take advantage of these shifting opinions to pocket consistent profits from the market.
“Thanks to the December Pullback… I’ll Never Invest in Stocks Again!”
A few days ago I had a conversation with my neighbor Ron.
Ron wound up with some pretty significant losses when the market traded lower in December. His tone sounded a lot like Caleb after breaking his arm.
“Zach, I don’t think I’ll ever be able to trust the market again. It seems like just when I get confident enough to invest a few bucks, the market turns around and sells off. I’m tired of getting hurt!”
Ron went on to tell me that if he could just make up the losses he took in December, he would happily pull his money out of the market and never invest again.
Fortunately for Ron, the market has now completely made back its losses from the last months of 2018. And my guess is that Ron — and other investors with similar experiences — will be calling their brokers and making good on their promise to pull out of the market “for good.”
However, you and I know how these emotional decisions and promises to “never do THAT again” typically play out…
Pullback Ahead! But Not for Long…
What happens when relieved investors make back their losses and swear off the market?
In many cases, the market can stall out or even pull back in the short-term after a sharp rebound like we’ve seen in 2019. Of course, I don’t have a crystal ball to tell you what stocks are going to do on a day-to-day basis. But it would make perfect sense for the market to take a breather after such a strong run to start out the year.
With this in mind, you may want to consider taking some profits off the table. This is especially true if you’re one of the brave souls who took advantage of the market’s selloff and bought shares close to the low. Any time you have a major gain in a very short amount of time, it’s a good idea to sell part of your position just to lock in some gains.
But I wouldn’t take too much out of the market.
In fact, I’d use any pullback as an opportunity to buy new shares of companies that are growing profits.
That’s because the stock market should soon continue higher when our favorite emotional investors like Ron likely decide they want to get back in on the action again!
Just think about it…
What do you think Ron will do when the U.S. stock market pushes to new highs? How about when we get close to the holidays and the market is up 20% or more for the year?
Odds are the “fear of missing out” will catch up with him. And he’ll be willing to buy shares of popular stocks at sky-high prices because he’ll have developed an appetite for profits again (whatever the risks).
This is kind of like how my son Caleb developed an appetite for his vitamins — even if it means breaking his arm again.
For now, the smart move is to brush up on the investment opportunities we’re discussing here at The Daily Edge. Because any pullback over the next few weeks should set up an excellent opportunity for you to profit from the emotional investors who are always one-step behind.
Here’s to growing and protecting your wealth!