Wall Street Adage #27 — Is EXTREMELY Important Today
There’s an old adage on Wall Street that is especially relevant today.
“Never short a dull market” — Wall Street adage #27
The idea is that when stock prices are exceptionally calm, it’s not a good idea to bet against the market.
That’s because calm, steady periods are when the market usually steadily marches higher.
If you’re riding the trend, you can make money almost by accident! But if you’re fighting that trend, you’re likely to lose a lot of money.
Well, as we kick off the new decade, the current market environment is eerily calm. I mean EERILY calm…
Now keep in mind, we’ve actually had a very good reason for the market to trade lower.
The escalating tensions in the Middle East, with heightened rhetoric and threats (and ACTIONS) flying back and forth would often send investors running for the hills!
But instead, the stock market has had muted responses each time hostilities have intensified, only to regain much of the losses over the next few days or even in the same trading day!
Seriously, take a look at these examples for yourself:
- Last June, Iran shot down a U.S. drone. The Dow sunk over 300 points in the following days only to rebound the next week.
- Then in September, Iran “helped” Yemen attack Saudi oil facilities — knocking out half the country’s output overnight. The Dow plunged almost 1,500 points in three weeks but recouped all those losses and more by mid-October.
- Now fast-forward to this past week, we’ve seen the killing of Iran’s “second in charge” and Iranian missiles fired toward U.S. air bases in retaliation. Both events caused the market to freefall initially…
Yet, after all these shocking events, yesterday the stock market hit at all-time highs? Hmmm…
Now, please know that I’m not being cavalier about our servicemen and women who are in harm’s way in Iraq. I know this is a serious threat and I pray for their safety.
I’m just saying that similar to the political situation in the U.S. right now, we need to make our investment decisions without relying on emotions.
It’s important to always have a cool, calm, and analytical approach to your investments — and to pay attention to the signals the market is sending you.
And today, that signal is telling us the market remains very strong. And as long as it is, we need to be focused on positioning ourselves to maximize our profits from this healthy trend.
Here’s what I’m suggesting…
Allocation Is Key — Keep Dry Powder
We don’t know for certain if President Trump has any military operations planned going forward. And we definitely don’t know if Iran will continue to notch up the scale of their attacks.
But one thing is for certain — if these events do happen, the stock market will sell off like it did briefly after each one of the previous attacks…
And those that have dry powder will be able to cash in on this opportunity.
Long-time readers know that I’m all about asset allocation.
Cash, stocks, bonds, options, real estate… and more. These days it matters LESS about what you’re invested in and MORE about how you allocate your assets. Allocation is the most important element for long-term market success.
Well, today I’m checking in with you.
Do you have enough dry powder in your arsenal?
Answering “YES” to that question will allow you to buy some of the market’s strongest stocks at a discount.
Remember: Earnings Are Key… Not Emotions
To best position yourself to profit from these initial selloffs, think about the sectors that won’t be impacted from the uncertainty in the Middle East.
My go-to is the Consumer Staples sector.
Products in this sector include food, beverages, household products, personal products and even alcohol and tobacco.
Now, ask yourself…
Are people really going to stop buying alcohol and tobacco because the U.S. killed an Iranian general? And are people going to stop buying household products like soap, detergent and toilet paper because Iran retaliated with a strike of their own on an unpopulated area of a military base?
For now, let’s ride this “dull” market higher by staying invested in strong companies that are growing their earnings. While also looking out for buying opportunities if the tensions between the U.S. and Iran continue.
Here’s to growing and protecting your wealth!