During the past weekend, headlines and political commentary were so awful that it would have been quite natural to sell a large amount of stock at the open on Monday.
Straits of Hormuz blocked. Oil refiners blown up. World War III at our doorstep. Mercurial political leadership. Desalination plants vulnerable to attack, which could wipe out civilization in the Gulf.
Except the stock market must have missed these headlines.
On Monday, the stock market closed up over 400 points on the Dow, almost 70 points on the S&P 500.
Why Trading Headlines Is Nearly Impossible
It’s very hard to trade based on chasing rainbows or headlines. Even if you delegate trading to speed-of-light algorithmic systems, it’s tough.
So why go there?
In a few recent blogs, I’ve laid out some simple principles to live and trade by:
First: The darkest days are often just before stock market upward propulsion.
Second: If you’re primarily out of the market because you’re scared, you’ll probably miss out on the greatest trading days.
Third: Geopolitical events often make for easy and profitable trading opportunities.
Fourth: Don’t sell out during the bad times. Sell modestly during periods of froth, exuberance, and irrepressible increases in price and valuations.
Fifth: Keep your eyes on the compounding prize.
Based on these principles, I reacted to the bad headlines by buying.
But Not All-In
Did I buy a ton of stocks, all-in? Nope.
Another principle: in general, with exceptions (remember, the stock market is NOT physics and does NOT follow natural laws), economic forces have a greater impact than purely geopolitical ones, although they’re intertwined to an extent.
Whatever happens geopolitically in Iran and around the Gulf states, economic forces will overshadow the purely geopolitical ones. And economic cracks almost invariably start to form amidst relentless bullishness.
The Contrarian Mindset (And Its Dangers)
The joys of being a controlled contrarian are plentiful.
But wait!
Great traders don’t experience joy, or pain, or pleasure when they trade or invest. Emotional reaction is a cardinal sin in successful stock market pursuits. This is where you can get into real trouble.
Instead, be disciplined.
Rely on your investing or trading principles, strategies, and tactics. Not your gut’s highly fallible reactions to the latest news reports or other transient events.
The disciplined approach really works!
At Compounders Stock Market Academy, we teach frameworks that help you separate signal from noise, so you can make decisions based on structure rather than emotion or the latest scary headline.