The share market is constantly changing as businesses, the economy, technology, ideas, sentiment, and culture change. As an investor you need to flow with these changes by being patient, observing, monitoring, learning, and adapting to the evolving investment landscape.
Strategy
Sticking to a good strategy through market changes (even when it is not currently producing good returns) is a key ingredient to long-term success. Nonetheless, you can and should tweak your investment strategy as you continually learn more about investing through experience, other sources and learning about the way you invest.
Sell and move on
If you have held a certain share for a long time you may become attached to it and be reluctant to sell even when the outlook has changed and the market is offering a good price far above what you think it’s worth. It can often be a good idea to take profits when a company has matured and reinvest these into growing companies that are taking advantage of new technologies and shifting attitudes. Consider selling mature companies and reinvesting in smaller, growing companies and repeating the cycle.
Don’t stay stuck to a viewpoint
There will be changes to the companies you have invested in and the industries they operate in. When you bought shares, you will have taken a viewpoint on the company and industry. When the situation changes and presents the company’s outlook in a different light, what do you do? Depending on the facts, you should consider changing your opinion in light of new information. You need to have the confidence and ability to adapt to change and reassess your position when necessary. It may not pay to hold onto stocks where the outlook has changed for the worse. The most profitable move may be to cut your losses and move on to the next opportunity.
Monitor
Monitoring your current investments is paramount. This is an important part of the investing process but is often overlooked. It is not just potential new investments in growing industries you need to watch for – you also need to observe your current investments. There is always the potential that your current investments lose out due to technological advancements. It is hard to pick the specific winners from new technology, but much easier to figure out which industries will be disrupted by new technology and lose. You must monitor changing industries, changing attitudes of consumers, new technology, and industries.
Use new innovations
There have been a number of innovations impacting investing platforms and how we receive information recently. Increased competition has impacted brokerage costs. If you find another broker that is charging $10 instead of $20, then you can take advantage of this and lower your investing costs. Robo advice platforms allow you to invest small amounts easily and provide an accessible way to get started investing. Although EFTs have been around for a while, they are becoming more popular every day. ETFs can provide a low-cost method through which to diversify into offshore share markets and take advantage of new growing sectors such as robotics or cybersecurity.
Market/share direction
The share market can go in one direction for a lot longer than investors think. Trying to time the market by selling all your stocks when you think the market will crash, then trying to figure out when to jump back in if it does crash, can be very difficult. Instead, if the market is overheated and valuations are expensive you may decide you want to sell some shares for a good price. Or if the market is depressed, maybe pick up some shares you have been watching for a good price.
Relative share price strength is a technical indicator that has been shown to have merit. Simply put, if a share price is trending up or down, it is likely to keep going in the same direction for the immediate future. If a stock is steadily decreasing, you don’t have to jump in even if the fundamentals are good. You can wait and see if the price changes direction. If the stock is trending up and earnings are still increasing, there may be no hurry to sell.
Be patient
Being patient is one of the best ways to flow with the markets. While traders, amateurs and people who dream of getting rich quick try to force money from the market by overtrading, taking small profits and engaging in risky bets, you can sit back and wait for opportunities to come to you, holding stocks while the profits accumulate.
Summary
Flow with the share market by:
- learning and making subtle changes to strategy;
- waiting for opportunities;
- cutting investments when necessary and moving onto new opportunities;
- monitoring current investments and changing technology, the economy, market sentiment and consumer attitudes;
- pivoting from stale viewpoints;
- using new investing innovations to your advantage; and
- going with the direction of stock prices rather than trying to time the market.
Chris is a passionate private investor and the founder of Sharpinvestor.com.au, an independent website with Australian share market data, share selection, investing ideas and articles to improve your investing.
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Disclaimer– The author may hold positions in the stocks mentioned in this publication, at the time of writing. The information contained in the publication and the links shared are general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. For errors that warrant correction please contact the editor at admin@strawman.com.
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