In this Article
- Leave Your Emotions at the Door
- Algorithms Over Anger & Enthusiasm
- How Long to Stay in the Market?
- Confidence In Every Trade
It is staring you right in the face.
One of the biggest things standing in the way of investment success has nothing to do with smarts, the ability to crunch numbers and process complex economic data, or anything else even more complicated that might take years of schooling or professional experience.
The best part is that almost anyone should be able to make the simple changes needed to start making more money in the market almost overnight.
Leave Your Emotions at the Door
The market downturn in 2022 has been brutal on major Wall Street firms and retail investors alike.
There have been few places to hide as the selling continues in the early part of May amid rising interest rates, climbing prices, supply chain setbacks, and geopolitical turmoil.
These conditions might leave many investors feeling like it’s time to drop out of the market altogether and stay on the sidelines until they feel it’s safer.
But it’s proven that many investors feel the most exuberant and bullish as the market is peaking. Meanwhile, tons of those same people are the most nervous and hesitant about buying stocks as the stock market begins what will—in retrospect—mark the start of the next bull market.
This simple truth is why investors must attempt to avoid emotional-based decisions at every turn.
Algorithms Over Anger & Enthusiasm
Investors should avoid trying to time the market. And the reason is simple enough: even the most elite investors in the world cannot precisely time stocks and the broader market over and over again.
Those that are able to time the market with an acceptable, money-making rate of success, year in and year out, in bull and bear markets, utilize nearly everything in their toolboxes beside emotions.
Today, quantitative and computer-driven strategies are often the most important tools for successful investors and funds. These models help crunch the numbers, interpret historical data, and back test, while blocking out all the constant noise.
At the opposite end of the spectrum, many retail investors who attempt to play the market-timing game on their own have been proven to consistently buy at or near peaks and then sell close to the market’s eventual bottom.
Behavioral economics is now a field onto its own. Experts in the area can provide wonderful insights into why humans constantly make choices that negatively impact their own financial wellbeing.
Thankfully, most people don’t need someone with a PhD in front of their name to tell them we can be our own worst enemies in investing, as in life.
The goal moving forward isn’t to do more of the same while being calm and Zen. Instead, investors looking to achieve more success should emulate quantitative investing strategies that don’t have egos and bad days.
How Long to Stay in the Market?
Every investor’s goal is somewhat similar: consistently make money over one’s lifetime.
Clearly, there will be lean years and down times because even Wall Street legends go through slumps. And it is hard to consistently pick winners, especially in down markets like we have seen to start 2022.
Buying low and selling high is every investor’s North Star and it will help you achieve the number one goal of investing. But how does one determine the lows and the highs?
The last two-plus years have proven just how difficult it is to time the market.
The stock market is a complex ecosystem that’s constantly impacted by an untold number of factors outside of the crucial inputs like interest rates, inflation, earnings, and more. Broader investment sentiment is also one of these pivotal market influencers.
But don’t mistake sentiment in bull and bear markets as a justification for attempting to time the market.
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Think of all the investors who sold out near the initial coronavirus lows in March of 2020 and then stayed on the bench as stocks roared back to set new records by end of the summer before going on another roughly 15-month run, posting new highs all along the way.
No doubt, some of those same investors who were afraid to jump back in the market, having been burned the last time around, eventually bought stocks just as things were getting overheated again.
The current market downturn to start 2022 has seen the S&P 500 fall roughly 16%. And be very suspicious of anyone telling you the bottom is now in, or predicting exactly when it will be reached, because they don’t know.
What is proven to be a winning long-term strategy is time in the market, not timing the market. And computers don’t need off days or performance bonuses to help boost your returns for decades to come.
Confidence In Every Trade
Wall Street has long been dominated by computerized and algorithmic trading. Big investment firms and top traders utilize complicated models full of various inputs. They also verify that their strategies work consistently during bull markets and extended downturns.
Past performance is no guarantee of future success. But why would anyone want to invest with a fund or stock picking strategy that has already consistently lost investors’ money over an extended period?
At the same time, it’s obvious why traders utilize strategies that have continuously proven their worth by helping make them money throughout the years.
Today, the average investor can implement a similar computerized-focused, backtested playbook to win like the Wall Street superstars.
There are, of course, no sure things. And even the best investors and the top-ranked algorithmic models ‘only' have win ratios of 60%, 70%, or even 80%.
Despite that, Wall Street titans who utilize algorithmic-style strategies remain confident when executing the next trade, and so can you.
Thanks and good trading,
Ben Rains
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