My fiancé texted me after the close on Monday afternoon with a link to some newspaper article about the major selloff. "You were right!" she added. I chuckled and tucked the phone back in my pocket.
See, every Sunday, Hannah graciously puts up with me as I take time out of our precious weekend together to sit down with my laptop and a good cup of coffee and run through my weekly portfolio review. It is without a doubt the most important part of my week, the cornerstone of my financial management and the most valuable routine in my arsenal.
It's a religion. Or, an obsession. Or, a great way to get your family to say "Oh come on... Now?! Here?! While we're on vacation?!" All apply, that's for sure.
This past Sunday, winding down after my review, Hannah asked what I was thinking about. I told her that based on the latest news out of South Korea and Italy as well as the clear movement in futures, the market was going to sell off aggressively on Monday, likely kickstarting a healthy pullback. She's great about entertaining my love of charting and all things stocks, so she pressed me a bit more.
"Aren't you nervous about that? Doesn't that make you worry or something?"
Now, before I continue, let me stop and admit that I first began writing this article on Tuesday evening. The week got away from me as it often does, so I'm returning to finish and publish here on Friday morning facing a very... different... market.
Throughout it all, however, the lesson that I first jotted down on Tuesday is one I've kept in mind during the rest of the week. When Hannah asked me if I was nervous or starting to panic about the markets, I felt comfortable telling her "no". And even now as the week wraps up, I'm still comfortable saying "no".
Am I watching closely? You bet. Taking the rapid trend change seriously? Absolutely. Concerned about the depth and duration of this selloff? Definitely.
But am I running around with my hair on fire, looking at the markets in completely new ways, abandoning my investing process or changing everything about it, trying new tools or indicators or experimenting with someone else's system because OH MY GOODNESS WHAT THE HECK IS HAPPENING?!
No, not at all. In fact, quite the opposite.
I know why I'm involved in the markets. I have a clear view of my financial goals. I'm comfortable with my investing timeline and know what is most appropriate for me based on my risk tolerance, available time, lifestyle, and more. I feel in touch with my "Investor Self" and respect the emotions involved in trading. I'm firm in only playing the long side of the market (as I discussed in this article two weeks ago) and know why I feel that way.
I could keep going here, but all of this is to say that I understand my purpose as an investor and the role that markets and my portfolios play in my life. That clarity of purpose is crucial as conditions change, trends shift and reversals take hold. Bulls may turn to bears and back again, but the only real danger comes if you let your overall purpose change along with the market.
To meet my purpose, I have constructed a thorough set of processes – daily, weekly, monthly and beyond. I have a specific toolkit that I know well and lean on with no hesitation. I return to that toolkit day in and day out, week in and week out, with a rigid adherence to the process because that consistency is what makes it work. In short, I have a system.
In seminars, conferences and other events, I frequently speak to investors about the importance of having a system. I define this very clearly as something that is:
- Intentional (it is there for a reason that is true to you)
- Describable (it is clear and can be communicated)
- Repeatable (it is something you can follow again and again and again)
- Appropriate (it is yours, something that is uniquely fit for you)
I like to say...
You find your edge by crafting your system. You sharpen your edge by fine tuning and tailoring that system to fit you even better.
With a process that I trust and know intimately, I can embrace my purpose and go after it strategically. Even when the markets fall apart the way they have this week, I have a system to lean on and a process to evaluate what's in front of me. I'm not searching for that process in the middle of the turmoil because I've worked hard to build and refine it over many years. That means that when the time comes to put it to the test (like... now!) I am ready.
Knowledge of my purpose and a well-constructed process for taking action are nothing without the discipline to carry out those routines. My weekly review every Sunday is about one thing: preparation. I'm preparing for the week ahead, regardless of what it may bring.
If the markets are up, great. I have any necessary trades ready and I'm keeping a close eye on my watchlists to make new moves as they present themselves. If the markets are down, that's fine too. Again, I have my scenarios mapped out and ready to roll.
The point is this: I am prepared to execute my process over and over again, throughout all market conditions, in order to turn my purpose into results.
So I have a challenge for you this weekend. With the markets closed and the pandemonium paused, consider the "Three P's" I've described above and ask yourself:
- Do I have a personalized purpose as an investor, one that is true to me, and do I understand why I am ultimately participating in the markets?
- Do I have a real process in place, a systematic approach that is intentional, describable, repeatable and truly appropriate for me?
- Do I properly prepare for what the markets have in store by staying disciplined and consistently executing my routines?
March 21: "Mastering The Stock Market At All Ages"
Next month, Gatis and I will be presenting in Los Angeles to the AAII about "Mastering The Stock Market At All Ages". In this special event, we're taking over for a full morning (9:00am - noon) with three mini presentations designed to bring investors of all ages together in the same room. We'll share how we manage our money, how we invest both separately and together, and discuss the most important lessons that we've learned throughout more than 45 years of combined market experience.
For more information about the event or to register, CLICK HERE.
Chart on, my friends.
- Grayson Roze
VP of Operations, StockCharts.com
Author, Trading For Dummies (Wiley, 2017)
Author, Tensile Trading (Wiley, 2016)