As I was returning from Europe on Monday – after doing some important research that I’ll be sharing with you in the coming days – the emails started coming in. North Korea had just launched a missile that flew over Japan, and stock futures were already down just 90 minutes after the regular trading session had ended. As expected, the markets opened lower on Tuesday.
My clients were concerned, and the emails fell into two camps:
1. Why aren’t we selling anything?
2. Why aren’t we buying anything?
I get it. When headlines are swirling and stocks are moving, the immediate impulse is to do something. Unfortunately, that almost always works against you. Sometimes, the best trade is no trade at all. Let the market sort itself out, and as the dust settles, pounce on the opportunities that emerge. Allow everybody else to join in the initial panic move, and wait until you can get a clear read on the market and individual stocks. By doing that, you get both more upside potential and less downside risk.
It reminds me of another story that goes back to when I started my career at Charles Schwab nearly 20 years ago. I had a client that wanted my opinion on a handful of stocks, and he wanted me to respond “buy” or “sell” to every company. I tried to explain to him that there are actually three options: buy, sell, or hold. He didn’t like that because he thought it was an easy way to weasel out of a definitive answer. The truth is that most stocks usually fall into the hold category unless there is a clear bull or bear market. By forcing yourself to either buy or sell, you’re taking away a powerful tool that’s as old as time but still works in NexGen investing: good old-fashioned patience.
I know that can be difficult when things feel like they are swirling around you, but that’s actually why it works so well: most investors can’t do it. Their kneejerk reactions add to the swirling, but when the dust settles and clarity emerges, those impulse buy and sells almost always cost them money.
I learned that lesson long ago. I’ve had clients and subscribers upset at me when we do sometimes take a step back and let things settle. At one point, I went against my better judgment and tried to accommodate them. Not anymore. Since then, I would say that a little extra patience has worked out better for me than impulse trading nine out of 10 times.
Notice I said a little extra patience, not a long time. That’s certainly true right now, as market conditions remain very favorable overall. (In fact, we just added a few new buys in both my NexGen Investor and NextGen Profit Multiplier services, and I have a few shorter-term trades I expect to move on soon in NexGen Trader.)
The key is to ignore the breathless headlines, tune out the noise and focus on the facts, namely charts and data. I’d rather listen to what the market is telling us than the media. The early week action ended up being quite bullish after all, and the fundamental underpinnings of the market are also bullish. Earnings are expected to grow at a double-digit pace for the next two years, valuations are nowhere near bubble levels, both the Unites States’ and global economy continue to grow at a modest pace, interest rates remain low and all major stock indices are in long-term bull trends.
Special Market Update Video
I’ve recorded a short video and chart show to share more of my thoughts on the market right now and what you need to be doing. I’ll also show you the charts of four of the most important stocks in the market, the so-called FANG stocks – Facebook (FB), Amazon.com (AMZN), Netflix (NFLX) and Alphabet (GOOGL). You might be surprised at what they’re telling us.
More Catalysts Ahead
There’s no question August has had a lot of the usual summer doldrums, with lower volume and an often flat market. September can be bumpy at times – although that’s often where we get our best opportunities – but I expect a strong finish to the year. I say that for the reasons we’ve talked about, and also because I do expect President Trump and Congress to make at least some progress on long-awaited tax reform.
I think that is what investors most want to see, and the prospect of it provides some support – nobody wants to be caught flatfooted when an announcement is made. The lack of action so far has kept a lid on stocks, but when it does come, I have no doubt it will be a strong catalyst for the next leg higher.
So please don’t get caught up in the headlines and folks who want to make a name for themselves by saying outrageous things. Take a deep breath, enjoy your upcoming holiday weekend and listen to what the market itself is telling us. And most of all, be ready to take advantage of opportunities. My watch list is full of possible buys – big, small, long term, short term and everything else. They all meet our strict NexGen criteria on fundamentals, technicals and intangibles, and they will be the stocks that make us money as we head into the final months of 2017.
In fact, we just booked 22%+ profits in only one month in AeroVironment (AVAV), which soared today after fantastic earnings. Click here if you would like to learn more about other stocks we’re investing in now and to be among the first to know the moment our next buys hit.