Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific advice on stock market trading and other investment topics that will help you develop a successful approach to investing. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away. Today’s tip: “The stock market climbs a ‘wall of worry’ and well-informed investors can help their stock portfolios climb with it.” Here’s one of the smartest investment one-liners that anybody ever came up with: “The stock market climbs a wall of worry.” It’s something to keep in mind every time you hear any news that seems negative for the stock market and/or the economy. The news environment continually supplies issues for investors to worry about. New worries crop up every day. They stay in the news for weeks, months, years…sometimes decades. Consider, for instance, the long stretch of anxious headlines about the U.S. Federal Reserve’s intention to cut back on quantitative easing, or the many negative reports about a slowing growth rate in China. Then there’s ongoing uncertainty over the U.S. federal budget and national debt, and constant unrest in the Middle East, fed almost daily by grim news from Syria’s civil war. Plus the media continues to remind us that the global economy is slow to recover. [ofie_ad]
Positive developments can be more powerful but less publicized
Despite these and other worries, since 2009 the stock market has moved up in its customary two-steps-forward, one-step-back fashion. During that period, lots of investors stayed out of the market. Instead they invested in GICs and other fixed-return investments that provide safe but meagre returns. Obviously, successful investors monitor the news, and take a close look at any investor worry that seems likely to do real damage. Most of these worries —nearly all, in fact—do little, if any, damage to the market. Instead, they get overwhelmed by less widely noted but more powerful positive developments. The funny thing is that one day it will seem as if all the negatives have been dealt with and there’s nothing to stop the market from going straight up for years. You might call this the point of maximum optimism, and things generally go downward from there. In retrospect, you’ll look back on that point of maximum optimism as having been a good time to sell. COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members When the stock market falls sharply on bad news, do you react by selling stocks—or by buying stocks you like that have fallen in price? Or do you wait and let the market sort itself out? Do you react differently to market setbacks today than you did earlier in your investing career? Note: This article was initially published on October 24, 2012.
