Yes, the fountain of youth really does exist, and academic research is increasingly proving it to be found amidst your investment portfolio. A growing body of scholarly research shows that, in many ways, life can get better as we get older, and being an active investor can contribute in significant ways. If this sounds familiar to some of you, it is because in fact this was how I began my blog about “Maintaining Mental Longevity” published on December 12, 2014. Check it out so you don’t fall prey to silly myths on aging.
Profits and Consistency — these should both go hand-in-hand and be goals for every successful investor. Profits are the result of a methodology that you can apply with clarity and understanding. Consistency is the result of being able to replicate your winning methodology in a recurring manner.
Action Practice #9 challenged you to draw a vertical line on six charts at a point you felt the probabilities most favored a profitable trade. Since we all require differing degrees of evidence before we are able to pull the buy trigger, the vertical buy line will no doubt vary significantly from one investor to the next. An aggressive trader may not wait for all four price relative graphs to show confirmation. Perhaps three is enough. The same with money flow. A conservative investor may require alignment of all five.
Tensile Trading ChartPack Update (Q4.2016) 150 Potent Enhancements plus Fidelity's Fresh Quarterly Buys and Sells
Holistic is most commonly heard in reference to skilled medical practitioners who treat the whole person, considering not only the physical symptoms of patients but mental, emotional and social factors as well. Holistic is also the perfect adjective to describe skilled investors. They appreciate the fact that the numerous parts of the stock market are intimately interconnected, and they are fully aware that investors must comprehend these dependencies to understand and profit from the whole.
The ChartPack is precisely this — a holistic investment tool. I personally use it daily in all my investing activities and have done so for over 15 years. Since I first made it available to my students in 2011 and to StockCharts.com subscribers in 2013, the ChartPack user community has grown exponentially and contributed hundreds of improvements to the package we all now use.
Groucho Marx first said it and Woody Allen repeated the famous line “I’d never join a club that would allow a person like me to become a member.” As an independent trader, I’m part of an informal loose-knit group of investors who do what I do, tend to think like I think and possess many of the same traders’ “ticks” as I possess. We are a circle of friends who don’t commingle funds but who touch base regularly, encourage one another emotionally and share investment ideas. Being a trader can be a solitary discipline and one must consciously make an effort not to become reclusive. For me, my trading buddies and my educational outreach provide me the antidote.
The Seasonality Action Practice blog from December 16, 2016 is about the two most impactful decisions you can make as an investor. Academics have produced stacks of papers confirming that your asset allocation decisions have immense consequences that flow directly to your bottom line. I maintain it’s the second most important investment decision you can make.
The most important decision is making a commitment to actively and regularly rebalancing your asset classes. That’s where seasonality comes in by putting the probability winds at your back as you buy and sell to realign your positions with your target allocations. The discipline decision is the most important because while seasonality has a degree of predicable probability, human behavior is predictably irrational.
Babylonians did it. Ancient Romans did it. Medieval knights pledged the “peacock vow” each New Year as their promise of chivalry. Reflecting upon the previous year’s efforts and seeking ways for self-improvement in the coming year has been a common ritual for millenniums because our human nature drives us to be better next year than we were this year.
At this time of year, it’s one distraction wave after another. Admit it. Your investing efforts take a back seat to shopping, socializing, decorating, drinking and feasting. Just pick your poison. In addition, many of you head off to warmer climates, as you should. As an investor or trader, how do you approach these seasonal holidays and travel challenges? The markets don’t close when you go to the Caribbean. They do not tolerate inattention or loss of focus, not even accidental lapses.
You can’t download stock market wisdom. You have to experience it firsthand and practice it. In a nutshell, that is precisely what these Action Practice blogs every two weeks are all about.
The previous Action Practice (#7) presents a tool for uncovering individual investors’ tolerances for risks and rewards. The exercise was intended to identify the personal balance between fear and greed with which investors participate in the market. The response was so positive and encouraging that I actually wrote an entire blog last week to dive into the material in greater depth. Please review that description.
Far too many investors get it wrong, and perhaps no other group more so than the Millennials. In a recent cover page article on the investing habits of the Millennial generation, IBD reported that Index ETFs are the investment vehicles of choice for these 19 -35 year olds. I maintain that this is foolish and simply the result of the young investors not being aware of the powerful decision tools that are available to them.
I have personally discovered that the sweet spot with investing is to have a truly accurate understanding of your own tolerance for the markets’ inevitable pullbacks and drawdowns. Most fundamentalists approach this problem with a static model that considers standard deviations, beta,percentage drawdowns or some numerical gauge. The reality of investing, however, is that we each have completely unique tolerances for risk and reward. This is precisely how it should be.
I’ve analyzed over one million charts. That’s not bravado, just math. A hundred to two hundred charts a day (most days) for over 25 years, and that’s the number you reach. I share this because chart reading practice has indeed allowed me to train my eye in such a away that it allows me to wring an astonishing amount of information from a one-page chart. Cultivating these skills is what this bi-weekly “Action Practice” blog is all about.
For those of you who might have stumbled upon this as your first exposure to these “action practice” blogs, think of this as paper trading, visual investing or virtual trading exercises. Might I suggest you revisit the September 2, 2016 blog where I explain my objectives in more detail.