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Okay, a little more analysis for you in this “scary” market.
I often remind people that “The hardest trade to make is often the right one.” And I often implore people to slowly raise cash when the markets are at all-time highs so that they can slowly deploy that cash when markets crash.
The short-run is often driven by emotions. When the vast majority of traders and/or investors are feeling the same emotions — especially when those emotions are either outright panic or glee — you get a big move in the opposite direction. That’s why making the “hardest trade” is often the right one, because it’s hard to go against the crowd when everybody’s feeling one way.
Which brings me back to today’s trades and why I’m stepping up my buying with even a few call options. You tell me if scaling into long positions is easy today. Except for the thickest-skinned traders and investors, buying into the teeth of a decline like we are right now is never easy. It wasn’t easy scaling out of a few tranches of our biggest winners back a few weeks ago when they were themselves hitting all-time highs. It wasn’t easy removing several positions from the portfolio over the last few months. It wasn’t easy sitting on cash when some of the stocks I want to buy like Twitter (again) Whole Foods and Splunk were seemingly breaking out and taking off. I’m going to add a tranche of common stock in Twitter for now (A little bird, get it?).
Now we get our chance to start scaling into some of those names at 10-20% cheaper than we would have when it was “easier” to buy them. Make the hardest trade. It’s usually the right one, especially in the short-term, as measured in weeks.