Relax, A Volatile Stock Market Is Your Dearest Friend

Most people never forget their first love. I'll neverenterprise.Call it foresight, or hindsight if you want
forget my first trading profit! But the $600 (1970to be argumentative, but a long-term view of the
dollars) I pocketed on Royal Dutch Petroleum wasInvestment Process eliminates the guesswork and
not nearly as significant as the conceptualpoints pretty clearly toward a trading mentality
realization it signaled! I was amazed that someonethat keys on the natural volatility of hundreds of
would pay me that much more for my stockInvestment Grade Equities. During corrections,
than the newspaper said it was worth just a fewconsider these simple truths: 1) although there are
weeks earlier! What had changed? What hadmore sellers than buyers, the buyers intend to
happened to make the stock go up, and why hadmake money on their purchases, 2) so long as
it been down in the first place? Without evereverything is down, don't worry so much about
needing to know the answers, I've been tradingthe price of individual holdings, 3) fast and steep
RD for thirty-six years!Looking at scores ofcorrections are better than the slow attrition
similarly profitable, high quality companies in thisvariety, 4) always accept even half your normal
manner, you would find that: (1) most move upprofit target while buying opportunities are
and down regularly (if not predictably) with anplentiful, 5) don't be in a rush to fill your portfolio,
upward long-term bias, and (2) that there is little ifbut if cash dries up before it's over, you are doing
any similarity in the timing of the movementsit "correctly".Most of the problems with Mutual
between the stocks themselves. This is theFunds and much of the increased opportunity in
"Volatility" that most people fear and that WallIndividual Stock trading are functions of growing
Street loves them to fear. It can be narrowlynon-professional Equity ownership. Everyone is in
confined to certain sectors, or much broader,the stock market these days whether they like it
encompassing practically everything. The broaderor not, and when the media fans the emotions of
it becomes, the more likely it is to be categorizedthe masses, the masses create volatility that
as either a rally or a correction. Most years willrarely under-reacts to market conditions! Rarely
feature one or two of each. This is the naturalwill unit owners take profits, particularly if they
condition of things in the stock market, Motherhave to pay withdrawal penalties or taxes. Even
Nature, Inc. if you will. Don't take her for grantedmore unusual are expert advisors who encourage
when she gets high, and never ignore her wheninvestors to move into the markets when prices
she feels low. Embrace her volatile moods, workare falling.A volatile market creates opportunities
with them in whatever direction they travel, andwith every gyration, but you have to be willing to
she will become your love as well!Ironically, it istransact to reap the benefits. A necessary first
this natural volatility (caused by hundreds ofstep is to recognize that both "up" and "down"
variables human, economic, political, natural, etc.)markets are forces of nature with abundant
that is the only real "certainty" existent in thepotential. The proper attitude toward the latter,
financial markets. And, as absurd as this maywill make you much more appreciative of the
sound until you experience the reality of it all, it isformer. Most investment strategies require
this one and only certainty that makes Mutualanswers to unanswerable questions, in an effort
Funds in general (and Index Funds in particular)to be in the right place at the right time.
totally unsuitable as investment vehicles forIndecisiveness doesn't cut it with Mamma... in or
anyone within seven to ten years of retirement!out too soon is not an issue with her. But wasting
How many Mutual Fund investors have retiredthe opportunities she provides really ticks her off!
recently with more liquid financial assets than theySuccessful investment strategies require an
had seven years ago, way back in 1999?Thereunderstanding of the forces of nature, and
will always be rallies and corrections. In fact, it isdisciplined rules of portfolio management. If you
worthwhile to "go back to the future" to establishcan transition back to individual securities, you will
a realistic Investment Strategy. In the last fortydo better at moving toward your goals, most of
years, there have been no less than ten 20% orthe time, because the opportunities are out there...
greater corrections followed by rallies that broughtall of the time.So let's adopt some new rules for
the market to significantly higher levels. The DJIAthis investment game and learn to live with them
peaked at 2700 before its record 40% crash infor a few cycles: Let's buy good stocks new and
1987. But at 1700, it was still 70% above theold at lower prices during corrections. Let's take
1000 barrier that it danced around with forreasonable profits on those that go up in price,
decades before... always a higher high, rarely awhenever they are kind enough to do so. Let's
lower low. The '87 debacle was followed byexamine our performance based on the results of
several slightly less exciting corrections, but thethese trading transactions alone and at market
case was being made for a more flexible, andcycle examination points for a smiley faced
realistic, Investment Strategy. Mutual Funds werechange of pace. And one other thing...Let's drink a
spawned by a Buy and Hold Mentality; Mothertoast to Mother Nature, her uncertainty, her
Nature, Inc is a much more complicatedvolatility, and, of course, to our first loves.