This week the market has taken a pounding.
Everyone who has ever said "stocks are risky" during the greatest bull market of all time will now be popping out of the woodwork to tell you that they "told you so".
The reality though is that even with this week’s hammering, stocks are well up from the 2008 era which scared a lot of people out of stocks. And those who have had robust exit plans have avoided the worst of it. The problem with rising markets is that complacency builds. When complacency builds, market rises become the norm. They begin to be taken for granted. I’m always reminded of Peter Lynch’s great quote (one of many – this guy would’ve been a Twitter legend):
“A sure cure for taking a stock for granted is a big drop in the price”.
However, Warren Buffett has come out and said that investors shouldn’t buy or sell on the headlines.
Warren Buffett also has a $130 billion cash pile to put to work. As he said, it is wise to be “fearful when others are greedy and greedy when others are fearful.”
It should be noted that Warren Buffett is an investor. Does that apply to traders too?
Yes and no. If you’re holding positions as a trader and are looking to average down, then that goes against the trading rules of cutting your losses. If anyone is averaging down, then I assume they have a profitable strategy of doing so (because otherwise if they didn’t they’d be gambling). However, the problem of averaging down is that it works until it doesn’t. Cutting losses works every time. I don’t know a single trader who blew up their account from a series of small losses.
But buying weakness when others are selling can offer good trading opportunities. Especially if the stock is in an industry that is unlikely to be affected by Coronavirus.
Reach plc
I wrote about Reach (LON:RCH) back in January here. The stock price opened at 125p on the day my article was published, only for rise almost 50% and hit a high of 185p last week.
I no longer hold a position in Reach, as I banked some profits on the results and was stopped out over the past few days. But with Reach’s recent results it showed the…
