Well known trader Mark Minervini posted a tweet this morning that distills much of what I have been trying to communicate about the market recently:
Everyone is trying to nail the bottom of this "once is a lifetime" buying opportunity. First of all, it's not a once in a lifetime opportunity. Second, picking the bottom isn't the opportunity. The bull market that follows is the opportunity. And there's plenty of time for that.
— Mark Minervini (@markminervini) March 19, 2020
In recent weeks there has been a flood of "experts" urging that we rush to buy the great opportunities that are being created during the coronavirus crisis. Their argument is that the crisis will pass and these stocks will rally back to their prior levels.
While that logic is most likely correct, it is the execution of the strategy that is the issue. Buying on the basis that stocks will eventually recover is suboptimal because the entry points are likely to be poor and the risk is higher without a thoughtful strategy.
As Minervini notes, this is not a "once in a lifetime" opportunity. The opportunities to buy will be numerous in the days and months ahead. The big gains will come in a bull market, not when stocks are struggling to find support in a bear market. This feeling that we will miss out if we don't rush to put our precious capital at work is understandable but it is not rational.
I've been using Disney (DIS) as an example of something that I would like to build as a long-term holding. I made a couple of small buys so far but at this point, I'm taking the opportunity to sell some into the bounce that started Thursday and continued into Friday morning.
Why would someone sell a "long-term" holding like Disney? Because I'm still building the position and trying to obtain the best cost basis with the lowest risk.
I believe it is highly unlikely that Disney is going to run straight back up from here. In fact I believe the greater likelihood is that it will take quite a while before it can completely discount all the uncertainty it must deal with.
If I'm wrong and it continues to run higher, I have no concern about paying up at a later date when a true bull market develops. If I'm right I can work on getting a better cost basis and profit even more.
It is easy to feel like you are missing out when the market has a strong countertrend bounce but remind yourself that this is a bear market and that the big money is made in bull markets. The best risk-adjusted returns are made in uptrends, not downtrends.
(Disney is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells DIS? Learn more now.)
