Market participants have been trained by the business media and traditional Wall Street to believe that it is good news when the market is up and bad news when it's down. That sort of logic makes it easy for the media to write sensationalist headlines and to produce emotional stock market stories. It also makes it easy for traditional Wall Street to claim that you need their predictions and advice to navigate the market.
The problem with the 'up is good and down is bad' assumption is that it completely ignores the most important and valuable aspect of the market which is the constant creation of new opportunities. The inevitable cycle of ups and downs combined with the drive of business to grow profits is what gives us a steady flow of new opportunities. As long as there is a business cycle and ambitious company management there will be the potential to profit from the stock market.
We don't have to know if the market is going to end the year up or down to be optimistic or pessimistic. It probably is detrimental to even spend much time contemplating the question. We just have to know that there are opportunities and constantly hunt for them.
The best preparation for taking advantage of the opportunities the market will offer is to maintain an optimistic mindset. Not optimism about market direction but optimism about opportunities. We should be excited about big drops in the market even if they do cause us pain because they will lead to the next crop of opportunities.
The current pullback is creating thousands of opportunities in individual stocks as mispricing takes place and fundamentals are ignored. I don't know how low stocks may go from here but I do know that they will make substantial recoveries at some point. I see plenty of names I will want to own when the market starts to focus on their positive prospects again.
In my years of trading I have had many setbacks along the way but I've always been optimistic that I would soon have my accounts back at all time highs. I'm always confident that I can do that because I am confident that the market will provide me with the opportunity to do so. I simply have to do the work to find the trades and then manage them effectively.
It is the nature of many people to extrapolate from current conditions. When times are good they think they will never end and when the cycle turns down they become extremely pessimistic and expect the world as we know it to come to an end.
This sort of thinking blinds them to the opportunities that come from excesses in both directions. It is the nature of the market to go up and down and we should embrace that fact rather than fight it.
The purpose of this article is to urge you to think more in terms of potential opportunity than about market direction. I preach all the time about the uselessness of prediction because you don't need to predict to find opportunities. Human nature and the economic cycle will always provide us with a fresh opportunity.
If you have had a difficult time recently it is easy to fall into the trap of thinking that you can't make money in the market. The best way to do that is treat each day as a fresh start. If you are holding positions mark them to market and treat them as if your cost basis is the current price. Then formulate a strategy based on that and act on it. It doesn't matter if you have a big unrealized loss or gain. Forget that and think only about the present.
I don't know what the market or the economy is going to do but I do know that I will be able to find a steady supply of trades if I stay focused and work at it. Is there any other job in the world that offers us such fantastic potential?