- Play Stock Market Chess Using The 3 D’s And Overcome The Bears
The ups and downs of the stock market are hard to take sometimes. However, you have to learn how to dig deep with your due diligence, be disciplined and be on defense. Those are the 3 D’s when it comes to stock market investing.
Be On Defense
There is a bull market out there, but you have to find it first. That might require some extra research and the deep digging that will be discussed in a minute, but that statement is true indeed.
While the stock market collapse of 2008 and subsequent recession beat up on individual securities, there were companies whose stocks performed quite well. Retailers Dollar Tree and Walmart posted hefty returns during the market meltdown, and McDonald’s continued to serve its billions of customers to the tune of an 8 percent compounded yield for investors that year. The winner of those three companies was actually Dollar Tree, whose stock jumped 60+ percent.
These stocks are obviously not in the aerospace and defense sector, but they are defensive stock indeed. Keep in mind, however, that markets are continuously changing, and that goes for future stock picks.
When there is a generalized bear market in place, spec stocks are going to suffer first. A bear market means risky territory for stocks as a whole, and so people aren’t going to feel too speculative amid a selloff. That means those spec stocks are going to get hit hard, as people look for more defensive plays that provide them with security and peace of mind.
When interest rates are low, that means dividend stocks are a win in terms of defense picks.
Stocks that pay dividends are already creating a positive return, save for any losses in the prices of the securities themselves. Naturally, you need to be searching for sustainable dividends because cuts to a company’s dividend can be a major blow.
Investors focused on defensive picks in 2008 after the market crash, and this was the trend for quite awhile. Fast forward about a decade later, and investors have their confidence back. Despite the recent market correction, the DOW is at an all-time high, volatility in stocks is considered to be low and the investors themselves have been rallied. What does that mean for you? Stock market investing is a game of chess, which means you better focus on your next move, not follow the leader. This means it is time to start selecting defensive picks and allocating likewise.
This doesn’t mean that you suddenly sell all positions and start getting very conservative. However, you need to make changes a little at a time. One of the signs that a long-term rally is ending is that stocks that stocks that are extremely speculative start surging to new highs. People are reaching and hoping, buying and selling and you need to look no further than one business cycle to know what to do next. Get defensive, and in due time, you will have a chance to buy other stocks on the dip after future market corrections.
Have Discipline
You can’t get all emotional when it comes to the stock market. Buy what you know and believe in yes, but you’re operating a business.
Research supports that conclusion that when investors get emotional, they buy high and sell low, not buy low and sell high. You absolutely need discipline in order to counteract what would be considered to be human nature to act on your emotions. You need an iron stomach in order to know what to do in any market, let alone a bear market.
Disciplined investors know to hold undervalued stocks and buy dips. You should look for small cap stocks as they can be very valuable and here is a post on how to find small cap stocks for your pleasure.
You must keep yourself from acting impulsively amid speculation, news reports and hype. You also need to avoid taking on spec stocks in a bear market.
You need to develop a disciplined system for evaluating stocks in your portfolio to determine if they need to be part of your investment portfolio. Their positioning is also important.
Thankfully, there are many investment tools out there that can help you decide what to include in your portfolio based on technical and fundamental analysis. Thinking about your investments according to the terms and conditions described, with discipline, means your objectives need not change along with the conditions of the market.
Dig Deeper
When all mayhem breaks loose in terms of the stock market, many securities are a screaming buy.
The markets have always made a comeback, and that truth about investing means that when the market bottoms out, there are discounted and undervalued stocks to purchase.
That doesn’t mean you can buy anything and turn a profit amid a market fallout. Remember first that it’s hard, no impossible, to time the market. Some securities could drop lower, and some could struggle for quite some time. That is where your ‘dig deeper’ comes into play.
Over-corrections to the stock market are inevitable on both ends. You need to find those undervalued stocks whose prices just don’t add up. You certainly need to know your stock market terminology, even if you do use tools for help. Discipline and defense are integral parts of determining which stocks are actually undervalued and primed to perform. With defense and discipline, you yourself are primed to dig deeper and make the right investment choices.
Don’t take this message about the 3 D’s as some market forecast for stocks to plummet. There is no guaranteed crash right around the corner. The bulls continue to push forward, but just remember that there are always two sides to a coin. Furthermore, smaller market corrections are facilitated by big investors who prune a little off the top for future growth, if you get my drift. Additionally, larger market corrections are indeed inevitable if you look at historical charts for the market as a whole.
What can keep you out of hot water and focused on playing chess and staying ahead of the game is to be disciplined, be on the defense and dig deeper. Those are the 3 D’s of market survival.
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