Four Reasons I’m All-In on the Market
Earlier this week I likened investing to boxing.
In particular, I mentioned a famous quote from former heavyweight champion Mike Tyson:
“Everyone has a plan until they get punched in the mouth.”
While Tyson was talking about fighting, the idea applies to investing as well. Specifically, what do you do when things get ugly?
If investing was easy, everyone would be great at it. And we know from numerous studies that most professional investors fail to beat the market, let alone individual investors.
The thing that makes investing hard is emotion – specifically, dealing with emotion when the market “punches you in the mouth.” Do you maintain your discipline and strategy, or do you lose your composure and let your emotions get the better of you?
I mention all of this because, again, the market is a sea of red this morning. As I write this, the S&P 500 has dropped back down to initial support at 3,240.
Given how small the bounce was before, I wouldn’t be surprised to see this support line broken. That opens the door to the market dropping down to 3,150. And that is going to be a lot more painful for investors.
Of course, that begs the question: Do you panic and sell, or do you use this as a buying opportunity?
Personally, I will be using this as a buying opportunity. Here’s why:
- The economy continues to grow. Despite all the doom and gloom from the media, the economy never came close to a recession last year. As I write this, the data suggests the economy is growing by at least 2%.
- The Fed continues to ease. The Fed is currently running a $60 billion per month quantitative easing (QE) program. Between this and various repo programs the Fed is running, we’re talking about roughly $80-$100 billion in liquidity hitting the markets courtesy of the Fed.
- Corporations plan on spending nearly $700 billion buying their own stock this year. This is a ton of built-in buying power for the markets.
- Investors are nowhere near euphoric on the stock market. Most sentiment gauges have remained mild, despite stocks running to new all-time highs week after week. In order for the market to truly form a top, we need to see incredible levels of euphoria from investors.
Add all of this up, and my game plan remains the same: “Buying on dips” even if the stock market punches me in the mouth more than once this round. I might not enjoy it, and it might be painful for a while, but my goal isn’t to feel good, it’s to make money.
And that’s how you win the fight.
Editor, Money & Crisis