The worst is over. Of that, I’m confident.
This does not mean that the bear market is over – not by a long shot. The market could remain rocky for a while longer, or simply go nowhere, up, or down.
But even when the stock market averages are going nowhere, it’s possible to make huge gains in individual stocks. Selectivity is the key.
With all that in mind, I want to share my core investing philosophy that can help you learn how to prosper in almost any market…
A lot of people don’t realize it… but America has been divided into two groups for the last 30 years or so. Now when I talk about two groups, I’m not talking about rich or poor.
Instead, these two groups revolve around those who know how to leverage new technologies… and those who don’t. The 1% make up the first group – the ones who managed to take advantage of the internet’s wealth-building opportunities, while the 99% make up the second group.
Right now, there’s an incredible opportunity for everyday Americans to ascend to the first group… and it’s all thanks to a brand-new technology silently taking the country by storm.
An Oldie, But a Goodie
That philosophy, stated simply, is: Buy low, sell high.
“Buying low” is the essential ingredient of every contrarian strategy that invests in stocks or sectors when they are depressed – and then sells them when they are riding high.
This strategy has succeeded brilliantly for decades, if not centuries.
“Buy low, sell high” sounds so simplistic that it feels almost moronic. Yet few investors manage to achieve this objective consistently.
Why is that?
The answer relates to those two key traits I told you every investor needs: discipline and patience.
Far too often, we buy too high… and then sell too low. (Panic selling, anyone?)
We know what reason says we should do, but we follow our emotions. We lack the discipline and patience necessary to pursue a prudent long-term strategy.
To outperform the market, an investor must maintain the discipline of saying “no” to bad risks… and then keep on doing that until good risks come along.
It’s not easy.
It’s hard to say “no” to high-flying stocks when everyone else is saying “yes.” It’s like leaving a cocktail party while it’s still going strong.
But as the old expression goes, “No good decision is ever made after midnight.” Similarly, no good investment is ever made after the stock market becomes richly priced and loses momentum.
You must have the discipline to say “no” to bad risks and the patience to wait for better opportunities.
It’s All About Self-Control
Bad risks are when the potential upside is much smaller than the potential downside. That’s why they’re called “asymmetrical risks.”
In the financial markets, many asymmetrical risks seem as benign as jaywalking, which is why so many investors take asymmetrical risks every day… and never even know it, until harm comes their way.
They behave like jaywalkers. If they don’t see any oncoming danger, they step out into the street and start crossing.
“It’s the smart thing to do,” they say to themselves. “Why just stand here doing nothing, when I could be moving ahead?”
Admittedly, the jaywalker usually arrives earlier at his destination than the non-jaywalker. And the investor who buys high often makes profits that cautious investors would have missed.
But both bets are bad. Not because the risk of a bad outcome is so high, but because the magnitude of the potential bad outcome is so high.
These are asymmetric risks.
Disciplined investors understand the dangers of these risks. That’s why they begin their analysis by asking “What can go wrong?” rather than “What can go right?”
Disciplined investors understand that investing is optional and that they must be selective.
That’s how you can prosper in almost any market.
P.S. Tomorrow, I release my June issue of Investment Report. And if you’ve been following the artificial intelligence megatrend, you’ll want to read this issue. Click here to learn how to sign up and get notified when it drops.
On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.