The Benefits of an "I Don't Know" Mindset
I enjoy answering any trading and investing related question because it's a subject that I'm extremely passionate about.
After 18 years and several bull and bear markets, I'm confident that my success and failures can provide helpful insight. However, most people are surprised when I answer, "I don't know" when they ask me what I think the market is going to do.
Recession worries, China/US trade war, an inverted yield curve, tension in Iran, Brexit and why not throw in some random Trump tweets for good measure. Good luck making sense of it all.
The financial news, talking heads on TV and economists will try and tell you what it means for the stock market, but in reality no one knows.
I'll leave the predictions and forecasts to those that get paid to write attention getting headlines. Besides that, being right about a prediction or forecast and actually making money from it are two entirely different things.
As a trader and long term investor I like to approach the markets with an "I don't know" mindset. This may sound silly but after 18 years of investing and trading I can say it's extremely beneficial. Here's why...
As a long term investor I don't care about the day to day or even the week to week fluctuations of the market and either should you. The reality is stocks as a whole go up over the long term. As an example the S&P 500 has averaged approximately 10% per year since 1957.
However, not all stocks are created equal so if you're picking individual names you're opening yourself up to company specific risk. This can boost your returns if you're right but will hurt your performance if you pick some dogs.
This is why low cost ETFs (exchange traded funds) can be so effective. You don't have to be a great stock picker. You can buy a basket of companies with proven business models that pay a dividend or own an index fund that most active portfolio managers fail to outperform year after year.
As a trader the "I don't know mind set" helps keep me nimble and free from creating too strong a bias for one direction or the other. This allows me to wait patiently for a trend to develop and create watch lists of stocks that present the best opportunity to profit when the reward vs. the risk becomes favorable.
At the end of the day the stock market is a voting machine and the price action speaks loud and clear to what investor's feel the value of a stock is worth. Regardless of the fundamentals.
My job as a trader is to make money and follow the path of least resistance. This means going with the flow and trading in the direction of the primary trend.
It's human nature to want to know "why" stocks are going up or down. And it's okay to read the news to find out what's happening in the world. But the bombardment of meaningless information that we face everyday can be detrimental, if we allow it to affect our decision making.
Ignore the noise and profit from trends.
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