Addictive Trading

Are you an addicted gambler who attempts to puchase the market or a stock because it appears cheap after being “down too much”? Or do you trade only when you have a perceived edge. Trading for the sake of trading is a dangerous addiction which can lead to massive losses in a bearish environment. The path of least resistance is lower which means any rally should be viewed suspiciously.

This is not a new message, I’m just typing it instead of saying it in a video. I remember the last bear market, and this one seems no different in terms of the psychology of the average participant. Confidence becomes temporarily bolstered by phrases like “don’t fight the Fed” and CEOs who say “we are looking at weakness in the first half, but expect things will pick up in the second half of the year.” In July and August, those same CEOs will say “we are seeing a bit of a rough patch but expect things will pick up in the first half of next year” and on and on…

The market is broken, it will take time to heal before it can sustain a move higher again. Do not listen to people who boldy say “that was the bottom”, listen to the market. It is said that the average bull market lasts for 39 months and the average bear market lasts 18 months, we could be in for a much longer stretch of selling than most people want to admit. Maybe this one bottoms in just six months, we will only know when prices turn, not when PE ratios get to a certain level or when the Fed cuts by a certain amount. A bear market is the time when the phrase “suspend what you believe and trade what you observe” means the most. Look at Apple Inc (AAPL), they have great products, management, etc. For a long time it has been a great stock and now it too is broken. In bear markets all stocks fail, all stocks.