What to do once fully invested
What should I do?
I am now completely settled on the US. I’m at a moment where life has become very expensive in comparison to what I was used to in Argentina, and my income will be very low until I find a job on-campus. I have never given much thought to making this Newsletter a paid one, but would it make sense for me to enable the option of voluntary support? what do you think?
Article
Bear markets last quite some time. Not only their arrival is unpredictable, but their lasting as well. It Is never obvious when a peak has been achieved, nor the number of days that will take for the market to hit its low, nor the ones needed to go back to breakeven.
Considering these factors, it is not unusual to, at any point of a bear market, run out of cash. You could be 100% bought at the peak, you could be DCAing into the bear market expecting it to last an X amount of time and then it ‘surprises’ you lasting more. In conclusion, there are many scenarios in which you could find yourself fully invested and the bear market is still on.
Even though the ideal is for every single buy we make to be completely justifiable by all information available, it is not what happens. The sole reason for this is because information is infinite and our capacity to absorb it is limited. Therefore, the intention of initiating a position is generally backed by the information we were able to absorb at that moment in time, but time keeps running. An investor could include this factor into the equation by continue revisiting his/her thesis and by keeping up with the evolution of fundamentals. Noticeably, the same things occur, information at our disposition will not be perfect.
In most cases, both items are not checked because of the impossibility of their achievement. If you find yourself fully invested, a very good practice is to review both points.
Make holding a decision, not a consequence
There are two things to keep in mind:
It’s very usual for an investor to make a buying decision and feel the job is done, forgetting about the future evolution of the company he just bought.
It is impossible for us to have perfect information when making an investment decision.
Both ‘flaws’ in the process open up a potential new world of possibilities, many of which could severely differ from the thesis we had at the moment of the investment. It is good to acknowledge it because once a problem is spotted, it can be tackled down. And here’s where the phrase comes into play:
“Make holding a decision, not a consequence”
The stock market is about making money. The philosophically best way to achieve it is by owning the best businesses at every point in time. Making yourself revisit thesis and check how did fundamentals actually evolve should allow you to stay on a path of updated information backed by recency of decisions. But it is crucial to perform both tasks so that, if fully invested, at least you are continuously making the decision of staying so and it is not a consequence of inaction.
I personally think it’s in inaction where danger relies, and inaction is fueled by several biases, the most known of them being ‘Confirmation Bias’. As stated in previous articles, we are masters at validating prior ideas we’ve had. Applied at investing, when we make a buying decision, our mind is subconsciously turned into a state in which all information received from such a company is now perceived as ‘validating of our thesis’.
Perhaps by performing such research, you find new hints, maybe overlooked before or that are brand new, that allow you to conclude you were wrong. If you get there, you should be able to make the selling decision easier and maybe raising up cash or deploying it to a more solid investment. It is not easy to arrive to that final conclusion, a lot of work has to be done, but the reward is phenomenal, both psychologically and financially.
“Unvoluntary inaction is a torture to our conscience”
Technically inclined decisions
This is not a guide and, just to be clear, I have not performed the following strategy, but I read and absorb information. Perhaps by spreading it, you could get more into the topic, learn it fully, and apply it yourself.
Every single market operates in cycles, which are very pronounced in the stock market. By reading history (I’ll be soon writing about this), perhaps you can begin seeing patterns on how cycles work and behave. Being able to spot them should allow you to make decisions, selling in this case because we are under the premise of fully invested, if you find negative patterns.
A lot can be learned in Fintwit and one particular ‘model’ that has been around for the past couple of months has called my attention. ‘Stage Analysis’. Again, I have not applied such analysis, but I’ve been reading people that have utilized it and returns were widely different from people that have not. Recommended follow if interested in the topic:
https://twitter.com/cperruna
I’m not an expert by any means, that’s why I’m just stating this exists and I’m not diving any deeper.
Personal Commentary
I do not do technical analysis of any kind, but I am always open to new ideas. Being open-minded is a must for staying in the game given how dynamic markets are and how fast they evolve. I hope you enjoyed today’s article, I think I got short of characters on this occasion so I’ll perhaps come back to this topic in the near future.
Also, I would like to hear your opinion on Stage Analysis if you have one. I’ll read you below!