Making sense of the market chaos
Since the beginning of the year, I have felt as though I’m in barrel going over Niagara Falls.
The market has gone vertical, literally straight down. Why? Some say China, while some say rate hikes.
It is most likely a combination of things. In my opinion, the selloff has more to do with the US Federal Reserve’s level of the monetary base.
So what now?
Cool Stocktaking
In my experience, things get over bought and they get over sold.
Emotion takes over, so try not to get emotional.
Easier said than done, true.
First Principles
The first step really starts before you even invest a dime in a company.
You need to ask yourself why are you buying this stock? What is the motive behind it?
Is it for a trade or is it a long term investment.
How do the current economic conditions change your investment thesis, if at all.
Focus on Basics
For example if you bought a healthcare company that sells a drug to a patient that needs that drug to live, probably not much.
If you are invested in a company that only gets it growth from the segment of the economy that is suffering, it changes much more.
When you buy a stock or make an investment, you really need to think about what you are buying and why you are buying.
So that when events like the current one happen you are prepared for it. These market movements happen all the time. They are not that unusual.
Photo Credit: Hartwig HKD via Flickr Creative Commons
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