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Emotions out, homework in. Explore how to build an investment strategy that holds strong through 2025’s market ups and downs.
Despite what you heard. Stock investing is not easy. You hear friends and family talking about their epic “wins” in the market and you wonder to yourself, “why have I never experienced that?” You wonder if you were simply just not endowed with brilliant foresight of those “winners.” Ultimately, you decide that it was not brains that yielded their storied success, but perhaps another part of the anatomy, and you conclude that NOW IS THE TIME to use a similar tactic, and you get in it to win it. It is stressful at first, kind of like wading into a colder-than-expected pool. Your body is telling you to turn around and get out, but you persist and finally dunk your body in one fell swoop, head to toes. It literally knocks the wind out of you, but you emerge with only your head above the surface, and suddenly you feel… great! Not cold at all. Completely at ease, your rapid breathing and quick heartrate slow. A great calm surrounds your body like a warm blanket. How does that oxymoronic state exist? How can you feel so warm in a cold pool?
You have your portfolio, and it starts to grow. You are busy with your family and your real job, but you check your stocks on your smartphone a few times a day at first. You are smart and you pride yourself as one who is “in the know” with world news. You spot something in the news that looks like it might be bad for the stock market, you get nervous and run to the bathroom to check your stocks. But alas, nothing has happened, in fact your stocks are higher. You are confused and a bit uncomfortable, but then you remember some old Wall Street sayings from this guy Mark something-or-another’s newsletter that read something like “the market is always right,” and you think “yeah, conventional wisdom means nothing here.” You check it again before you sit down with your family for dinner, and you see that the market actually closed higher despite what you thought was a news item that was sure to kill you. After your dinner, you settle down and reflect on the day. Your first thought is that you are upset that you hadn’t had the “guts” 😉 to get in earlier and bigger. You resolve yourself to wade deeper into the pool.
You are now an expert money-making machine. You can now buy stocks, sight unseen, based on your neighbor’s mentioning it. They don’t always work out, but your account is up a lot. At this point you only need to check your stocks on your smartphone once a day, if at all. You are on top of your game. You spend lots of time figuring out how to get more money into the market. Your net worth is growing, and you like it! You don’t need the money today, but it feels good to know that it is there if you need it.
Then one day it happens. You see that the Dow Jones Industrial Average is down by 400 points, and you quickly check your stocks. They are down a bit, but not too badly. You check the news, and you can’t find the reason, but you are resolute. Your prowess had outfoxed these events before, and it will continue. The next day is calm, and again the next day after that. It is the holiday season, and the end of the year is days away. You don’t have time to think about your stocks, but you are planning to get even more involved next year as you start to think about taking some of your winnings off the table and finally getting that heater for your pool. In fact, you start to project what your account will be worth at the end of next year by multiplying how well you did in November by 12. You really start to dream of the great things you can now afford. You feel as if you are wrapped in a warm blanket.
One day, you check your stocks while stopped at a light and you see your favorite stock down by 6% and you think that it must be incorrect and the light changes, so you put your phone down. Sometime a little later in the day you check the stock again and it is now further in the red. In fact, all of your favorite stocks are in the red, but bigtime. Your whole portfolio is down and so is your net worth. You start to panic. You rush through the news and can’t find any reason for the decline, but your stocks continue to slip. You simply cannot figure out why some of your stocks are getting hammered. You scour the Web, and nothing comes up. You start to think about why you bought the stocks in the first place, and you can’t even remember why. Your anxiety doubles down and you are now sweating while wading in a cold pool. You sell all of your favorite stocks. Some of your gains have turned into losses and your biggest winners are no longer so big. The next day, the markets fall again, and you feel smart for having sold everything, but you still have no idea what caused the swoon. You are now shivering and unsure whether to get out of the pool or wade deeper. Now what?
Why did I go through this elaborate story which probably got your heart racing a bit? I did it to underscore the fact that stock investing isn’t easy, though it sometimes seems like it. In reality, during some stretches of time it is easier than others. That random walk works out really well when the markets are running up. It is when things get tough or when you decide to try and beat the return of the indexes that your metal is tested. If you are diligent and you do your homework, you will know why your stocks are going higher and why they might sometimes sell off, even when there is no obvious news. If you do your homework and you are still wondering why a stock may be down, you need to check your thesis for owning that stock. If that thesis still holds, then it is possible that the stock is down for the wrong reason, and you should gain confidence in your conviction. You may find that the thesis does not hold and that something material has changed, though it was not obvious at first. This means that your stock is probably down for the right reason, and selling may, indeed be the best option.
Folks, we have just run through a period when the “random walk” worked well. The S&P500 was up by nearly 27% this year through December 24th. Some of your stocks were probably some of the leaders in the index. We will ring in 2025 tomorrow night, and it is important to note that it will be nothing like 2024. No one… NO ONE can tell you how next year will shape up, although some may get lucky and get it right. Those that do will follow up with a best seller book in 2026, never to be heard from again. I am, however, willing to go out on a limb and say that there will be some amazing opportunities next year, but it will be no cake walk. You are going to have to do your homework for real next year. You will need a real thesis on every stock, bond, or any other investment you make, and you will have to check that thesis often. You have two days to get yourself ready for it. Finally, I want to underscore something from our story above, and this is your pro tip: when you are nervous, don’t sell, but rather, get busy and do a bit of homework. It will be a whole lot easier if you did your homework up front when you made your initial investments. In summation, never buy on a whim, and never sell on a whim either. You will find that the more work you do, the less stress you will have, not to mention a higher net worth. 😉
FRIDAY’S MARKETS
Stocks closed deeply in the red on Friday, in a low-volume, pile-on session. It was a sell now, ask questions later kind-of day with The Magnificent-7 being crowned Grand Marshall of the selling parade.
NEXT UP
- Pending Home Sales (October) may have jumped by 7.9% after climbing by 6.6% in September.
- MNI Chicago PMI (December) probably climbed to 42.7 from 40.2.
- Markets are closed on Wednesday for New Years day, but we will get some more housing numbers and some more PMIs later this week. Check out the attached calendar with times and details.
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