Never too high, Never too low
This is the attitude we should all have towards the stock market. That's how we can keep a clear mind set and focus by reducing our emotion. Fundamentally, the biggest factor that contributes to big loss in stock market is emotional distortion which results in making wrong decisions at the wrong time
I used 20% of my cash position to do some fishing this morning when the market moved down 500 points, but I did not add more. I was wishing and waiting for a over 1000 points drop so I can add more.
Have I changed my view to the economic situation and the market direction? Not at all. As a matter of fact, I become more pessmistic towards the market as more events unfolded. The reason of using some of my cash to buy low is actually to prepare myself to raise more cash. I am expecting a rebound, and I am planning to take the rebounce as an opportinity to reshuffle my portfolio. Buying low close to the short term or intermediate term bottom will allow me to compensate some of my bad holdings in my long term portfolio that I plan to get rid off during the bear rally.
Isn't this against the law of buy high sell high? It depends on what you believe. I do believe that, when you sense a market is in a deep panic mode and close to a rebound, it's actually very constructive to deploy some of your cash to do some so called "bottom fishing". I could be wrong of course for the timing, however, I do not believe the market will go straight down to 8000 from here. If it does, I still have 80% cash available to do some really nice bargain hunting and it will be an aggressive one involving option trading.
With a plan in your mind, you will be able to control your emotion and make the right calls.
Emotionally, never too high, never too low. That's the way to deal with the market.
