Transcription of last Friday’s “Market Situation Report”

 

If you would prefer the video format, you can find it here.

How often do you say the following question to yourself when you are investing:
“How much will I lose?” 

Does it sound like an important question? 
Does it sound too negative?
Does it sound like a question EVERY successful investor speaks daily to himself?

Yes? No? Maybe?

The situation I want to share with you this week is based on a conversation I had in San Francisco during an event this past weekend.  I had dinner with individuals from Stansberry and Associates, the largest investment newsletter company in the world. 

While I was talking with them about my approach to investing, the topic of the five most important words to investing came up.

People who invest their money well, and get richer, always use these five words.  People who consistently lose money in the market never use these words.

In fact, when I shared the words with them, one woman said, “Wow, that sounds really negative. I don’t see myself as being that negative.”  Her reaction to that sentence made me realize that sharing this information with you might be important.

As I mentioned above, the five-word question is: “How much will I lose?” 

Not, “How much will I risk?”
Not, “How much am I going to make?”
Not, “I hope this works out.” 
Not, “I heard it from my friend at work.” 
Not, “The person from Merrill Lynch told me to buy it.” 

But, “How much will I lose?

Many would think that question is a negative approach to investing.  I can see why they would think that.

Here’s the thing: If you know what you are going to lose and your brain hears the word “lose” and not “risk”, “stop loss” or any other word or phrase, then the human brain can grasp the full meaning of it.  The human brain understands what “lose” means, but not so much with the word “risk”.

By hearing these words, your brain is better prepared to lose.

Because, you will lose money.

In fact, you will lose money on every investment.

Let me explain.

I do not believe there is a difference between “your money” and “the market’s money”.  Many people do; especially people who consistently lose money in the stock market.

For example:
If you buy a stock for $10 and it drops to $9, that $1 drop is considered “your money”.  But if the stock goes up to $15 and then drops to $12, that $3 drop is considered the “market’s money”.

As I just said, I do not believe there is a difference between my money and the market’s money.  If you look at it all like it is your money, which it really is, then you can start to grow your money better.

And this is exactly how to best approach investing.

That is why I say…you will always lose money.  You will never sell a stock at the very, very, very peak.  The stock will fall before you get out. That fall is a loss.

We at Fearless Wealth use this philosophy and approach with our Obvious Trend Portfolio (OT Portfolio).

Here is an example using Intel (INTC).

If you look at the price chart below, (2 years of data), you can see that Intel seems to be bottoming around the $19-$19.50 range.

 

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The most recent bottoming on this chart is at the end of last year/beginning of this year.  

I see support at $19.  I want to buy Intel.  Intel has already fallen 35%, until the most recent circle on the right.

So, the question turns into, “How do I buy this stock properly?” 

Here is where the five most important words come in:  “How much will I lose?”

When I looked at this price chart, I was willing to lose 10% of the position. 

Let’s say I buy Intel (INTC) at $20.  I’m willing to lose $2 of $20.  So if it hits $18 I will get out.

The key here was telling myself how much I am willing to lose.  So, for me, it was 10%.

I then put the 10% loss into a dollar amount, because the brain doesn’t understand percentages.  So, I say I will lose $3,000 on this investment, for example.

My brain is hearing for the first time that I will lose $3,000.  So, if Intel (INTC) does go against me, it won’t be the first time my brain is looking at that situation or thinking about it.  I will be ready to lose money.

My brain is prepared.  (Note: Most brains are not prepared).


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Since most people are not prepared, they will lose money.  And, the number one reason people lose money, is because they do not want to lose money.

On December 6th, I added Intel (INTC) to the Obvious Trend Portfolio.  On that day, we purchased Intel (INTC) for a bit above $20.


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You can watch real-time how this investment plays out over the next few weeks or months.  At that time, I will go into the other big part of investing: knowing when to sell.  Until then…

———————-

My next Strategy Gathering is coming up on the 12th of February.  It is going to be online only.  We have a lot of material to cover.  But, the most important piece of data to cover is how the S&P 500 is going to manage bumping up against its lifetime highs.

There are a lot of things shifting in real estate, too.  Rates are continuing to come down, and hedge funds are spending billions buying up houses by the thousands.

So, we have a lot to cover. We will, of course, look at lots of charts to bring clarity to what to do next.

If you would like to learn more about our investment club, you can do that here.


Together, we are growing and protecting your wealth,

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RC Peck, CFP 

Fearless Wealth | Investment Independence
Helping Individuals Reach Financial Independence Sooner, Faster, Safer.

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