Editor’s Note: In today’s article, Alexander Green reminds us of The Oxford Club’s core principles when it comes to investing.
By diversifying broadly, asset allocating properly and using trailing stops judiciously, traders can play the market – regardless of bull or bear market concerns.
These ideologies prepare us well for the future – no matter what it throws at us.
And it’s why Alex and longtime Oxford Club Member Bill O’Reilly sat down to share details on four stocks that could lead to major profits in just two years.
The two joined forces to discuss Alex’s next wealth-creating prediction. The conversation left Bill stunned.
Although it appears we are in a simultaneous bull and bear market, Alex and Bill discuss breakout “buy now” sectors that could lead to massive growth in the years to come – despite market volatility.
– Madeline St.Clair, Assistant Managing Editor
In my last column, I noted that this is a highly unusual time for equity investors.
On January 27, the Russell 2000 index, the leading gauge of small cap stocks, traded down more than 20% from its recent high – meeting the common definition of a bear market.
It has since recovered a bit. But it won’t be back in a bull market until it rises 20% from the recent low.
Meanwhile, large cap stocks – as measured by the Nasdaq and the S&P 500 – suffered a temporary correction but are still officially in a bull market.
What should smart investors do in a simultaneous bull and bear market?
The same thing they should do when they’re not: Stick to a battle-tested investment strategy that works.
No one can accurately and consistently forecast bull and bear markets.
Folks who claim they can are fooling you… or fooling themselves. Or both.
(There are only two types of market timers. Those who don’t know what they’re doing. And those who don’t know they don’t know what they’re doing.)
Next week’s market action is always determined by next week’s news and events.
The most probable news is already priced in. Less probable events are not.
Sometimes the improbable happens – or the totally unexpected – and shares fall sharply, without regard to corporate fundamentals or near-term business prospects.
This is known – in technical terms – as a “buying opportunity.”
Since the onset, severity and duration of bull and bear markets cannot be known in advance, savvy investors stay prepared for them at all times.
Nothing outperforms common stocks over the long haul.
The savvy investor knows this and builds a diversified portfolio of growth and value stocks, including large and small companies in domestic and international markets.
If you have a high risk tolerance, plenty of market experience and a time horizon measured in decades, your portfolio should be almost entirely in stocks.
If you have a lower risk tolerance, little market experience and a time horizon of less than a decade, you should split your portfolio between stocks and bonds.
Why does market experience factor in?
Trade Like an Experienced Investor
The intense fear and dread that investors feel in a crash or a major bear market are hard to imagine until you’ve lived through a few.
Newbies look at historical stock market charts and casually point out all the great buying opportunities in those silly old, temporary bear markets.
They have little understanding of the terror that gripped millions of investors at the time.
Or how selling seemed like the smart move… and buying not just foolish but crazy.
I’m not suggesting that investors should hang on to all their stocks through every downturn.
There is often a big difference between how the market averages behave and how the individual stocks in your portfolio do, especially the smaller ones.
(Remember, markets bounce back. But not every stock does.)
Long-term investors – who can ignore short-term market fluctuations – are generally well served by a buy-and-hold strategy.
But short-term traders – who seek to capitalize on short-term market fluctuations – need a sell discipline.
For Oxford Club Members, that means trailing stops.
In our Oxford Communiqué Trading Portfolio, for example, we sell any stock that drops 25% from its closing high. No exceptions.
Yet in this year’s correction – and small cap bear market – we have stopped out of just one stock.
(We sold Perficient for a 26% gain in just over four months.)
In our VIP Trading Services – where we use tighter stops to protect our principal and our profits – there has been more activity.
And, of course, increased volatility might mean more stops are triggered.
In the financial crisis of 2008, for example, we stopped out of all 45 recommendations in our Oxford Trading Portfolio, with an average gain of 29%.
(And that was a year when the S&P 500 plunged 38%.)
However, we are at zero risk of being completely out of stocks when the market bounces back from a bottom.
It’s not just that we quickly rebuilt our Oxford Trading Portfolio in 2009 and beyond – and profited immensely from the 11-year bull market that followed.
We also have three other strategies – our Gone Fishin’ Portfolio, All-Star Portfolio and Ten-Baggers of Tomorrow Portfolio – that don’t use trailing stops.
That means we will always have money at work in equities when the market puts on a significant rally.
In short, Oxford Club Members profit from a simultaneous bull market and bear market by owning high-quality companies, diversifying broadly, asset allocating properly and using trailing stops judiciously.
That leaves us well prepared for the future. No matter what it throws at us.
Click here to watch Alex’s latest video update.