So much for the festive spirit of Christmas.
Just when you thought life was almost back to normal, a new COVID variant threatens to turn the world upside down again.
My colleague and chief investment strategist Adam O’Dell wrote about the omicron variant last week, and I agree with him.
While I expect some travel upheaval and even more disruption to the global supply chain, we’re in a different place today than we were in March of last year.
Doctors have far more treatment tools at their disposal today. And even if new vaccines are needed, we have the infrastructure in place to produce and distribute them. It may be a messy and uncertain few months, but I can’t see another round of lockdowns occurring, particularly with midterm elections in less than a year.
With all of that said, stocks are entering this new period of uncertainty at the highest valuations since the late 1990s tech bubble … and at a time when the Federal Reserve is taking a rather dramatic turn to hawkish.
So, how do we trade this? Today, let’s cover a few tips to survive and thrive during the omicron market.
Sell to the Sleeping Point
An old trader’s maxim says we should always sell to the sleeping point. What does that mean?
If you have a hard time sleeping at night, you’re taking too much risk.
Adam is more of a trader than I am. I’m a strategic allocator. But the same rationale applies.
If it’s been a while since you looked at your overall asset allocation, you might be more exposed to stocks than you should.
To start, stocks have been on fire for years. It’s likely that your stock investments now make up a much higher percentage of your portfolio.
So, use omicron as an excuse to do a deep dive into your portfolio. There’s no reason to sell everything and run for the hills. But it might make sense to trim back your positions.
Be a Trader in the Omicron Market
I’m more of an allocator than a trader. But that doesn’t mean I don’t trade.
To the contrary. I have most of my portfolio today in short-term trading strategies. I divide my capital among them to manage my risk. But my horizon here is short-term.
Now, conventional financial planning tells you that short-term trading is risky, and long-term investing is safe.
But that’s only true on a superficial level.
If you’re disciplined, keep your position sizes reasonable and diversify across several strategies, short-term trading is often far less risky than long-term investing.
Think about it.
It was the buy-and-hold investors that lost half their portfolios during the bear markets of the early and mid-2000s. They rode the market all the way down.
But if you measure your time horizon in days or weeks — and you’re disciplined about your position sizes and selling rules — you won’t take losses like that.
It doesn’t get much shorter-term than Adam’s premium service, Wednesday Windfalls.
He suggests a new trade on Monday and closes it on Wednesday — every week.
During our team’s eight-month live internal beta test, the results were incredible. The account grew 977%, including winners and losers, by the end of that testing period!
To find out how you can add this short-term trading strategy to your own playbook, click here.
Follow Your Rules and Tune Out the News
I always know when to take a quant trader seriously. I ask them if they ever relax the rules of their model “based on market conditions.”
The answer must be a stone-cold: “No.”
If they equivocate or give a vague answer, I hang up the phone. Systematic trading systems only work when you follow the system.
The death of every quant trader — at least every one that I’ve seen go belly up — comes when they fail to follow the rules of their own model.
I get it. It’s hard to keep a level head when the headlines are terrifying, and the ticker tape is red. But it also comes back to my first point about taking appropriate risk. It’s easier to process and react to news if you don’t risk too much.
So, no matter what happens in the omicron market next, follow your trading rules. (Adam is a quant trader, by the way … and he follows his model’s rules to a T.)
Try to tune out the news. Every news outlet figured out long ago that the way to keep you watching — and viewing the advertisements that pay the bills — is to keep you nervous and agitated.
Don’t play their game.
Restrict your news consumption to a few hours a week max. You’ll be more relaxed, and you’ll make better decisions as an investor.
To safe profits,
Co-Editor, Green Zone Fortunes
Charles Sizemore is the co-editor of Green Zone Fortunes and specializes in income and retirement topics. He is also a frequent guest on CNBC, Bloomberg and Fox Business.