By TOMASZ WISNIEWSKI, CEO and Director of Axiory Intelligence Pte. Ltd
Imagine a situation where you do not have to work; you can work remotely from home or you do not have to work at all. You have a lot of spare time and everybody around is talking about how good the time for investments is. You feel in your gut that everything went to digital and there are some parts of the industry that should benefit from the Covid-19 situation. Either fintech companies, biotech, big pharma, or gaming…you name one.
All that sounds pretty easy right? Well yes, too easy actually. Many people did not manage to grab their piece of cake in March but some of them did and we will talk about them today. February was scary, many of us were literally terrified about the future. Sure, we had reasons but for a lot of people that was just a great opportunity for investment. I would differ two groups here. First group would be experienced investors. They pretty much anticipated this correction, knowing that the previous bullish trend could not last forever. They were also very cautious as a few months before the collapse, they witnessed the inverted yield curve, which was very strong data signaling an incoming recession. The other group of traders are people that did not have bigger investing knowledge before but started trading recently.
Those who started this year can be characterized by great courage and timing (and maybe they do not even know it!). Courage because they bought when everybody else was scared and because of the uneasy timing… pretty much the same reason. Do you know the old Wall Street saying ‘Buy, when there is blood on the street’? Quick explanation: those, who are not afraid to invest in times of uncertainty, are rewarded with a bigger premium. Most of the best performing traders, do not obtain those results by trading when everything is clear and the trend is already mature. Those investors make those profits because they jump in when nothing is certain. They are one of the first to act, that is why they are able to use the vast majority of movement. Those beginners were able to follow movements from experienced traders and they didn’t even know that it was a good practice!
So, March bottom is now history and many indices are flirting with new local highs or even all-time highs, like Nasdaq. What are the new born traders doing? Those who traded earlier are probably counting profits while those who jumped in on the bullish train recently are and should be more careful. First of all, prices are already very high and many markets or certain types of assets seem overbought. Going there now just because your friend made +40% in the past few months may not be the best idea on the record right now. Remember that those, who made investments earlier, will be probably looking for a way to exit those lucrative deals to take fat profits. With mature trends, you need to watch out, not to be the last guy to switch off the light, when the party is over. Crypto traders learned it the hard way at the end of 2017. In November and December 2017, everybody wanted to own Bitcoin and everybody was an expert about this. After the crash, crypto investments became taboo.
Many retail, new born traders think that markets can only go up. The purpose of this article in general is to inform those new investors that markets can also go down. And that is a good place for another Wall Street saying: “Bulls walk the stairs and Bears ride the elevator”. What will you do, when the markets will start to fall?