By James Woolley
You will often hear about lots of people investing their own money nowadays. However the trouble is that very few investors are able to consistently make money. A major reason why that is the case is because they are unable to deal with changing market conditions.
The honest truth is that any idiot can make money in a bull market. If you stick to the mid and large-cap stocks, you will generally find that nearly all of them will rise in line with the overall market. So you don’t need to be an expert stock-picker to make money.
However the major problems arise when you have markets that trade in a sideways trading range for months on end, or worse still, when markets start heading downwards across the board. You would be amazed how many people think they are the world’s greatest investor when markets are rising, but who suddenly become totally clueless when they start falling.
You really do need to think about how you are going to make money from the stock market in all market conditions. This involves adopting sound money management principles and maybe looking at other ways you can take advantage of these challenging conditions. For example you could learn about spread betting or options trading so you can potentially make money when the markets are falling sharply.
You can also learn about how you can effectively manage an investment portfolio when the markets are flat or falling in value. If you study some of the top performing fund managers, you will often see that they don’t desperately cling on to shares when the wider stock market keeps going down and down. Instead they start investing their clients’ money into other instruments such as bonds, for example, in order to generate a more secure income while they are waiting for the markets to recover.
Making money from shares alone will always be very difficult because there will always be bad years when stocks are in a strong downward trend. This is why you need to keep an eye on the wider economic picture because most of the time the big falls are pretty well telegraphed in advance.
The point is that you need to constantly evolve as an investor. It is no good having one simple breakout strategy, for example, because what will you do in a bear market when hardly any stocks are making new highs? You need to have systems in place to deal with all market conditions, otherwise I’m afraid the losses that occur during the bear markets will really decimate your profits gained during the good years if you’re not careful.
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