Louis' Look

As I poured over the market this weekend, it’s becoming clear that the evidence is shifting to a more mixed environment in the near term. From an index standpoint, the evidence is looking increasingly messy.

In September, the weakness we experienced reminded me of a crucial idea; just because you’re not bullish, it doesn’t automatically mean you’re bearish.

While that statement is self-evidently true, I think we too often forget it. I'm learning that you cannot simply view the market through a binary lens where there’s no in-between in being bullish or bearish.

Tom has a great note attached to his monitor as a testament to this bias - if prices aren't up, it doesn't mean they're down, and vice versa.

We fall into this trap, particularly for new traders, because we assume that we need to make our analysis more complicated than what it needs to be. We need to appreciate that there are times when we shouldn’t force our analysis on the market and simply be patient.

More times than not, it’s probably better to be positioned neutrally than at one end of the bull/bear extreme - both for your portfolio and your comfort. This recent price action has reminded me that having a neutral outlook when appropriate is a winning position too.

It is in our human nature to dive into the madness of the market and lose this sense of bearing, even when a more level-headed, simple, and adaptable process yields more successful results.

As Morgan Housel mentioned in his new book, The Psychology of Money:

“Planning is important, but the most important part of every plan is to plan on the plan not going to plan.”

Though I am no expert on the subject - quite the opposite - these are some small mental exercises that I’ve tried to implement to identify and remove this bias.

First, and most simply, take a break. Walk your dog, listen to some music, or have some green tea and relax. At a certain point, I've found that as we do too much work, we begin overcomplicating things.

Something else I find therapeutic? Starting my chartbooks with a clean slate. Old annotations on charts were drawn through analysis of now outdated data. Start fresh n’ clean.

Most importantly, and this should go without saying, you need to know, understand, and embrace your timeframe. One silly mistake that always catches me out is how we are free to be bearish on one timeframe and bullish on the other, and vice versa.

Ultimately, what I've learned that we need ways to remind ourselves that there are more than just two opposing views when it comes to the market.

When the market is trendless, one should simply embrace it and not force a bullish or bearish outlook.

Always remember, cash is a position too.

Do you agree? I encourage you to get in touch to let me know your thoughts and to share some of the lessons you're learning too.

Thanks for reading,

Louis