Fake Money, Real Danger by unknow

Author:unknow
Language: eng
Format: epub
ISBN: 9781119818083
Publisher: Wiley
Published: 2021-12-06T00:00:00+00:00

Step 2: Use a Terrific Trading System

Every investor, whether clinging to stock picking or choosing market index ETFs, is at risk of going over the Financial Cliff. But if you choose the unappealing option of exiting the stock market now, you run the risk of missing out on potential gains before the Financial Cliff.

Regardless of your investment approach, without a good trading system to guide your decisions, you are damned if you do (stay in the market) and damned if you don't.

That means everyone in the market needs a good trading system to make money now and get out before they lose most of it later.

On the way up, everyone loves a bubble. What could be better or more comfortable than making money in a rising bubble? The discomfort comes when you become aware that it's a bubble. You may not know exactly when it will pop but knowing that it's a bubble makes it a lot harder to feel comfortable about any of your investments.

Good! You shouldn't.

If the goal is to make money as long as the bubble keeps rising and also to be ready to exit the stock market before the Financial Cliff, we cannot invest as if the Financial Cliff is not coming. In other words, we cannot buy and hold.

Given that the current four-decade-long stock market bubble has lasted for most people's adult lives, if not their entire lives, it's natural for the vast majority of investors to thoroughly believe that, despite occasional declines, the stock market “always comes back.” Therefore, you might as well just sit back and stay put (buy and hold). Adding a little “rebalancing” of one's portfolio mix each year creates the illusion of staying on top of it.

But in fact, the vast majority of investors are not staying on top of it. In a rising bubble, most investors are simply being swept along as the bubble goes up, and they will continue to be swept along when the stock market bubble pops and plunges over the Financial Cliff.

In a bubble, most buy-and-hold investors reliably make money on the way up, and then, just as reliably, they will lose money – in this case, a lot of money – on the way down. The higher the bubble goes, the steeper the bubble drops later.

The big problem facing every stock market investor is the fact that all current gains are actually Fake Money, meaning it won't last. If you want to be able to keep this money, you absolutely have to sell all your stock positions before the Financial Cliff. Otherwise, not only will you lose your gains, but you will also lose most of the principal you invested to get those gains.

So, getting out before the market goes over the Cliff is essential. The challenge, however, is that that not every little downturn or even every big downturn is the beginning of the Financial Cliff.

In the recent past, the market has shown a tendency to bounce back fairly quickly – most notably in March 2020.

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