The Price of Admission

A word on the markets today...

Finviz Heat Map

These are the kinds of market days where you learn whether you're prepared or not.

• Are you comfortable with the risk you're taking?

• Is the drawdown too steep for you?

• Do you have the urge to change your investment approach?

• Are you looking at other approaches to switch over to?

• Did you know that days like this were possible before you got started?

There are many more, but these are a few good ones to start with.

If the question "what should I do now?" comes into your mind, it might be a signal that you're unprepared for the risks you're, likely unknowingly, taking.

While I don't like days like today (and Friday), I know they're going to happen. It's annoying. It's frustrating to watch profits reverse, but this is the price of admission. If you can’t lose, you can’t invest. It’s that simple.

I’m prepared, but that doesn’t mean I can’t get bloodied. I do. But my edge is that I know this ahead of time. I don’t get the itch to tinker with my system when it goes through periods of negative returns. When you tinker, you tend to make matters worse.

To achieve high returns, you gotta be able to take a punch. And a kick. And a suplex. And a flying elbow. You gotta be able to stomach being up 20%, giving it all back (and then some) before making new highs. It’s just the nature of the game.

To view these past couple of days positively, this is a chance to observe yourself, to monitor your thoughts/emotions/actions and continue to execute in the face of adversity.

Drawdowns have historically served as tremendous opportunities to add to solid trend-following strategies and equity indexes. There’s a great deal of survivability built into these approaches where losers get outright cut out or reduced in size. It’s an ever-living process of cutting losses and re-allocating into winners.

Psychologically tough to do, but the right thing to do. And win or lose, doing the right thing is always, well, the right thing.