I usually go with the first instinct, and then build upon that. John Otto
We all have instincts and choose to react or not. Our first instinct is usually the correct one but do we tend to follow it regularly? With the wealth of information out there and opposing views it becomes extremely difficult to react on one’s best judgment.
How many times did you kick yourself for not following that first instinct. Been right there with you.
We look to make the best timing decisions in a world of uncertainty but that often taints what we should really be doing – following our best and most accurate indicator – US. I have swayed from my ‘gut’ to go in another direction at times and let me tell you – it has cost me dearly.
When the Facebook IPO came out what was your first instinct? There was a ton of information out there to parse through and it may have gotten to the point of overload. That generally leads to analysis paralysis, then a poor decision ensues. Who was right? Who was wrong? Perhaps that didn’t matter if you felt it in your ‘gut’ that it was not to be touched yet.
Of course with hindsight we can be 100% correct in our actions. But critical decisions are made in the heat of the moment and those choices may separate you from your wealth. Even with all the information gathered and the facts presented they may show a mirage that looks like an oasis when it is really a desert.
Were you concerned when the drumbeat of ‘sell in May and go away’ was getting louder? Ironically, that is the only month in the calendar that tells you to ‘go away’. The statistics present a good argument for doing so but the pundits, media, analysts and fund managers would be loathe to give that advice.
Steely Dan Classic!
Why tell you to leave when you may miss the ‘biggest opportunity’ out there? Were you skeptical? Did you listen to your own concerns or just go with the flow? In hindsight it was good to get away – the SPX 500 was down 6% in May.
We are not always going to be right in our market decisions, but to me it’s not about right/wrong, rather are we positioned correctly to make money or more importantly – PRESERVE capital. Is your motivation just to trade in any market from the bottom up or can you take a top down approach and determine if the environment is right for you?
I spend many more days sitting with all cash in accounts during the year than with positions because that suits my style best. My job is not to guess what the market will do but to put capital out carefully based on the indicators and charts. If the landscape is unsafe and my ‘intuition’ or instinct tells me so then we sit out. As an options trader, that cautious but prudent choice has saved me on more than one occasion.
Listen to yourself – you’ll be surprised how often you are right!