Time to Panic?

Sorry about the clickbait title! But since you are reading this, let me ask you..

Why should you, or anyone else for that matter, be panicking in a time like this?

If you are panicking, it likely means that you:

• Don’t have strong enough conviction in your investments.

• Don’t have enough liquidity or hedges in your portfolio.

• Don’t have enough personal liquidity.

Think about it. If you have a portfolio full of undervalued, high-conviction ideas with the remainder in cash or hedges, there is no reason to panic.

I know it’s not something you want to hear, but like I mentioned last week, a moment like this in the market should be used as a reality check and to think clearly about your positioning.

Unfortunately, a lot of people have become accustomed to stocks going up no matter what and are invested in low-conviction ideas that have no fundamental reason to continue working.

One mental exercise I like to do is to remember what it felt like during a previous crash, such as the COVID crash. During that crash, there was complete panic in the markets, especially in sectors hit hardest, like energy and travel. I remember waking up each day to see the markets down multiple percentage points.

During a moment like that, you are effectively trapped in whatever you are holding unless you are willing to take a loss. And if you don’t have conviction, you are very likely to sell at a loss during an inopportune time.

Now, let’s go even further: What if you were to lose your job at a moment like that?

In that case, you might be forced to sell your stocks at fire sale prices unless you have the personal liquidity to stay invested.

I’m not saying this to fearmonger or to claim with any authority that the markets are going to crash. I have no idea whether that’s going to happen or not. But what I do know is this: If that happens, I want to be positioned in a way that allows me to take advantage of the situation, not be caught off guard.

So, I have been trying to get my house in order. I am not perfect by any means, and until recently, I was too aggressively positioned with low liquidity and had too much invested in speculative stocks.

What I have been trying to do lately is resolve that by selling lower-conviction, speculative stocks to raise cash and put some hedges on. I have both sold on rallies but I have also sold some stocks that I am down on and I don’t want to go even further down without the conviction to hold them.

As I mentioned last week, I try to have at least 80% invested in a part of my portfolio that I don’t touch unless it’s time to sell because something is too overvalued or if I made a mistake. The other 20% I dial up or down depending on what I believe could happen in the markets.

This is not investment or financial advice, and I don’t know your situation. But this is a strategy that works for me and allows me to stay significantly invested in the markets, avoid panics, and avoid making catastrophic mistakes that I might otherwise be likely to make during a market crash. 

Thanks for reading!

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Disclaimer: This article is for informational purposes only and does not constitute investing advice. Please consult with a qualified financial advisor before making any investment decisions.