Trade The Journey

Trade The Journey

I’m learning!

Life lies somewhat in the middle.

No, this isn’t a philosophical statement, nor is it an attempt to be politically correct. Like most, I’m concerned about the Coronavirus and the effects it may have on the population around the world.

Not only is the supply chain disrupted, but within the coming months, production will stall as well. This crisis will test the strength of the economy.

 

As we wait for the results to return, contemplate the weighing factors:

A lot of companies depend on Chinas cheapness, to be frank. Their supply chain success is based on low-cost inputs from China. Can you imagine how high the supply input costs if we were to employ US citizens?

Secondly, with low rates, a lot of companies have been running successfully based on low-interest rate loans and interest payments.

The federal reserve continues to slash rates to prop the economy up by encouraging people and companies to spend. Along with their buying of securities to place more money in the marketplace, they have continued to lower the value of money.

Yet inflation isn’t growing. What does this mean? What other actions are available that the Federal Reserve can take?

Lastly, the American public has grown accustomed to credit and low purchase prices for the last couple of years. Even I didn’t realize that wages aren’t meeting the requirements to live in most cities, especially in California.

Easy money has relaxed us into a false sense of complacency, and it is highly likely that most of us don’t have contingency plans. Venture a step higher and most businesses face a similar outlook.

So how bad is the Coronavirus? Is this a global pandemic that will decimate the world’s population? No one can seem to get a handle on the full extent of the viruses’ potential. Oil is another challenge on the horizon. As I understand countries agree to a production level to help keep the prices in balance.

 

So how does this affect the novice trader?

Experienced traders are voicing their bewilderment when looking at the charts and assessing the direction of the market. So how can someone with a lack of experience navigate the troubling waters ahead?

I believe that attentiveness and an eye for value will assist you in prospering. Is this one of the more significant drops we’ve seen in a while, possibly a life-time?

Quite possibly. But this could also be an opportunity to profit keeping your perspective neutral. This is a time to be aggressive, actively purchasing sound companies selling at a significant discount to their true value.

The fear and the confusion troubling the market and the economy due to the Coronavirus make it hard to visualize a brighter time. However, great companies have contingency plans and are ready to make the needed actions to come out unscathed.

You can’t be careful enough when maneuvering.

One quote I remember vividly from Mastering Cycles by Howard Marks is that “no one knows where the bottom is. The smart traders buy when the stock falls below its real value and buys more as it falls.” To buy when others run requires a contrarian and adaptable mindset.

You can’t be careful enough during these times.

 


Weekly Review

I could be doing a lot better determining the difference between discretionary and necessary. Money is sliding through my fingers like sand at the beach.

When I completed my taxes, I saw how much was saved, spent, and invested. Some people pay to get their taxes done and miss out on the opportunity to receive an accurate overview of their financial picture and understanding.

I never thought I’d see my expenses rise alongside my income, but they have. This scenario reminds me of a game called the rat race I use to play in college.

The premise of the game is that each of us is trapped in an endless cycle of earning enough to pay expenses and little else. The objective of the game is to make enough passive income to exit the rat race and live life on your earn terms.

Easier said than done.

The purpose of the game is to change how you think.

This past week deserves the grade of a “D“. I hope this week I can save at least 75% of my income. It’s possible and now is the opportune time to create passive income as the market has plenty of discounted stocks available.

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