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How to Cope with Challenging Markets (London/UK Stock Market in 2023)

How to Cope with Challenging Markets
Written by Andy

Trading and investing can be challenging and rewarding, depending on the market conditions and the strategies you use. 2022 has been a difficult year for UK equities and this year (mid-August 2023) has proven to be a very tough year so far for UK stocks in particular. August can be an awful time for stocks if investors are worrying about anything because liquidity is so low due to holidays. that means traders and fund managers are not at their desks which means they will likely sit on their hands and retail investors are away. Liquidity drains out of the market and so moves are exaggerated.

A few points I’d make on today’s feature coping with falling markets. Being greedy when others are fearful is very easy to say but actually hard to execute.
These are just my thoughts, everyone has their own risk tolerance and style.

  1. If it’s making you stressed or unwell, stop. Can have all the money in the world, but it’s no use if you’re unwell or depressed.
  2. Ask truthfully if you can beat a global tracker ETF or S&P ETF over the long term. Most fund managers can’t, so is it worth the hassle and stress? Maybe better to just drip-feed cash into an ETF over 10+ years. No hassle. No profit warnings.
  3. Stop buying companies against the trend. You’re gambling you know better than the market, many are value traps. If the trend is down, the earnings trend will also be likely be down. Use Stocko EPS forecasts graph, it’s invaluable.
  4. Buy companies with rising or recovering EPS graph, positive news flow and positive looking chart. Moving averages rising or starting to turn. Buy strength not weakness.
  5. Use a stop loss. Set it at whatever level you like but have a line in the sand. Don’t hope, take control of what loss you’ll take.
  6. Ignore the media, tips or anyone’s else opinion. Stick to your own plan.
  7. Have a plan. Go through negative scenarios in your head before buying, and decide then what you’d do if the worst case scenario happens. The upside will take care of itself.
  8. Protect your money. Don’t let it dribble away week after week. If somethings not working stop doing it. Either change what you’re doing or sit in cash for a bit. The markets always there, don’t have to be all in all the time.
  9. Don’t be stubborn and think you know best. I’m wrong probably half the time. It’s just part of trading, I’ve had to accept it. I’ve no problem being wrong, but ignoring my stop losses or being egotistical is idiotic.
  10. Ignore what CEOs say outside of RNS releases. Don’t fall in love with a company. I’ve no interest in becoming a part owner. I’ve bought some numbers which I think will be higher numbers in 6-12 months when I sell.
  11. Pace yourself. This in the longest Test match you’ll ever see. You’ll have periods of time when you need to be defensive to see off the new ball, then knock it around for singles for long periods and occasionally times when the bowlers tire and you can go all out attack, looking to hit sixes and it’s all incredibly easy. Do whatever it takes to stay in the game.
  12. Always learn. Learn how to profit from falling stocks by shorting them. I’m nowhere near as comfortable or competent as going long so it’s a work in progress. Really investing is a never ending process of gradual improvement so takes many many years to feel comfortable. I’ve been doing this since 2000, seriously since 2008. I feel maybe 60% to where I’d like to be, so still lots to learn.

My current mentality is you’ve got to ‘stay in the game’. De-risk your portfolio and look to tread water or lose a handful of %. The bounce back when it comes will be rapid…we just don’t know when it is. I’m 20% cash, 40% fund based, 40% direct equities. Majority of my equities have a stockrank over 90 and positive technicals.

The market has been a challenge for the last couple of years and picking winners isn’t easy. As for when things might turn around. Nobody knows, but seasonally this is a weak time of year for stock markets. Seasonal trends seem to be very strong in the stock market, though the reasons are unclear. Winter and spring are usually the strongest times of year, so perhaps things will pick up soon. Having been outside earlier today, it certainly feels like winter is coming.

Perhaps the thing to do would be to set a minimum value for top ups, as I do with new holdings, to curb my temptation to dabble. With prospective new holdings, even if I have the cash in hand I ask myself ‘WHAT IN THE PORTFOLIO WOULD I SELL TO BUY THIS?’ If the answer is that I can’t see anything I would sell in order to fund the purchase, that’s a pretty effective hint that I should not buy the prospective new holding, or at least wait and think a bit more.

‘One in, one out’ is a discipline I’ve never consistently managed to apply. As a result, I find myself periodically needing to conduct a ‘spring cleaning’ of my portfolio. During these times, I compel myself to sell anything I lack a substantial holding in, and for which I don’t possess enough confidence to increase my investment.”

What is of more concern to me than the short term weakness is the long term decline of the UK, and indeed the western world generally. The UK stock market has been underperforming the USA for decades now, and the UK economy has been doing likewise.

Remember how it felt in 2011 at the peak of the bull market when everything was flying and you’d buy a share and two weeks later it was up 20% on the back of a crazy market fuelled by easy money and growth stocks and big valuations.

Most of “us” felt great with our successes and constant green days “up another 1% today”

We had the deluded dopamine hit we were great market analysts and share pickers .

You feel great in a bull market of overpriced companies and poor value because your “up 10% month to date “ etc .

The absolute hardest part of investing is bear market declines where you start to second guess yourself and the lack of dopamine success that you get in the bull runs disappear .

We all get sucked into bear market thinking but for 100% sure this is the time when some good companies are historically cheap simply because everyone has taken their bat and ball home and are sat on the sidelines.

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