I want to write a few words about the elephant in the room. The major indexes are near all-time highs, but many growth stocks are in corrective phases (almost bear market-like behavior). Why is this happening? The why isn’t really that important. Part of it has to do with the continuous sector rotation, and part has to do with the heavy weighting of Mega Cap stocks on the indexes. The more important question is how do you deal with this if you are a growth stock trader? Here are a few suggestions:
1) Some stocks have made incredible moves over the past year or two. I’m talking 200-500% returns. Unfortunately, many of them have already corrected 30-50% off their highs or more. I am a big fan of always trying to make improvements in my trading. Don’t beat yourself up if this happened to you. Just be honest with yourself and make adjustments. One way to prevent these big declines in the future is to take some profits on the way up. Don’t expect these stocks to go up forever and understand history. Even if you sell early, it’s better than eventually riding things down, especially with the high-flying growth stocks.
2) Be patient and accept that your strategy won’t work ALL the time. I tell my Educational Members there are usually 2-3 times per year that the market gives you great opportunities for trading growth stocks. The rest of the time is chop/corrective action/base building price action. Also, there are times when value will outperform growth and vice versa. Just accept it.
3) Another strategy is to own ETFs (Index and/or Sector ETFs) to give you broad exposure to the market until the price action in growth stocks improves. It’s also ok to use light positions or even use cash as a position while you are waiting.
As always, these are just strategies and possible ways to deal with different markets and minimize your frustrations. I encourage everyone to make decisions based on your own risk tolerance and investment objectives. Making these decisions will help you to develop your own plan, and also help to build your confidence. If you’re struggling, just remember that strong opportunities will arise again. You just have to keep your head up, stay mentally tough, and be patient until they do. Good luck!
I can be reached at: jfahmy@zorcapital.com
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