HERE IS THE MARKET NOTE I SENT TO EDUCATIONAL MEMBERS TONIGHT.
I tweeted that I reduced my equity exposure today and I received many emails asking me questions. The first main question is “why?” No one ever needs to justify locking in some profits. The simple answer is I’m up nicely to start the quarter and I just wanted to lock in some gains while things are a little extended. Remember, I always discuss knowing your timeframe. My active style of investment management isn’t for everyone. Not everyone has the time to vary their investment levels, nor does everyone have the mental capacity to make decisions in the market. I don’t say that to be mean, it’s just the truth. As always, don’t copy me or anyone else, and please continue to work on your OWN plan.
The second question has to do with fear. Some members tell me they get scared when I call for pullbacks. I have several responses to this:
1) Never trade from a position of fear. I always encourage “calm and confident” trading. When you’re scared, you will likely make bad and emotional decisions.
2) I could be wrong. That’s why I said I reduced exposure. I didn’t move to 100% cash! If the market continues to grind higher, I will likely participate. I’m just trying to reduce volatility for clients in case we pull back because I have a portfolio of concentrated positions. Again, this style is not for everyone.
3) I’m not calling for a crash. Just a normal pull back over the next 3-6 weeks down to the 50-day moving average. I think President Biden will drop out of the race soon and that announcement will cause uncertainty in the markets. I don’t think it will be a big deal, but we could see a kneejerk reaction and it could give the market an excuse to correct modestly (approximately 3-5%).
4) If a 3-5% pullback scares you, then you shouldn’t be in the market. I’m sorry, but that mentality is weak. You’re probably scared because you’re using excessive leverage. Trust me, I’ve seen it happen too many times when the market pulls back 5% and people lose 25-50% of their portfolio. If this has happened to you, then you might want to reconsider how you use leverage.
5) Do you just expect the market to go up every single day? Have you ever studied price action? Has the market spoiled so many people that we’re now entitled to gains every day? Again, I’m not cheering for downside, nor am I calling for anything major. I’m simply saying that a pullback would be normal, especially considering all the call writing on many Mega Caps for August and that August is traditionally one of the weaker months.
Again, stop living in fear and stop being so impatient. No matter what your time frame is, get strong entry points and manage your positions as best as possible. Thank you and good luck!
I can be reached at: jfahmy@zorcapital.com.
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