There is an interesting article in CNBC today that talks about a lot of things but mostly risk and reward. The article is more concerned about protecting one’s downside and how you can do better than inflation rate to be moving in the right direction. But do people (individual investors) really look at things in such a dispassionate way? The primary tendency is if you are bullish you buy and when you are nervous or (more likely) the market has tanked fear comes over you and you sell.
There are several downsides to taking a short-term approach to the stock market:
- You are liable for short-term capital gains
- You have to monitor the market on a regular basis
But you are unlikely to get caught in a “black swan” situation.
If you start with the premise that you don’t know what is going to happen to the markets tomorrow, you have a more “hands-off” and “mind-off” approach to the markets.
The premise for The Alternate Trader model is to stop predicting the market. To really believe that there is no way to know what is going to happen tomorrow. And let your behavior be completely driven by what the market tells you.