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I always try and remind myself not to sell when my portfolio is suffering a reversal. The key thing is to ride out storms. As long as you are investing sensibly there is not too much to worry about. Only when something massively bad has/is happening should you think of selling, something huge like the whole bond market freezing up in 2007-2008.
A little bit of local trouble like Spain, isn’t enough to make an investor run to cash.
It’s easy to say but hard to practice.
So it’s heartening when the market rallies like it did yesterday. It’s also breath-taking how much profit you can make in a few short days. Its money you’d miss out on making if you tried to chop and change. Why exactly did the market go crazy up today?
Well I can make up a few guesses, but none I would have seen coming.
Actually, the 1st of May rally is interesting. I think it’s a typical post end of month reaction from the end of month rebalancing that goes on most period ends. Funds tidy up at the end of these periods and start a fresh at the beginning of months, quarters, years etc. It’s simply a market inefficiency but it should predict what we can expect next.
When the market is about to charge one way it often flies the opposite direction for a short spike. In this case, if this is what happened yesterday May could be bloody (I think it’s possible but not likely).
Conversely, when rallies kick off at the beginning of a period it can be the sign of a big move in the same direction ahead.
Which one is this? We will know by next Monday, a slump would come quickly now.
In any event, as an investor you have to sit tight, check your reasoning and your portfolio and let the future do whatever it will do.
Personally I’m hoping for a different kind of summer, one without the expected correction. It would be nice, but being nice is never on the mind of the market. Either way I’m staying long and probably going longer.
