When I was a young child, my father was making a vast amount of money trading the markets. This was impressive, even to an eleven year old. While the fathers of kids I went to school with were making thousands a year, my father was making millions. All with a few phone calls a day to London.
Even a kid could work out that what was happening was pretty interesting.
I would ask Dad about the markets and he would tell me about what he did and how he did it.
One day he told me, ‘All you need to know is whether the market is going up or down and then buy or sell’.
This - even to an eleven year old - seemed ludicrous.
I didn’t pull him up on it, because there he was making hundreds of times more money than all the adults I had ever met - so I just noted it in my mind as a silly thing my dad had said.
Of course all you need to know is if the market’s going up or down. But how do you know? I guess I presumed we’d get to that bit later, but we never did.
Then about 20 years later, the conversation popped back into my head.
All you need to know is whether the price is going up or down. A light bulb went off in my head. Most people buying or selling stocks have no idea whether they are going to go up, or down. They have no idea. Someone might have told them a stock would go up. They might have read it in the newspaper. They might have seen it on TV. However, they had no more information than that. They didn’t know the companies figures, the management, or the company’s history. Of course, they also didn’t make money.
I must admit to smiling as I thought about what my father had said all those years ago, and how long it had taken me to ‘get it’.
If the market’s not going well, what’s known in the business as a ‘bear’ market and you go into that market thinking from a ‘long’ viewpoint, i.e. with the belief the assets you invest in are going to rise in price/value, then you will find it very difficult to make money. You will find it really easy however, to do so when the market is bubbling, or in growth, or ‘bull’ mode.
Therefore, all you need to know is, is the market you are working with currently in a bull or bear situation? Then, act accordingly. Simple.
So, for investors, the key is to firstly find a bull market, then buy into it, as bull markets are, as I mentioned those ‘on the up’. The rest is just fine tuning. Now, that might seem tough in a challenging and lengthy global recession but never forget, there is always a bull market somewhere.
This is a key lesson and should be one of your first investment principles – be sure you are investing in a long-term bull market situation and always be on the look out for a new one.
Following this key principle will ensure you are investing with conditions leaning in your favour. It will make the whole business that much easier.
~Clem Chambers (www.clemchambers.com ) is CEO of the leading financial information website ADVFN.com and author of Amazon best-sellers, ‘ A Beginner’s Guide to Value Investing’ and ‘101 Ways to Pick Stock Market Winners’. His latest financial thriller The First Horseman is available for pre-order now.