Surrender Guide – The Big Picture

Yesterday’s market bloodbath sent the S&P 500 down more than 18% from its highs. The Nasdaq is now down more than 27% from its peak and the Russell 2000 is down more than 28%.

It’s never too early to start preparing for anything surrender happen and Market Lows In the end, whether it turns out it was yesterday or it happened six months from now.

I’ve had some luck – and some disaster – buying from Big Mess over the years. Here are some ideas that have worked for me over the past few decades. Consider if any of these things might work for you as you start making your wish list and start thinking about how you can use this pull-out opportunistically:

1. start humbly: We never know how long these withdrawals will last or how long they will last. Is this a shallow 20% dip? 30% crash? worst? (We do not know). The 2020 crash of 34% lasted barely a month, GFC 2008-09 lasted 18 months, and the 1966-1982 bear market was 16 years long.

Begin your plan by acknowledging that you are venturing into the unknown. Never bet on the farm or take such a risk that an entire portfolio can be destroyed if the underlying premise turns out to be too early (aka “wrong”).

2. Look for asymmetry: Look for opportunities that have a much greater positive side than a potential downside. Traders never know which of their positions will work or not in advance. There is value in creating the potential for net gains, even if you are only a .300 striker.

3. automation: Buyers with good intentions often fail to execute deals (despite their wishes) out of fear and emotion. Remove your limbic system from the process by selecting a series of entries, then automating it.

4. Buying over time: Instead of guessing a specific “ideal” entry date in the middle of the selling period, consider spreading out your purchases over months. Pick six dates over the next year with portions of your discretionary trading capital. This ensures that you will be early and late – but it also creates a high probability that the average purchase price will be much lower than it is in the market after six months of recovery.

5. Buying through price levelsAnother way to avoid guessing the bottom is to make multiple buys at different price levels: Example: Setting Limit Buy Orders for GTC to Buy Wide Index as low as 19%, 26%, 33%, 42%, up to 53%. (I like to avoid rounded numbers.) If only half of your orders are filled, that means the markets have avoided matching some of the worst downturns in the last 50 years – but you’re still a decently priced buyer.

6. Preferred Stock: As much as I love broad indices, some people have their favorite companies. Consider those that you may have escaped from in your last cycle and that you would like to own in the long run. Whether it’s Nvidia, Apple, or whatever you prefer, follow the same strategy to make multiple purchases across different price levels.

7. Use options in moderation: We keep hearing stories about Robin Hood/Reddit traders who used options to great effect in 2021 but saw horrific results in 2022. Professionals use options as a way to manage risk – essentially predetermining their losses.

Example: Instead of buying a $100k position with a 10% stop loss, they buy $10k of long-term calls. Time dwindling causes the risk parameters between stocks and options to vary greatly, but if used correctly, this can be a useful strategy.

8. Failure is difficult: To get a valid sell trade, you first have to identify something that is trending significantly lower; Second, set your correct timing, and finally, borrow the shares. It’s all harder than it sounds: Shorts can shrink, borrowed equity gets taken away, costs pile up, and timing can be pretty tough.

9. Avoid leverage: Using borrowed money to make speculative purchases in a market crash is a recipe for disaster. Do not do it! Like Gerald Loeb Written in 1935, This is more than just a gain, it’s a battle for the survival of the investment.

10. Be patient + stick to your plan: Buying when the market corrects, falls or crashes is a challenge that very few people can do well. It takes planning, patience and a lot of time to unfold.

These 10 ideas have proven useful to me over time; Your list may include 10 completely different methods. But whatever your buying style may be in a correction or a crash, thinking about it and making a plan is the best recipe for success, regardless of the specific ingredients.

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