Here are 7 Principles to Navigate Expensive Markets
The market is at all-time highs, yet more and more people are chasing the hot stocks.
Let's remember Charlie Munger, shall we?
He once said:
"When everybody goes insane, staying sane is your competitive advantage."
Here are his 7 principles to navigate expensive markets:🧵 $S&P 500(.SPX)$
1/ Stay calm.
There are three types of advantage in the markets:
- Technical.
- Behavioral.
- Informational.
The market is now filled with too many smart people, so nobody has a definitive technical or informational edge.
The only edge you can have is behavioral; stay calm.
2/ Be flexible.
Investing isn't a game you can win every time.
And you don't need to.
If you are right 7 out of 10 times, you can make a crazy amount of money.
But you shouldn't lose it all the way when you are wrong.
Be flexible, turn around when you notice you are wrong.
3/ Keep it simple.
You only need three criteria to pick stocks:
- It should be easily understandable.
- It should have a durable, competitive edge.
- It must be trading at an attractive valuation.
If the business has all three, you buy them and sit on them forever.
4/ Think long-term.
Nobody knows what the market will do or where the interest rates will be 6 months from now.
But we know for sure that the stock price follows earnings over time.
If you own stocks of durable companies, you should think long-term and let compounding work.
5/ If you are working with small sums, look at small caps.
Most institutional investors can't buy micro-cap and nano-cap stocks, because they are too small for them.
Thus, these stocks are often more gravely mispriced than others.
They are your asymmetric opportunity.
6/ Don't be short.
To make money by shorting, you have to be right on both the company and the timing.
But if you are long, you can just sit on it.
The odds favor you in the long game, but they favor the house in the short game.
7/ Wait for a fat pitch, then bet big.
When the market gets into a correction or crash, people don't act logically.
They flee in fear.
In such times, even the highest quality companies like Amazon, Microsoft, and TSMC could trade very cheaply.
When that happens, you bet big.
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Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
