Investors hate being told to do nothing. And when the market is chopping up and down like a roller coaster, it’s especially hard. Maybe you want to pick up some screaming bargains, or maybe you’re itching to sell everything at any price. But those times, when the market has no clear trend, and when it’s most important to ignore those fear- and greed-driven urges, and simply do nothing. As Ron Rowland, Editor of All Star Fund Trader, wrote, “Time will tell whether buying or selling is the better decision right now. Doing nothing is also a decision–and can sometimes be the best one.”
But doing nothing doesn’t have to mean sitting on your hands. Here are three ways to occupy your hands–and mind–while you give your portfolio a breather.
1. Make a Watch List
This is one of those things the Cabot analysts are always saying–over and over and over again. Just last week, Cabot China & Emerging Markets Report Editor Paul Goodwin put it very nicely, writing: “Rallies reward you with gains. Corrections reward you with time to think, refine your strategy and build your watch list.”
Obviously, it’s more fun, after researching a stock thoroughly, to buy it than to add it to a list. But the list step will help you make better choices by giving you time to watch a stock’s performance, without any money on the line to cloud your judgment. Creating a watch list now will also better prepare you to profit when the buying environment turns favorable again.
2. Review Your Performance
This is one of Cabot Market Letter Editor Mike Cintolo’s favorite pieces of advice. When you have a little extra time on your hands, like now, it’s a good idea to look back at your trading history and see how you’ve done. Don’t just look at overall returns: Think back on every trading decision you made, and consider whether you could have made a better decision.
As the saying goes, hindsight is 20:20, so you should be able to learn something by inspecting your trading history. Are you missing out on gains by selling winners too early? Are you losing gains by selling winners too late? Are you incurring losses by giving underperforming stocks too much leeway? Or are you getting stopped out on minor corrections by being too harsh with your loss limits?
Obviously, all of these things happen to investors once in a while, but if you see any patterns in your trading history–like stocks that rise even more after you sell them–try to adjust your decisions accordingly.
3. Collect Dividends
This one isn’t for everyone, but I wanted to include it here in a nod to our Dick Davis Dividend Digest subscribers. Sure, even conservative, dividend-paying stocks have been hit hard over the last couple weeks. But stock market gyrations generally don’t affect companies’ dividend payments. In fact, yields go up as prices go down! Holding a handful of income-generating securities can even out your portfolio returns during rough markets. And if you’re primarily an income investor focused on those dividend paychecks rather than market returns, so you have fewer decisions to make during downturns.
