Common Sense Investing

Lightbulb Goes On

Sometimes investing can be incredibly simplified using common sense techniques. Applying common sense to your investing usually results with profitable returns too. The reason that using common sense works is that for some unexplainable reason there is a lack of it used in the stock market. As such, you can use common sense to somewhat predict/anticipate future stock market moves.

As I write this article, the stock market has taken an ugly tumble downward in the past few days. Fortunately for me I haven’t had so much as a penny invested in any stocks right now. The reason why I have my portfolio positioned 100% in cash is because I anticipated a poor start to the new year. How was I able to do it? I used common sense. Here’s how it’s done…

Look at the variables, and “become the market”…

Last year ended on a bad note with stock prices falling heavily. Meanwhile, oil prices were rising, concerns of recession and stagflation were becoming more prevalent, and the real estate crisis just kept getting worse. Despite the fact that many stocks were getting lower in price and looking attractive, I had to take a step back and ask myself some common sense questions. Questions like “Why would I want to be buying stocks right now?”, “What reasons do we have to look forward to a strong economy this year?”, and “Are we just delaying the inevitable recession?” ran through my mind.

Eventually the answer became clear that stocks were not the best choice at the moment. I also knew I wasn’t the only one who saw all of these red flags, so I anticipated that “the market” would feel the same way and wouldn’t want to be buying stocks right now. Going back to basic economics, more selling and less buying means lower prices.

That my friends, is common sense investing.