Where Do Trends Come From?

The answer doesn’t matter as much as much as actually being open to receiving them. We must be attentive and always adjusting the dial to sync up with them. One instance of missing out on a major move or holding on to a loser for too long is enough to crush our returns.

The vast majority of people in the investing space prefer to figure out why something is happening before taking a position. Well, by the time you figure out the why, the opportunity might be gone — or the majority of it anyway.

No one can afford to miss trends. The best ones often come at a time when people are collectively confused or dejected from a recent tough stretch in the markets. As a result, most people miss the next round because they’re too busy feeling sorry for themselves.

How many people exited equities too late in 2008 due to hope? Many.

How many didn’t get back in when the trend turned up in 2009 due to fear? Many.

In the moment, we don’t know what anything really means — why the market is trending up or down. We don’t know what the market has priced in or hasn’t. We just have to adapt and focus on protecting our ass.

Trends do come from somewhere though. The interacting elements of fundamentals and the buying/selling pressure from fundamental investors and trend-followers determine the price of the market.

But knowing how it works doesn’t help you make money. Knowing how to play does.

There’s always something to worry about. Today, investors are juggling economic concerns, jobs, consumer and corporate spending, housing prices, interest rates, inflation and the coming election.

As important as knowing what to focus on is what NOT to. So much of the information out there is distracting noise. It doesn’t help us make money. We all need to focus on the trends, the thing that actually pays the bills.

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