Making predictions is the fool’s way of dealing with the unpredictable. It’s provides most people, both the predictor and those listening in, with a sense of organization in an otherwise chaotic world. And, just when you find someone with an accurate prediction from the past year, you’ll find them strangely absent from the next “year in review” because they couldn’t string together two years of accurate predictions.
Is it possible that an event that we can’t foresee… a defining moment that is extraordinary and has major repercussions… will actually define 2013? And, the bigger the event, the harder it can be to predict.
Some people simply respond by throwing up their hands. They accept the inadequacies of their failed predictions and, therefore, simply decide not to try to anticipate any future event. You may see this with those who follow Chinese stocks… with the lack of trustworthy information and a twisted currency, some simply avoid them all together.
But is there another approach that traders can adopt in light of the unpredictable events of 2013? Sure, a whole industry of “hedging” has arisen to allow people to still make their predictions and then take out insurance against their positions. But, honestly, isn’t this like taking out fire insurance on your home because you built your fire-pit in your garage?
Since we can’t predict what will happen, let’s prepare for what may happen. Perhaps stocks will go up… and if so, as they rise, we’ll want to buy in and participate in the returns. Perhaps stocks will go down… and if so, as they drop, we’ll want to keep our cash on the sidelines and/or invest in an inverse fund while they fall. But one thing is for sure… stocks will go up and stocks will go down. So, preparing yourself for whatever moves may take place is a profitable way traders can prepare for the unpredictable 2013.
Here’s two quick steps you can take to prepare for the unpredictable 2013:
- Protect your Capital – Whether you use options, stop losses, invest in “guaranteed” investments or use other forms of hedging, protect your capital. You’ll never be disappointed when everyone around you is losing money due to poor risk management and you’re sitting at even. In fact, cutting your gains a little to protect your downside risk is often worth the trade off.
- Review and Make Adjustments – You have a unique trading style which is influenced by your perspective and emotions among other unique attributes. Therefore, take time to review your previous year and make the necessary adjustments to be more profitable. If you’re able to do a similar review once a month, perhaps when you’re tracking your net worth, you’ll be pleasantly surprised by the success you’ll have in 2013 no matter what happens in the markets.
Predicting what may or may not happen in 2013 is nearly impossible to do accurately (at least consistently). There are so many world events that are simply out of our frame of reference at this time let alone out of our control. So, instead of trying to predict, simply make better preparations and I know you’ll experience more success as an investor in 2013.
But what if you are already holding a stock around earnings season? Should you sell it in advance or hold on to it, perhaps even adding to your position? Today, we’ll look at a few brief tips to help you manage risk in these situations so you don’t have to simply hold your nose and wait to see what happens. READ MORE →