Hey there, it’s Tim.
Now, I’m not writing this to brag. But to show you that money can be made in a down market.
It sounds simple. But this is a lesson I had to learn the hard way.
In fact, I lost more than $500,000 at one point because I didn’t know any better.
I knew markets were in trouble all the way back in November of last year.
Despite bulls everywhere, I stood up with my hard hat and safety vest to tell a room full of people a market crash was coming.
Since then, I continue to pound the table to take heed of that warning and make the following adjustments.
Table of Contents
Read The Big Picture
With few exceptions, markets don’t typically veer off a cliff without some warning signs.
This time isn’t any different.
FAANG stocks are a great example.
Until its recent pop, Meta Platforms Inc. (NASDAQ: FB) was trading near $180 or so, about 13x earnings and 11x cash.
Coca-Cola Co. (NYSE: KO) trades at 27x earnings at 23x cash.
Now, I’m not a big fundamentals guy (or really at all).
But when Coke’s valuation is twice that of Facebook’s it makes you really wonder.
Because let’s be real here, Facebook had a crap quarter last go around. Yet it still managed 27% revenue growth YoY and is expected to hit close to 20% in the next year.
People are scared, plain and simple.
Take a look at Netflix Inc. (NASDAQ: NFLX). That stock fell like it was shot out of the sky, not just because the earnings were bad, but because it was so fully valued.
Or how about Alphabet Inc. (NASDAQ: GOOGL)? You think if they’re struggling it’s going to be any easier for smaller companies?
There are countless red flags across the market that tell us stocks need a breather.
Does that mean we drop by 50%? It’s unlikely without a major catalyst such as a full-blown WWIII or credit crisis.
But could we faceplant by +30%? Absolutely.
Admit When You’re Wrong
Cathie Wood might be brilliant. But she’s arrogant.
I may be loud and get in people’s faces. But I’ll admit when I’m wrong.
What’s the number one thing I tell my students? Lose small and fast.
Cathie held onto companies and continued to buy them as they headed towards oblivion.
She refused to accept what price action, the ultimate arbiter, said.
Just look at this chart of Teladoc Health Inc. (NYSE: TDOC) and tell me why you want to buy this stock.
Shares are in an absolute freefall.
Alright, so how do you hold yourself accountable?
Put your trades out in the open.
We don’t just post our winning trades. If you see someone doing that, call them out and ask for their losers.
You want to keep yourself honest? Post your trades and be open to explaining why you chose them.
Be Choosy & Patient
This is not a market to get aggressive.
This is a market to be meticulous and choosy.
We want the premium setups — ones that offer low risk and high reward.
That doesn’t mean going short on Fridays, even if the company is garbage.
Because while markets may drop hard and fast, the bounces are just as violent.
And let me tell you something — short selling data is wrong and often outdated.
You can’t use it to tell you whether shorts are piling into a stock. That’s why we use price action.
As volatility increases, your position size should decrease, and you want only the best entries.
You do not HAVE to be in the market.
If you want to generate real wealth you need to survive.
Yes, the market is about taking the appropriate risks for the right rewards.
That doesn’t mean, however, you should do anything you aren’t comfortable with.
If a trade that goes against you makes you sick to your stomach, lower your position size.
If that doesn’t help, then go to a simulated account.
I plan to do my darndest to make sure that doesn’t happen.