2. If you’re using any kind of trend following strategy – whether it’s the 200-day, the 50-day or something else – you’ve had to do lots of buying and selling and you’re not making any progress. Don’t let that get you down: It’s exactly at that point that you should remember that these types of markets don’t last forever. Eventually, some major asset classes will develop a clear, long-term trend. A trend following strategy will give you the opportunity to take advantage.
Unfortunately, many of those trends have a tendency to develop just when your confidence in the market is at its lowest. But if you look back to past recessions and recoveries, you’ll see something clear: there were areas that led the way out of the downturn, and they wound up outperforming all other asset classes. Often, these are areas such as small-caps (which are more nimble and quick to react to shifts in economic conditions) and asset classes or sectors that were especially beaten-up in the downturn (in this case, that would be real estate and financials).
The most important thing to remember is to stick with your plan, whatever it is. You may be tempted to throw in the towel or tweak it some. But just when you look to abandon your long-term investment discipline because of some short-term problems, that’s when the plan begins to pay off.
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