It has been a rough week to bear for investors, especially for the last straw where Trump surprised the market by announcing raising import Tax for Steel and Aluminum. Criticism around the world from both investors and political leaders roared with disappointment and anger. Market Apocalyptics, of course were not sitting tight without trumpeting symphony. They took opportunity to predict sky falling down imminently.
Starting of the Fall
It started with the speech of the new Fed chairperson, Powell releasing about his view of the coming interest rate hike and the US economy outlook. There was nothing new about his speech in fact. The only new is the change of mouth, from Yellen to Powell . Market took it negatively and feared that the new Chairman is going to increase rate 4 times instead of 3 times.
Market took a dive for two days, cutting off most of previous gained from the rebound. Before this bleeding stopped, the announcement of the steel and aluminum tariff hike by Trump joined in the wagon and market took another day diving. On Friday, market seemed to continue the down trend by was redeemed at the last trading hours. It was closed at a positive note.
Throughout this week, if you are affected by news accompanied by the down fall charting, your knees would have been shaken and becoming weak. New investors would have sold out and watch for market recovery at the sideline next week. In this case, they are experiencing max losses. Because they leave market at the worst bottom and they enter again when market recovers to its next peak.
Temptation to Freak Out
For all these happenings, with those news and analysts’ commentaries, Trump’s plan for import tax hike would look very unfavorable to the economy not only to the US, but to the whole world. Therefore, recession is looming over the horizon as projected by most analysts. This development makes novice investors nervous and freak out.
If anyone wants to leave market and stay on the sideline, the best time is not now. It should be the time when market has recovered from its losses, most probably by next week. When market is down, it is the best time to buy some more. When you want to get out of the market, the best time is when market is going up, though might not necessary be at the top, but surely not the time when market is getting down. This is the profiting principle in investment. But if you do the opposite, maximum losses will be the end result.
But the problem comes, even when market recovers its losses by next week, most investors would change their mind, because they thought market would have resumed bullishness forever. And they don’t want to miss it. When market falls again, they repeat the same lamentation over and over again until reaching one of the bottoms, they freak out eventually with bleeding heavily.
Overcoming Dichotomy Mindset
In order to overcome this kind of common behavioral pitfall, firstly, we should have overcome our dichotomy thought pattern… either fully in or fully out. We should learn to choose the middle paths… partial in and partial out. And there are many choices in the partial investment changes. It is in the amount of investment unit we can switch in and switch out. (Note: In Fundsupermart platform, you can switch free of charge regardless of the number of time.)
Investing in the market is not a straight forward issue, either in or out. No one really knows for sure what the market would play out next week. It could continue to drop and create its bearish trend; it could turn around and resume bullishness. News and commentaries are just events aftermath. It does very little help to investors. If they distract us for our long term investment view and commitment, they are just purely noises.
Discerning Long Term or Short Term Effect
I am not suggesting that Trump’s import tax hike will not hurt US economy. I personally think it could be either way however. Only time will tell. Because as of now, in Trump administration, his corporate tax cut would help stimulate US economy. Yet it will enlarge US deficit on the flip side. Probably this import tax hike could help fill in this gap. But analysts said there would be side effect in the economy, like expensive end products, or possibly there would be retaliations from other countries etc. Only time will tell. What we can be sure is that the effect is in long term if there is any, not for short term as of now.
As of now, I would believe memory of the market (about Trump Import Tax Hike) is short lived. The current tremor is temporary. It will be soon over and forgotten. And market would just resume travel in its zigzag pattern either bullish or bearish. There is always room and good chances to escape if we want. But the time is surely not now while it is at its lowest bottom. But who knows, market would resume another bullish run next week or so? If you want a time out, maybe switching out partially would probably be a better idea, instead of fully out of the market.
So, let’s keep alert and be watchful.
Happy learning how to manage your investment portfolio!
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