REVEALED: What Traders Spend Far Too Much Time On
For nearly two years, I’ve emphasized that “Main Street” is not “Wall Street” in order to explain how — during the pandemic — several individuals and small businesses went bankrupt while equity and other assets kept inflating.
The old labor vs capital squall well documented. That being said, there are many reasons wealth inequality has accelerated in the past 5-10 years. However, we can make it easy and blame the Federal Reserve.
If you are anything like me, you’ll be flummoxed as to how the S&P 500 Index (SPY) and Nasdaq 100 (QQQ) have powered off the March 2020 lows gaining a whopping 83% and 81% respectively, in the past 24 months; sitting less than 2% below all-time highs.
The straight-edge ruler tells the story of “up and to the right” to the point of creepiness.
I write, quote, and speak of “the market” in terms of the SPY and QQQ. But, they have such a heavy hand on the scale that it’s hard to fairly call them “the market.” We’ve gone through this before; the cap-weighting issues of these ETFs leave the top five stocks representing 47% and 38% of the QQQ, and SPY respectively.
However, make no mistake about it, trading individual names (let alone other asset classes such as crypto, which are also enjoying great inflation) has become dislodged, or unconnected from the headline index they supposedly represent.
This indicates that too many traders spend far too much time worrying about the indices and big picture macro-matters rather than the stocks they hold. This year has been a particularly good example of how the indices don’t always represent what’s predominantly happening with the majority of stocks. Rather than trying to time the market by looking at the indices, it’s best to time it by managing the individual stocks you own. When they act poorly, you sell them and raise cash. That, in my opinion, is “the best” timing of all.
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