06 Jul Scary Times Are the Best Times
Scary Times Are the Best Times
July 6, 2022
Unfortunately, Iga Swiatek folded up like a lawn chair.
There aren’t a lot of good things happening in tennis these days (après Roger, le deluge), but Iga was one of them. She was on a 37-match winning streak during Wimbledon, the longest streak of any woman since 2000. She was fun to watch.
But the streak was a bad thing for her. It made her sad, nervous, and eventually overwhelmed. She went down meekly in the early rounds of Wimbledon, and it had nothing to do with tennis.
The streak was scary, so she bailed.
But do you know when the most important coaching moments–the ones that change the course of lives–show themselves? They come after horrible losses. Do you know when our deepest relationships are forged? They come after terrible adversity.
It’s the same for trading.
If you’re one of the many who’ve seen their retirement account drop a total of $8 trillion this year, then you have every reason to be scared. There is no guarantee that the U.S. stock market will go up. It can go down a lot and go down for a long time. There are examples of the U.S. market not making a dime for 3 years, 5 years, 10 years, 30 years, and 80 years. To automatically regurgitate the mantra the market always goes up is dangerous and naïve.
It’s okay to be scared.
But it’s not okay to stay scared. If you’re in a buy-and-hold mess, it’s time for a change. There are many other things you can do with your money. And this dip might be the best thing that ever happened to your money.
Here’s one solution.
Buy dividend stocks. If you must be in the stock market and you must buy-and-hold, there’s a different way to do it. Buy something that strongly promises a return. An expert once said to “never buy any asset that doesn’t pay you back”. A new car doesn’t make money for you. Buying a duplex does (due to rents coming in every month).
A new stock doesn’t make money for you in 2022. A new stock can go to zero (like a depreciating sedan). But a dividend stock pays you back. Here are some numbers.
Let’s say you bought $25,000 worth of RYLD (Global X Russell 2000 Covered Call ETF) on January 1st, 2022. You did this because you don’t buy into assets that can take your money. RYLD’s price at that time was $23.04. That means you’d have 1,085 shares.
The current forward dividend yield is over 11% and the monthly payouts in 2022 have averaged $0.22 per share. That means you would have received a monthly check for $238. In six months that’s about $1,432. That’s on track for an 11% return on your money this year. At worst, you’d pretty much break-even if you had to sell at this price at year’s end. If you don’t sell, you have more money now than you did in January. What Bear Market?
Compare that with Amazon. In January 2022, you could have bought Amazon for a split-adjusted price of $170. It pays no dividend. The current price is $109.56. If you sold at current price, you’re down 35.5% and maybe feeling pretty scared.
Will AMZN recover? If so, how long will it take? Is Walmart eating into its profits? What about prolonged rising fuel costs? Yikes.
You could go through that or invest in something that pays you back, like a rental property or a dividend stock.
Scary doesn’t have to be scary.
If Iga learns that streaks are fun and not a crippling burden, then this loss is the best thing that could have happened to her. Streaks are a privilege and provide the energy to play better, not worse. Get rid of the fear of judgements and play with joy. Fighting to keep a streak is one of the most enjoyable things any athlete can do.
(One of my students never lost a match her entire high school career and another ended her high school career with multiple state championships and a 60-match winning streak. Those were the most fun times, not the most burdensome.)
If we can learn that the scary times in our trading can lead to a highly-profitable mindset switch, then a Bear Market can be extraordinarily life-enhancing.
In our next Newsletter, we’ll talk about another way to turn scary into profitable.
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.