A down market calls for balancing two conflicting priorities. On the one hand, when the market as a whole takes a dip it reflects the behavior of investors more than companies. This means that lots of strong assets are almost certainly undervalued and you can make good buys for less than they’re worth.
On the other hand, we rely on the markets to tell us what those assets are worth. During a general downturn it can be hard to decide which stocks are oversold vs. which ones have readjusted. This is why Real Money's Timothy Collins suggests moving carefully.
“You really gotta want to own something if you are buying into this market," Collins wrote recently on Real Money. "Am I constantly scanning for stuff to either buy or trade? I'm scanning, but I surrendered the notion of ‘constantly’ back in December. It simply hasn't been that kind of market."
He added, "I'd love to sit here and find a few solid winners and toss them into the fray. It's not easy right now with risk outweighing reward. Honoring stops has been the right move, even if it is also a painful one.”
In a higher risk environment, Collins is taking more care. Markets like this do create lots of opportunity, but they also lack the kind of signals that a technical trader relies on to do their work.
“I continue to advocate patience, only buying with a long-term view in mind, and avoid forcing a trade. This will pass, so there is no reason to fight with it. The market rarely bends to a trader's view. Maybe you're that exception, but I know I'm not.”