Two Unbreakable Investing Rules For This Falling Market

Last week, I wrote a post on how to invest in this tumbling market. It included some strategies, trading rules, and thoughts on how Wall Street works.

I also shared a couple of my “unbreakable” investing rules. Investing is a tough game and if we don’t follow some strict investing rules, we won’t be able to create wealth the way we set out to do.

Before we review those two investing rules, let me share a couple of general thoughts on tumbling markets:

Market pullbacks, corrections, and panics are a common part of an investor’s lifetime (or career).

Don’t panic. Owning stocks has been a wealth creating strategy for a century. But you must be diversified, risk conscious and knowledgeable.

1.   THE UNBREAKABLE INVESTING RULE: DOUBLE UP, NOT DOWN

This is the rule. In fact, it’s a commandment from the market. We never (ever) double a position size in a stock that’s dropping if it led the market lower. So Chipotle (CMG) is off the table for a double down. And so is Twitter (TWTR).

IF we use the double down investment strategy, it’s only in companies that led the market higher. I know this sounds counter intuitive in terms of “value,” but never forget, the stock market isn’t crazy. The companies that lead the market higher do so generally for good reason. Equivalently, the companies that drop in a bull market also generally do so for good reason.

Examples of companies that led the market higher: Nike (NKE), Starbucks (SBUX), Alphabet (GOOGL), Facebook (FB), Netflix (NFLX), Nvidia (NVDA), etc…

In my post last week, I used NKE as a potential blue chip that could receive an immediate starter position and an “add to” at $50.  That said, if you peak back at that chart, $40 could be a spot to double down.

2.   THE OTHER UNBREAKABLE INVESTING RULE: BET ON BLUE

We also never double down in a stock that isn’t a blue chip. I love OLED, for example. We wrote a gorgeous research dossier on it and I own it. But this is a component maker, not a blue chip. If the stock tumbles and we want to stay an owner, that’s fine, but we don’t double down on companies that aren’t blue chips.

We won’t lose our life’s savings in blue chips. We can certainly lose our life’s savings in riskier entities, no matter how compelling the investment thesis.  Stay safe; guard your wealth.

Have a great week.

Read more from Ophir on CMLviz.com.

Twitter:  @OphirGottlieb

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.