Initial jobless claims, released Thursday, soared to 3.28 million, shattering the previous record by many multiples.
My longtime readers know that initial jobless claims carry a heavy weight in my asset allocation model. The reason is that it’s a leading indicator, and the government publishes it weekly, not monthly as it does the unemployment report.
However, this time, the devastating number is already discounted in the stock market. Consider ignoring it just this time and instead focus on the secret of the rich in the stock market.
The wealthy who are successful in the stock market have an important secret that everybody can easily understand. Most investment advisers and money managers know the secret, but many have difficulty putting it into practice. Those not in the know are getting burned in this coronavirus market.
Markets are not your slaves; to be successful, you must not enter positions at your will or desire.
Let’s discuss this after building background with the help of a chart.
Note the following:
• This is a monthly chart to give a longer-term perspective.
• The chart shows the Arora call Jan. 22 that an external event could hurt stocks.
• After the Arora call, as the stock-buying frenzy continued, I wrote Jan. 30 that the coronavirus scare had driven dangerous greed and arrogance in the stock market.
• In response to both writings mentioned above, I received a ton of hate mail accusing me of trying to stop investors from making money; these investors were imposing their need to make money on the stock market. The stock market continued to rise and the S&P 500 SPX, +3.80% made a new high Feb. 19.
• The chart shows several Arora calls that dips were not buying opportunities.
• During the coronavirus drop in the stock market, many investors have been badly burned. They were making a big mistake by using the artificial construct of percentages to buy because the stock market had fallen by, say, 3% or 5%. I have written about it several times.
• The chart shows the support/resistance zone and the “mother of support zones.”
• The Arora Report call has been that the rally in the stock market has a 65% probability of eventually failing. Please see “To fearless investors gobbling up stocks: This rally has a better-than-even chance of failing.”
True nature of the stock market
The rich who are successful and active in the stock market understand the true nature of the markets. Making money in the markets is quite different from most other endeavors in life.
If you decide you want to go to Starbucks SBUX, +5.30% to get a cup of coffee right now, and there are no coronavirus restrictions, it is perfectly fine to do so.
To the contrary, when the timing is not right, if you decide that you want to buy a certain stock or put a certain sum in markets irrespective of the risks, you will most likely lose money over the long term.
Markets are not your slaves; to be successful, you must not enter positions at your will or desire, but only when the markets give you the opportunities. There are times when there are not many opportunities, and there are times when opportunities are abundant. To be successful, you have to be patient and disciplined.
The secret is not imposing your will, your needs and your emotions on the market — doing so leads to losses. It is worth repeating: The stock market is not our slave. Rich, successful investors listen to the messages of the market and then act based on what the market is telling them.
The secret is summed up in Arora’s First Law of Investing and Trading: To be successful at investing and trading, think differently from most other endeavors in life.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.