18 August 2021

The stock markets have been erratic for the last month or so. Up and down, and no particular direction. How do we deal with this?

Selloffs are an opportunity to buy. Know stocks that you want to add to your portfolio, and when they drop, buy. I look for drops of at least 1.5 – 2%. They may drop further but buying at a discount is good. Most people are not smart enough to time the markets. The best most of us can do is look for a temporary (we hope) selloff in what is otherwise a good stock, and buy.

Likewise, up days are opportunities. If you are knowledgeable about call options, look at days when stocks you own are up, and consider selling near date covered calls.

Most markets do not vary by more than 5% up and down in a given month. Take advantage of this. I did today, selling next week’s Pfizer $51.50 calls for $1.61 after the underlying rose just over 2%. By the end of trading today, those options were selling for just $.52 each. I expect them to expire worthless.

Most important, contain your emotions. It’s easy to imagine the worst and sell at the very times when a market is turning around. Be steadfast, don’t let your emotions control you, and treat your investments like the business they are.