The True Nature of the Market

The stock market is not a place, where for one party to win, another has to lose. It is a place, driven by cycles – periods, when almost everyone is a winner followed by periods, when almost everyone is a loser.

Everyone could make a lot of money during market rallies, when liquidity and performance chasing lift all boats and trump all bad news. Not everyone keeps that money when the inevitable correction comes.

Don’t get me wrong. Corrections are an important part of the market cycle. As legendary money manager, Peter Lynch once said:

It is not entirely clear what causes deep market corrections, but without them many of the best performing long-term investors would have never achieved their spectacular returns.

(the same notion applies to swing and position traders, too)

I have nothing against market corrections. I have a lot against giving back my profits during market corrections. Over time, I have learned to time my market exposure – there are periods, when I am barely invested and mostly in cash, followed by periods when I am very aggressive and using leverage to take advantage of a favorable market.