Two ways to approach the stock market are tactically or strategically. Which you choose should depend on the circumstances.
Most investors will do better taking a strategical approach, which is the classic long-term view of investing.
The strategical approach looks to position the investor in the right stocks for years to come.
Many fortunes have been made in the stock market using this approach – think Warren Buffett.
However, it is important to also think tactically about the stock market because short-term swings can ruin your best long-term plans.
Tactical investing considers whether you are better served by an offensive or defense approach.
An offensive approach calculates whether this is a short-term correction or a long-term downtrend.
In either case, the investor considers the benefits and risks of short selling and acts appropriately.
A defensive approach to a downturn suggests adjusting your asset allocation to a more conservative position – more fixed income if that’s appropriate, for example.
Neither approach suggests a panicked reaction that will undoubtedly result in poor decisions and worse outcomes.
The thoughtful investor is like a chess player thinking several moves ahead – if this happens, what will I do to take advantage of the opportunities and minimize the risks.
If you are going to invest in individual stocks, you must take an active role in monitoring the market and your investments and have a contingency plan in place.
