Doc's note: Longtime readers know I don't worry about market overreactions. Some of my favorite investments are companies that do well no matter what chaos is going on in the world. Last month, my colleague Ben Morris, the editor of DailyWealth Trader, interviewed me about market panic and how to invest in times of uncertainty.
Today, I'm sharing the interview with you. If you're worried about the future of the market and what you should be doing with your money right now, you won't want to miss it.
Ben: Doc, what is the most important trend or idea for investors to be informed about today?
Doc: The most important thing people should be thinking about is maintaining a long-term investment mentality. What happens when the market sells off again? Because it will.
You have to remember, though, that over a long period of time, the U.S. stock market has gone up. So any time you see down moves, particularly in this day and age – with information flowing so fast and interest rates so low – stocks are still an incredible place to be, especially in companies that provide income and capital protection.
The U.S. is a great place for rule of law and protection of property rights. I am probably as bullish on America as I've ever been.
Ben: What is so important about keeping that long-term picture with investing?
Doc: When stocks trade off, most people start to worry and think about selling.
I have some family friends who, when the market started trading off in January, were totally exasperated because they're just starting their retirement. They just couldn't stand it anymore, and they went completely out of stocks... sold everything.
I think that's a huge mistake. They have missed opportunities in asset classes across the board – fixed income, stocks, even gold – since then. I don't think it makes sense to be completely out of the market.
The key is to avoid the typical behavior and psychological defect of humans to follow the crowd or become fearful and act on that.
Ben: How do you take advantage of short-term selloffs in your Retirement Trader advisory? How do they play into your strategy?
Doc: Last Friday, with the market being down following the "Brexit" vote, I showed my Retirement Trader subscribers a couple of trades that they could get in if they weren't already. And we told people who already had those trades open that they could roll them forward to gain a little more exposure to the volatility spike. We took advantage of the volatility to earn more income.
Ben: During times when the market is pulling back, how do you avoid being scared out of the positions in your portfolio?
Doc: It's easy... I don't follow them in the short term much.
It's not a good thing to spend a lot of time watching and being focused on the markets. I've been there. I've done that. And I found myself acting more on fear as opposed to rational thought. Of course, I'm disappointed when we stop out of positions, but it doesn't make me nervous.
Ben: In Retirement Trader, you sell puts and covered calls on companies that you would be happy to own. Can you explain how that helps you to avoid worrying about the latest scary headline in the market?
Doc: A great example is Gilead Sciences (GILD).
Gilead is one of the most incredible drug stories there is in biotech that I know of... the angst, pain, and suffering that hepatitis C caused for people, and now most who have taken Gilead's drugs are cured. The company's employees are brilliant.
But shares are down almost 20% since late April. It's one of the cheapest stocks in the market. Because of that, Gilead is an easy candidate to write options on now because it's such a good company and the metrics are so low relative to other things.
Ben: Has your Retirement Trader strategy changed at all as the bull market has aged?
Doc: You know, it hasn't. We've gotten in a little trouble by picking some stocks that have metrics that are a little bit on the higher side.
But in general, we've looked for companies that have maybe a little more sleep-at-night quality to them. And then, because of the market volatility, we've had to do a little more trading in and out and around them to turn those into profitable trades.
If the market went down for two years, these are the companies we would want to own.
Ben: We've covered a lot today. Is there anything you want to add?
Doc: With interest rates low, the Retirement Trader strategy is a fantastic opportunity to increase your income on your assets in retirement.
Selling put options or covered calls on the stocks you already own is a great way to do that if you want to start taking advantage of low interest rates and generate income in your portfolio.
Ben: Thank you for taking the time to chat, Doc. I appreciate it.
Doc: Of course, any time.
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