Why Having Dry Powder Matters For Successful Investing
The tech-heavy Nasdaq Index officially hit correction territory earlier this month. This is officially defined as a pullback of at least 10% from highs. The index continues to work its way back toward its February high, but continues to show some weakness.
Meanwhile, the Dow Jones Industrial Average and the S&P 500 both recently made new all-time highs. This rotation out of tech stocks isn’t all that surprising after the astronomical returns these stocks have made over the past year.
That rotation out of tech caused many of our holdings to hit their stops over at Maximum Profit. But if you remember this piece, in which I wrote about stop-losses, then you know that’s actually a good thing.
In that article, I talked about the importance of setting stop losses in order to protect your profits. I hope you took my advice on that. As I said then, asking yourself to make the prudent decision to sell in the heat of the moment is often too much to ask. (Better to let a stop-loss do it for you.)
Stocking Up On Firepower
There are a number of benefits to investing this way. As I explained to my premium readers recently, this left our portfolio with just eight holdings. But it also armed us with a bundle of cash — 66% of the portfolio cash to be exact.
As the market tumbles and our sell signals are triggered, we move more towards cash. This allows us to not only soften the blow the market is giving investors, but it’s preserving capital and providing plenty of cash to deploy back into the market.
This brings me to another thing… As a rule, the maximum number of stocks we cover in the Maximum Profit portfolio is 30. I feel that 30 stocks are a manageable number of stocks to monitor — although many might argue that even 30 can become a bit burdensome. I also keep close tabs on our allocation (and share a pie chart of our composition) to give readers an idea of how much exposure we have to stocks during market cycles.
Portfolio size and allocation are ignored far too often by most individual investors. Of course, every investor’s situation is going to be different. But be mindful of how many stocks you own at any given time — especially how many you have to stay on top of. If there are some you don’t have to watch as closely, that’s fine.
If you’ve been going heavy on the tech trade for the past few months, hopefully, you followed my advice and set strict rules for your trading plan. And if that’s you, you’re probably glad you did. You likely locked in some nice returns and were able to avoid some of the recent pain in the sector.
What’s more, you’re probably armed with cash that’s ready to be put back to work. After all, two of the three major indexes are still in a solid uptrend. And there are still plenty of trading opportunities to be had in the tech space, too.
In the meantime, if you haven’t already taken a look at my report of investment predictions for 2021, you’re missing out…
While I don’t pretend to have a crystal ball, my team and I have gotten pretty good at this over the years. Many of our past predictions have given investors the chance to rake in gains of 622%, 823%, and even 993%.
In this year’s report, you’ll learn our number one commodity pick for the coming boom… how a revolutionary air travel technology could make early investors rich… and the “odd” reason one small group of mining stocks could soar in the coming months (they’ve done it before).