Now Is Not the Time to Tinker With Your Investment Strategy

Editor's note: A lot has happened over the past several days. And if you're wondering what these global events mean for the markets, you're not alone.

This is an important time for our readers. So later today, we're gathering some of our top analysts for a Town Hall meeting. (No sales... just a frank discussion.) They'll share their outlook on what's happening, go over the potential financial impacts, and answer some questions that are probably on your mind.

We'll look to go online at around 6 p.m. Keep an eye on our publisher's YouTube page right here... Or, if you're an e-mail subscriber, watch your inbox and we'll let you know when the video is posted. If you can't tune in right away, don't worry – you can still watch it later.


It took 12 years for Ed Seykota to turn $5,000 into $15 million.

Ed was an MIT electrical engineering and management graduate in 1969. He got his start on Wall Street just a year later. That's where the good part of Ed's story begins...

You see, Ed helped create a computerized trading system in his first year on the job. It was the first of its kind. And it was immediately profitable.

The folks at the brokerage house didn't trust it, though. So they went against the outputs early on to better fit their expectations... and performed poorly.

It's hard to blame them. We all want to believe we can override our system at the exact right time. We think we'll outsmart the market at the perfect moment... leading to bigger and better returns.

After all, it's intuition that makes humans more capable than machines – right?

You might be feeling that urge right now. You probably feel like you've got to do something... so you can get ahead of the turmoil in the markets. But before you do, you need to realize – you might be acting just for the sake of it.

That's usually a bad idea.

Even Ed had to learn this lesson firsthand. It came from a major mistake... And as I'll share today, it's one I hope you won't make.

Ed didn't make his big mistake right away.

In fact, when he saw his superiors tinkering with his system, he left as soon as he could. He wanted to strike out on his own and give his approach a shot at real success – without interference.

Those who joined him made a killing. One client earned a 250,000% gain on his money between 1972 and mid-1988. (That return is adjusted based on cash withdrawals, too... Without withdrawals, the percentage gain could have been in the millions.)

Ed's system was more than just a success. It was Hall of Fame-worthy.

But Ed got comfortable in his own market analysis. Don't forget about the intuition I mentioned earlier. We all have it in us. And it started to creep into Ed's market decisions back in 1980. That's when he went off script completely.

His system was telling him it was a terrible time to trade. But he couldn't help himself. He wanted to add his touch in real time. As he told Jack Schwager in Market Wizards: Interviews with Top Traders...

Jack: What happened to the money management rules in your system in 1980? Did you override them?

Ed: I continued to trade even though my system was largely out of the markets due to the enormous volatility. I tried to pick tops and bottoms in what I considered grossly overbought and oversold markets. The markets just kept on going and I lost a lot. Eventually, I saw the futility of my approach and quit for a while.

Ed strayed from his principles. He couldn't help but tinker... despite his system saying it was a bad idea.

It led to his worst year in the markets. He even quit trading for a while.

Most folks who do this never realize their mistake. Instead, they keep trading... until their brokerage accounts are empty.

When times get tough, our intuition tells us to do more. That's how it works in most parts of our life. But in investing, it's the worst thing you can do.

The lesson Ed learned in 1980 was as timeless as it was hard... If you've got a system that works, stick with it. Overriding it because of "intuition" is a bad idea.

Markets are falling. And I bet you're worried. We'll learn more in the coming days. Until then, please... don't act just because you're scared.

Good investing,

Steve

Further Reading

Investors have been massively pessimistic about the markets lately. Technology stocks plummeted in January. But if you're worried about bigger declines from here, history suggests the worst is already over... Read more here.

"The market has a certain feel to it," Matt Weinschenk writes. Investors are driven by fear and greed... always. And when you're trying to see what's coming next, that's usually more important than any number or chart... Learn more here.

Market Notes
HIGHS AND LOWS

NEW HIGHS OF NOTE LAST WEEK

AbbVie (ABBV)… pharmaceuticals
General Dynamics (GD)… “offense” contractor
Cheniere Energy (LNG)… natural gas
Viper Energy Partners (VNOM)… oil and gas

NEW LOWS OF NOTE LAST WEEK

Meta Platforms (FB)… social media giant
Alibaba (BABA)… Chinese e-commerce platform
DocuSign (DOCU)… Software as a Service
PayPal (PYPL)… mobile payments
Biogen (BIIB)… pharmaceuticals
Booz Allen Hamilton (BAH)… “offense” contractor
Starbucks (SBUX)… coffee “World Dominator”
FedEx (FDX)… parcel delivery
The Gap (GPS)… apparel