Strategy is key: How investing is like Formula One
As I sat down at my desk today to write this, I could hear the sounds of the Formula One cars racing around the Albert Park track in Melbourne practicing for Sunday's big race.
We all like speed and the adrenaline rush that racing provides, and we also like the thrill of making money.
Here's how Formula One and investing align.
1. Strategy is key
Just like F1 racing, where drivers carefully strategise when to make a pit stop or to overtake a competitor, investors must also have a well-thought-out strategy.
To succeed, they must know how they'll make money from the market, which means they need to understand their goals, tolerance to risk and investment horizon.
2. Manage the risk
F1 drivers constantly manage risk, whether it's navigating dangerous conditions or avoiding a collision. Similarly, Investors need to manage their risk and one way to do this is diversification.
Another way is to get educated to be able to conduct thorough research on potential investments.
3. Patience is a virtue
This may seem unusual, but F1 drivers must be patient and wait for the right opportunity to overtake other drivers or to enact their tactical strategies.
Similarly, investors need to exercise patience given that the stock market can be volatile and unpredictable. It's important to stay focused on your long-term goals and avoid making impulsive decisions.
4. Constant learning
We know that F1 teams are constantly analysing data and adjusting to improve their performance. Likewise, investors need to constantly learn and adapt to changes in the market. Smart investors stay up-to-date on market trends that can help them make more informed decisions.
Drivers in F1 racing rely heavily on their team to help them achieve success, while smart investors know they need the best education, guidance and advice to help them build-long term wealth. The goal of an F1 team is to not only be the first one across the line, but to also finish the race safely.
A driver wants to be the best they can, and I think we can all learn from this because being consistently profitable in the stock market is about surrounding yourself with the right people who are motivated for you to succeed.
The best and worst performing sectors this week
The best-performing sectors include Materials up over 5% followed by Utilities and Energy, which are both up over 3%. The worst-performing sectors include Healthcare, which is just in the red followed by Consumer Discretionary, which is just in the green and Consumer Staples up over 1%.
The best-performing stocks in the ASX top 100 include Allkem up over 18% followed by Pilbara Minerals up over 12% and Block up over 11%. The worst-performing stocks include Cube Holdings down over 3% followed by the A2 Milk Company, Atlas Arteria, Dexus and CSL, which are all down over 1%.
What's next for the Australian stock market
What a difference a week can make given that last week the All Ordinaries Index looked weak and while I thought it would search for its low, the signs were not really positive. This week the Australian stock market has been rising every day and is up over 2%, and looking strong.
Since the low on March 20, the market has traded for eight days and on six of these, the market closed higher, and has risen over 3%. Why is this significant? Well the All Ordinaries Index has risen back up one third in price in a fifth of the time it fell from its recent high on February 6 into the low on March 20.
While I'm not getting too excited just yet, the way the market has unfolded this week indicates that the market psychology is not only more bullish than bearish, but the bulls are more bullish this week than the bears have been bearish over past month or so.
While we are still experiencing a bit of a wild ride in the market and I would love to say that it has bottomed in the recent decline, I simply can't, as we need more confirmation that just one week up.
Previously I indicated that my preferred scenario was that the market would find support and start to rise and this week's trading has strengthened that. That said, we need to remain cautious as a few days up could just be a sucker's rally. Therefore, I urge investors to be patient and wait for confirmation of a move and not to make emotional decisions, as you could just be catching a falling knife.
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