How to Survive and Thrive in a Volatile Market

It’s difficult to stay calm when the markets are highly volatile, as they have been in 2016. The S&P 500 index is off to its worst start in history, down 9 percent from its high in May 2015. Don’t fret. Fortunes can still be made in highly volatile times like these. Rather than hide your head in the sand, follow these four steps to not only survive, but thrive in today’s market.

Now more than ever, it’s important to have a plan based on a proven, unbiased methodology. Such a plan eliminates emotion, and gives you confidence to make sound decisions. This is especially important for women, since a recent Fidelity study revealed that 72 percent of women do not feel confident in making financial decisions. I understand how this feels, because up until 2012, I was in this category myself. I felt the stock market was too complicated and complex, so as my 401(k) plan grew, I turned it over to a money manager.

However, because I didn’t have the confidence to overrule his advice to weather the storm in 2008, I lost 40 percent in the financial crisis. This was a wake-up call that I had to take control of my financial future.

I took control of my portfolio in 2009 and started investing in stocks when I was in my sixties. As I gained confidence, I realized I could make better returns investing in stocks myself. Today, my portfolio consistently beats the S&P 500 and most money managers. If I can do it, with no prior experience in finance, so can you!

By using a proven methodology that’s simple to follow, individual investors can become confident in their investment choices and not trade on emotion.

Here are the four steps I follow to survive and thrive in today’s volatile market:

Step 1: Have a Methodology You Believe in and Trust

There are many factors that affect the price of a stock, some of which I research before I buy a stock. Fundamental factors such as: revenue, earnings per share, dividend yield and return on equity, are important.

It’s also important to understand the company’s earnings record: analyst recommendations, earnings surprises, earnings forecast, earnings grown, and price to earnings ratio.

Likewise, short interest selling, insider buying and industry group strength are helpful factors to research before making a decision.

And, technical factors such as how strong the stock is relative to its industry, Chaikin Money Flow, which measures institutional buying and selling, and price and volume trend are important indicators to evaluate regarding stock performance.

Nasdaq summarizes how to find some of these important fundamental and technical factors in 12 easy steps: called the NASDAQ Dozen.

Step 2: Invest Only in “Classic Bulls”

My checklist when selecting stocks to buy includes these criteria, in addition to the factors noted above:

1. Price going up
2. Strong relative strength compared to the industry – how strong the stock is compared to other stocks in its industry group
3. Strong Chaikin Money Flow (more on the Chaikin analytics below) - an indicator that measures a stock’s buying and selling activity by institutions over time

My experience proves that focusing on stocks that meet this criteria, like FSLR (First Solar), ATO (Atmos Energy) and ERIE (Erie Insurance) as of this writing, leads to a strong portfolio.

Step 3: Avoid “Classic Bears”

Likewise, I have a checklist of what to avoid, namely stocks with:

1. Price going down
2. Weak relative strength compared to the industry – how strong the stock is compared to other stocks in its industry group
3. Weak Chaikin Money Flow – an indicator that measures a stock’s buying and selling activity by institutions over time

I don’t buy a stock if it exhibits any of the above criteria. I typically own eight to 10 stocks at any given time, and, if any of the stocks I own develop any of these negative criteria, I seriously consider selling it.

Step 4: Use Industry Group Strength

Independent stock research shows that 50 percent of a stock’s price movement can be attributed to its industry group. And, investing in an average stock in a strong industry group will likely outperform a great stock in a weak industry. So, narrow the field and put the odds in your favor by investing only in strong stocks in strong industry groups.

Conclusion

You can suffer from information overload and analysis paralysis by trying to research and make sense of each of the key factors noted above. However, what I rely on is the Chaikin Power Gauge stock rating, which indicates a stock’s potential to outperform or underperform the market three to six months out, like a GPS for stocks. The Power Gauge does the analysis for me by analyzing 20 important factors, and then condenses them into a simple color-coded rating that I can easily understand: green for bullish, red for bearish.

Go to Chaikin Analytics, and scroll down to “click for a free Power Gauge rating on any stock” to get a free stock rating, and a detailed research report on any of 5,000 stocks, instantly. I depend on the rating to guide me, and I only invest in stocks with a bullish rating. If a stock has a neutral or bearish rating, I either don’t consider it or consider selling it if I own it. And, if any of my stocks turn bearish, I sell them right away.

In the end, gaining financial literacy will help investors build confidence and make money in the market. I’m living proof that you don’t have to be a financial expert to pick winning stocks and manage your portfolio. But, you do need a plan you can depend on.

To find out more about how I’m surviving and thriving in today’s volatile market, attend my next online presentation.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.