Hey, do-it-yourself investors, stop clowning around

It's important for do-it-yourself investors to keep an open mind. Whether you have a bullish, bearish or neutral point of view, it's essential to understand how your standpoint can impact your investing strategy.

I will share a simple-to-understand concept that has helped to keep me away from falling too deeply into my own view of where stocks could be heading.

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First of all, flexibility is key. No matter how bullish or bearish I am, and no matter how good or bad the investment climate is, I always make sure I take into account both sides — the case for an up market and the one for a down market.

This way, I am able to be flexible in my thinking, so I may permit myself to either buy stocks or raise some cash — risk-on or risk-off to an extent, I believe, is prudent at any particular time and works with my clients' shifting investment objectives.

The two extremes of someone stuck in an opinion of where stocks are heading are, in Wall Street parlance, "permabull" and "permabear." That's just a little industry lingo, with which many of you are no doubt familiar.

I can think of well-known investors who wear these titles, and I cringe whenever they speak, because all they ever do is argue why everyone else is wrong when stocks move opposite to their well-worn view, and crow about how right they are when stocks move in favor with their case.

"Investing requires a lot of juggling. It's too much for most people to do mentally. That's why a lot of investors avoid looking at their statements."

The goal is for you to become the serious investor you always knew you could be — instead of clowning around. Here's a strategy to keep you in your best juggling form:

  • Forget being a bull or a bear. Always take into account both sides of that coin by keeping a written list that favors both sides. You can call it a "pluses and minuses" chart. This helps you to be flexible in your thinking. Good days and bad days — I never skip this exercise.
    This helps you nibble on stocks when the market takes a hit, and it helps you reduce stock exposure if the market rallies, as opposed to being stuck in endless negativity or blind optimism.
  • Write down, next to each stock you own — be it directly on a paper statement (for those of you who still receive those) or in a spreadsheet — the price at which you would be willing to buy more.
  • On the same list, keep a tab with a checkmark if things are going well for the company you are investing in. You don't have to create an elaborate spreadsheet for this, just a comment like "good quarter" or "missed quarter" or something like that. The idea with this is for you to keep a simple running tab of corporate progress.
    This helps because if things are going well for a company, but the stock moved lower in a broad-based market retreat, this is what will give you the impetus to buy a little more — as opposed to blindly buying more just because someone told you that "if you liked it at 100, you should love it at 80." Because you know that it could be at 80 for a good reason, and it is time to boot it from your portfolio. I also like this because when the time to make a decision arrives, I'll be ready to act.
  • Use your list to help you keep an eye on all the balls in the air. And that is the critical thing! Investing requires a lot of juggling. It's too much for most people to do mentally. That's why a lot of investors avoid looking at their statements, as well as not following their holdings as closely as they should. The ability to keep track of your stock portfolio is the best part about this — and the thing many do-it-yourself investors need most.
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The do-it-yourself investor could be someone who got off to a strong and determined start, but, after a while just kind of let things fall by the wayside.

The bottom line is that if you could use a simple strategy to keep you engaged, then these lists will keep you juggling and smiling as if you worked for Barnum & Bailey Circus, which is a lot better than being just one of those smiling permabulls or frowning permabears sweeping up after the elephants.

By Mitch Goldberg, president of ClientFirst Strategy