Recently, there has been a lot of negative news in the stock market, so it’s important for investors to remember that bull markets climb a wall of worry. Meaning, the financial markets will have a wide-range of negative factors that keep the market ascending. For example, economic, political, or even geopolitical issues can all have a huge affect on investor sentiment.

It’s our job as MarketSmith's to focus on issues that we can control, and our main objective is to manage our risk through position-sizing and stop loss orders. It’s also important to always be aware of our total portfolio risk. That is to say, if we get stopped out of all of our positions, we know how much money we would lose in total dollar amount.

Now let’s engage in some worst-case scenario analysis. First, if Greece gets removed from the Eurozone and we have contagion amongst the European countries, what’s the worst-case scenario? Well if the U.S. markets suffer from the negative impact, your stocks will go down and you will be stopped out. Second, if China enters a severe recessionary period and it has a negative effect on U.S. markets, what’s the worst-case scenario? Again, your still stocks will go down and you will be stopped out. Lastly, should there be another foreign terrorist attack on American soil , what is the worst-case scenario? Well your stocks will surely go down and you will be stopped out of your positions.

These scenarios all go to illustrate one point: the importance of not dwelling on outside factors/noise that we have no control over since the result is all the same. Since the majority of us do not run a professional long/short macro hedge-fund that is directly correlated to global issues, our efforts are best put to use controlling the issues that we have control over. Again, that is managing risk through our positions and overall portfolio context.

So for all of us out there that might be listening to our wonderful neighbors, friends, talking heads on TV, let’s remember that these issues are the very least of our worries. Instead, let’s focus on our job and that’s making money by implementing proper portfolio management rules.

Moreover, if the U.S. enters a bear market our job as investors and money managers is to preserve our capital by reducing our positions and making sure we have proper stop loss orders on all of our positions. It’s always best to know how much of our portfolio is at risk at any given moment in the market.

If you have any questions, you can reach us at (800) 424-9033 or at You can also follow us on Twitter and Facebook for the latest MarketSmith updates.

Happy hunting,
The MarketSmith Team
Jason Thomson