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Four Ways to Keep Your Sanity in a Crazy Market


Wall Street pro Smita Sadana provides her steady hand to shaking investors.

Many investors get stunned when the economy says one thing and the markets do another. Recently, I hear more retail investors saying, "This rally makes no sense. Unemployment is horrible and getting worse. The market is too crazy for me right now."

I called upon my friend and fellow Minyanville Professor Smita Sadana to offer some wisdom. Sadana is one of the best pros on Wall Street, and this is what she had to say about this important issue:

Damien Hoffman: Smita, what advice do you have for investors or traders who can't believe their eyes as the rally continues in the face of weak economic data?

Smita Sadana: Damien, this is an excellent question and thanks for asking for my opinion on this important matter. The reality is that your question transcends the current market and is true for most market participants in many market timeframes.

Here're my thoughts on how to deal with the market as it is, and not as they would like the market to be.

1. Keep an open mind.

The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still function.
-- F. Scott Fitzgerald

Don't be wedded to any thought process, even if it appears intellectually correct. I've written about this extremely critical issue at Minyanville (See Why Investors Should Keep Enemies Close).

If our bias is bullish, we'll keep flicking through channels until we find someone who will tell us what we want to hear -- that the market is going much higher and it's advisable to put all your money in the market.

If we have a bearish bent, we'll scout through websites and bookmark those that enforce our already bearish beliefs and back it with evidence that we like. Even if dissenting thoughts crop up, we let them gather dust and take solace in the factual data that supports our original thesis.

I often advocate that investors stroll out of their comfort zones and add a few dissenters to their trusted friends via websites that offer opposing views. (You don't have to swing the pendulum all the way). Even if the opposing views are aggravating to listen to and can turn out to be wrong, they often add depth to our perspective since we have to defend our original views.

Dissenters can give us the greatest gift of all -- an open mind, which is the prerequisite for a flexible approach toward investing.

2. Don't confuse time frames.

There are many ways of discerning a trend. In Bull Market Timer, for instance, we use an intermediate-term trend to modulate exposure to the market and manage portfolio-allocation based on technical assessment of the intermediate trend.
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No positions in stocks mentioned.
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