Stock market is a bubble. This is what you will hear again and again. Today this is true even more as central banks are trying to prop up the stocks using loose monetary policy. This is precisely what the FED has been doing. It has been pumping cheap money in the economy for the last few years. This cheap money is finding its way into the stock market and creating a bubble. When this bubble bursts, it is going to cause pain once again.
Faber, editor of The Gloom, Boom & Doom Report, believes that stocks in the U.S. and in many places around the globe are in a central bank-fueled bubble. And while he can’t put a time on when that perceived bubble will pop, he prognosticates that once it does, the outcome will be horrifying.
“For the last two years, I’ve been thinking that U.S. stocks are due for a correction,” Faber said Wednesday on CNBC’s “Trading Nation.” “But I always say a bubble is a bubble, and if there’s no correction, the market will go up, and one day it will go down, big time.”
“The market is in a position where it’s not just going to be a 10 percent correction. Maybe it first goes up a bit further, but when it comes, it will be 30 percent or 40 percent minimum!” Faber asserted.
So what’s the solution? Are you ready to lose 40% of your stock portfolio one fine morning when you learn that the stock market had had a correction last night when you were sleeping? Become a swing trader. Forget buy and hold. Many investors lost heavily in the 2008 stock market crash just because they were doing buy and hold. Today buy and hold doesn’t work. Markets are too volatile and the big players that includes the big banks and the hedge funds, they want quick profits. So no one is interested in long term investing apart from Warren Buffet who suffered a $2 billion loss in just 2 days just because of his value investing philosophy.
Swing trading means just riding the trends in the stock market that last a few weeks. It can be either direction. You can go long. You can go short. Just make sure the timings are right. You get in at the right time ahead of the crowd and you get out at the right time ahead of the crowd. This requires superior technical analysis skills that you must develop.