The Little Book of Sideways Markets: How to Make Money in Markets that Go Nowhere

Chapter 10. Nip/Tuck

Think Long-Term, Act Short-Term in a Sideways Market

Long-term investing is an attitude, an approach to analysis. By that, I mean focusing the thought processes on deciding whether to make an investment in the company (the business) at the right price, not on trying to make a speculative trade in the stock.

This investment philosophy, the way you approach company analyses, doesn't need to change in the sideways market. But the buy-and-sell processes, the execution of one's investment philosophy, do require some tweaking.

Buy-and-hold is really just a code name for a "buy and forget to sell" strategy. A stock likely went through a fairly rigorous buy process but "hold" is just camouflage for the absence of a tangible sell process, unless you call "I'll own it till death do us part" a sell process. "Buy and forget to sell" works great in a prolonged bull market. P/Es keep expanding from much below to much above average. However, as we've seen in previous chapters, the complete opposite to bull market behavior takes place during the sideways market.

In the sideways market you should employ an active buy-and-sell strategy: buying stocks when they are undervalued and selling them when they are about to be fully valued, as opposed to waiting until they become overvalued.

Meet Your New Best Friend—Volatility

A sideways market is at least not boring. We may end up where we started, but what a ride it was. Sideways markets are very volatile and the ride may be exciting, but ...