How to Survive a Volatile Market

February 05, 2016

Connect Member

Co-founder of Chaikin Analytics. Empowering women to be fearless investors.

It’s difficult to stay calm when the markets are highly volatile, as they have been in 2016. The S&P 500 index is off to its worst start in history, down 11 percent from its high in May 2015. Don’t fret. Fortunes can still be made in highly volatile times like these. Rather than hide your head in the sand, follow these five steps to not only survive, but thrive in today’s market.

Now more than ever, it’s important to have a plan based on a proven, unbiased methodology. Such a plan eliminates emotion, and gives you confidence to make sound decisions. This is especially important for women, since a recent Fidelity study revealed that only 28 percent of women said they feel confident selecting the correct financial investments. I understand how this feels, because up until 2012, I too lacked confidence and felt the stock market was too complicated and complex to understand, so as my 401(k) plan grew, I turned it over to a money manager.

However, because I also didn’t have the confidence to overrule his advice to weather the storm in 2008, I lost 40 percent in the financial crisis. This was a wake-up call that I had to take control of my financial future.

I took control of my portfolio in 2009, when I was in my sixties. As I gained confidence, I realized I could make better returns investing in stocks myself. Today, my portfolio consistently beats the S&P 500 and most money managers’. If I can do it, so can other investors, including women.

By using a proven methodology that’s simple to follow, women can become confident in their investment choices and not trade on emotion.

Here are the five steps I follow to survive and thrive in today’s volatile market:

Step 1: Have a Methodology You Believe in and Trust
For me, it’s the Chaikin Power Gauge stock rating, which indicates a stock’s potential to outperform or underperform the market three to six months out. The rating was created by my husband Marc Chaikin, a 40-year veteran of Wall Street. Marc created the Power Gauge rating using the same 20 factors professionals on Wall Street use every day. The model distills complex information into a simple rating: green for bullish and red for bearish, analyzing massive amounts of financial data in seconds. Whether you’re a novice, a sophisticated veteran, or a money manager, you can depend on the Power Gauge rating to guide you — think of it like a GPS for stocks. I depend on the ratings to guide me, and only invest in stocks with a bullish rating. If a stock has a neutral or bearish rating, I either don’t consider it or consider selling it if I own it.

Step 2: Invest Only in “Classic Bulls”
My checklist when selecting stocks to buy includes these criteria:

  1. Bullish Chaikin Power Gauge rating
  2. Price trending up
  3. Strong relative strength compared to the S&P 500
  4. Strong Chaikin Money Flow — an indicator that measures a stock’s buying and selling pressure over time.

My experience proves that focusing on stocks that meet this criteria, like FSLR (First Solar), ATO (Atmos Energy) and ERIE (Erie Insurance) as of this writing, leads to a strong portfolio.

Step 3: Avoid “Classic Bears”
Likewise, I have a checklist of what to avoid, namely stocks with:

  1. Bearish Chaikin Power Gauge rating
  2. Price trending down
  3. Weak relative strength compared to the S&P 500
  4. Weak Chaikin Money Flow.

I don’t buy a stock if it exhibits any of the above criteria. I typically own eight to 10 stocks at any given time, and, if any of the stocks I own develop any of these negative criteria, I seriously consider selling it.

Step 4: Use Industry Group Strength
Independent stock research shows that 50 percent of a stock’s price movement can be attributed to its industry group. And, investing in an average stock in a strong industry group will likely outperform a great stock in a weak industry. So, narrow the field and put the odds in your favor by investing only in strong stocks in strong industry groups.

Step 5: Use Signals to Time Entry and Exit Points
Knowing when to buy and sell can be one of the most difficult aspects of investing. Chaikin Analytics offers six pairs of buy/sell signals that help time entry and exit points based on different criteria.

In the end, gaining financial literacy will help women as they continue to close the wage gap, build the confidence to make money in the market, and gain financial peace of mind. I’m living proof that you don’t have to be a financial expert to pick winning stocks and manage your portfolio. But, you do need a plan, as outlined in these five simple steps.

To find out more about how I’m surviving and thriving in today’s volatile market, attend my next online presentation.

Sandy Chaikin is a member of the DailyWorth Connect program. Read more about the program here.