As we end 2023, there’s no shortage of voices predicting a bullish market for UK stocks in 2024.
There are a few obvious reasons to be cheerful. For example, the interest rate raising cycle looks like it’s peaked. And that’s because inflation seems to be coming back under control.
On top of that, fears of deep recessions have morphed into utterings about soft landings and mild contractions. And, as is often the case, many businesses keep powering forward, growing their earnings and surprising the market.
Markets often do the unexpected
Attempting to predict the stock market is a mug’s game. But the apparent bullish consensus is a little unsettling because markets often move to confound the majority.
As always, the outlook is uncertain. But that’s just the name of the game. And key to investing effectively is to focus on the individual stocks and the businesses behind them.
It doesn’t matter what the main indices like the FTSE 100, FTSE 250 and America’s S&P 500 are doing. What counts is whether stocks are triggering buy or sell indicators according to our investing rules.
And evolving a set of rules by which to invest is an important discipline. The most successful investors repeat the same mantra: discipline, discipline, discipline.
Just like billionaire investor Warren Buffett says, we can forget about having a high IQ. Instead, being disciplined is the secret weapon of successful investors.
So we need a well-defined investment process and the discipline to follow it exactly. And I read over and over again from successful investors that the first consideration regarding process is risk management.
Watching the downside
My own risk management strategy involves careful business selection, sensible position sizing, and a mental stop-loss for shares and businesses that move the wrong way, or which take too long to perform.
But risk management will be handled differently from one investor to another. For a start, there are so many different strategies and ways to invest.
It’s important to be clear about what kind of investors we are and what we are hoping to achieve with shares. For example, long-term investors will happily hold on to stocks for years. Position traders will hold shares for months to years. Swing traders might look at opportunities that take days or weeks to play out. And day traders probably need to find a new strategy!
In practice, it’s possible to treat different stock opportunities in different ways within the same portfolio. Buffett does that. We all know about his long-term holdings in consumer monopoly-type businesses like Coca-Cola and Apple. But throughout his career, Buffett’s also enjoyed many shorter-term and arbitrage-style trades and investments.
Even the great man likes a bit of action, it seems. And why not? He made his initial fortune with shorter-term trades based on valuation in the style of Benjamin Graham. And old habits die hard!
With so many investment styles available, there’s definitely opportunity and value to be found in the stock market. Although positive investment outcomes are never guaranteed.
Nevertheless, I’m considering stocks for 2024 and beyond right now, no matter what the general stock market does.
