We could observe the emotions of market, how it affects the stocks in both ways. Last few years, when global economy was lagging, news of US interest rate hike is a negative factor. Now, interest rate hike becomes a neutral or even positive news as the market assumes it means the economy is strong, therefore stock market and other investment market (property, etc) will follow the uptrend.
Stock market is emotional, people interpret the market based on the mass market sentiment, following the herd mentality. If we are one of the herd, our investment performance could be average. If the market is a zero-sum game, who will pay for the people who are making money? Unfortunately, some people need to lose money.
Ein55 Investment Style #22 (Blessing in Disguise) describes exactly the stock market and economy relationship in the last few years till now. When I taught this principle several years ago, some graduates may not fully understand why it is a blessing disguise until they observe the QE tapering about 2 years ago and then US interest rate hikes over the past few years. Ein55 Investment Styles will be appreciated more if we could relate to stock market behaviours. This is the reason of my sharing from time to time here.
I have also pointed in many earlier public workshops and investment eBook (Market Outlook) that both QE tapering and US interest rate hike would become blessings in disguise. However, this opportunity is more suitable for a trader to ride the uptrend and one must know when to get out from the uncontrolled roller coaster at new peak one day.
A blessing in disguise could become a real crisis when more people are optimistic. Pay attention when US interest rate is over 2-3% range, a black swan may swim in quietly while others are celebrating for the bull.
