Every so often, I remember a critical idea every investor must know.
"If you can't understand the catalyst that will move an investment in your favor, you are the catalyst of someone else's profit. Even if you understand the catalyst, you will be wrong and must have a plan.
"Wall Street is pretty good about cleaning up the ill prepared."
That's from Howard Lindzon, co-founder of StockTwits, and it deserves to be written in stone.
Mr. Lindzon penned this gem almost four years ago to the day.
A whole bunch of people were betting big on Plug Power Inc. (NASDAQ: PLUG) to keep up a massive upward run.
From the start of 2014 to March 7th, the share price rose a good 400%. All it took was one analyst to slap a 25% loss on people chasing the gains that day.
The crowd turned on the analyst to vent their collective outrage, and Mr. Lindzon took them to task.
No one wants to be the person left fuming and helpless. It would be a whole lot easier for us to avoid it if virtually everyone else didn't seem to be sitting in the same boat right now.
But this is bound to happen in a confused market, and we have to adapt to survive.
Judging by the kinds of reactions we've seen in recent years to good job reports like what we just had - 313,000 jobs added, strong wage gains, unemployment at 17-year lows - the Dow and S&P 500 should have tanked that day.
Instead, they soared. Apparently, the fear of strong reports like these no longer worries the market when it comes to an accelerating pace of interest rates from the Fed.
That is, after all, what has consistently been cited as the catalyst for all the previous "good news is bad news" drops.
Perhaps the climate is truly changing, but what is more likely is that the market has decided to muddy the waters and march to its own drum.
Without much rhyme or reason, it appears market sentiment is now hell-bent on creating a coiled market.
Large indices like the S&P 500 remain loosely bound around the 50-day average after February's dive touched the 200-day moving average, while the mainstream financial media scrambles to find a plausible explanation that implies a rational, reactive, and efficient market.
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This happens in the markets when the collective action of all of the investors out there amounts to one communal shrug.
The direction isn't clear, there is plenty of bullish and bearish sentiment, and people can't find a clear signal from any major catalyst.
For it to really coil up and create a strong potential for it to break out, up or down, this band will have to narrow.
If and when it does, it will move faster than most of us can react.
It is a dangerous, but potentially lucrative, moment that comes with a lot of anxiety and stress.
So here we sit. And the longer we do, the more of a chance there is for us to lose sight of the catalysts that will propel our investments forward, and thus become someone else's profit.
Our limited capacity to understand and prepare for whatever will happen puts us in a bad position to get caught with our pants down if we place large and broad bets on anything.
I don't think we're at a loss for something to do, though.
One of the beauties of investing is that you can make it as broad or granular as you want.
In this sense, we still have plenty of options, though we won't know if we'll get a bit of a boost from a tailwind or struggle with a headwind.
A sideways, uncertain market is a stock picker's market. When the big picture doesn't show you a catalyst you can understand, start drilling down.
Yes, the broader market will create headwinds and tailwinds, but making sure you know the catalysts that will help or hinder a company will give you a decisive advantage over the countless others who sit in place and wring their hands.
Our editors are doing that right now for their readers.
Jimmy Mengel is providing constant updates and guidance for the emerging cannabis sector.
Nick Hodge has uncovered what will probably become America's largest gold mine.
And Gerardo Del Real is working on comprehensive research for how to capitalize on a massive projected mismatch between supply and demand for critical metals. You'll hear more about that in coming weeks.
Just remember, if you "can't understand the catalyst that will move an investment in your favor, you are the catalyst of someone else's profit."
Act accordingly.
Take care,
Adam English
Adam's editorial talents and analysis drew the attention of senior editors at Outsider Club, which he joined in mid-2012. While he has acquired years of hands-on experience in the editorial room by working side by side with ex-brokers, options floor traders, and financial advisors, he is acutely aware of the challenges faced by retail investors after starting at the ground floor in the financial publishing field. For more on Adam, check out his editor's page.