Let’s keep this simple. Good news moves prices up and bad news moves prices down.

Too many retail investors do not have a trading facility that lets them take advantage of prices moving down – be warned, you will get caught out sooner or later, and it may not be the first time for some I suspect.

Today the UK 100 has fallen by another 100pts, furthering yesterday’s losses, which could have been easily predictable on the grounds we received a triple-whammy of bad news this morning:

– North Korea launched a missile over Japan
– The most dovish member of the Bank of England’s monetary policy committee hinted that UK interest rates may rise imminently (hurting US dollar and Euro earning companies)
– An explosion on the London tube network described as an act of terror.

Which direction did you think the market would head in?

In isolation, today’s move is little cause for concern; the broader market trend is still upward. This bull market has been 8 years in the making and by no means am I suggesting a crash is imminent, but choosing not to add a short-selling facility (in order to profit in falling markets) to your trading toolbox is like opting to buy a car with no seatbelts. If you lost money in the dotcom crash, the financial crash, when will you learn your lesson?

Let’s rewind to June 2016 post-Brexit vote.

The UK Index was trading at 5700pts. Barclays shares were trading at 120p (36% lower than the current price), Taylor Wimpey at 110p (-42%) and Aviva at 300p (-40%), to name a just few popular stocks.

Should the market fall to sub-6000pts again, could we see these stock prices return to those lower values? If the answer is “yes” how will you feel if your portfolio sheds the best part of 40%? Tens or hundreds of thousands of pounds could be lost in value. It is SO unnecessary. These could be moves in your favour!

“I’ll wait for the price to come back up and pick up the dividend while I wait…” says the guy with his head in the sand – the dividend will almost certainly be the first cutback the board makes leaving you with no income and a stock needing a near 100% share price increase just to get back to the price that you bought it at.

“The market won’t fall that much again…” is another classic investor maxim.

Maybe it won’t, but with N. Korea testing firing nuclear missiles, President Trump’s animated and often short-sighted Twitter responses, cold Brexit negotiations and a global-debt crisis simmering just under the surface, there are plenty of potential catalysts to spark a retracement of sorts.

The market will do one of two things. One, it will rally higher – this is what I hope for – or two, crash. How which would you lose? How long would it take to recover? Would you wish you had at least explored short selling in more detail?

Today’s UK Index pullback should not spook you, merely awaken you to the power of negative news stories and the associated risks. You have time to learn more about this topic and I would encourage you to do so.

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Have a great weekend. See you on Monday

Marc Kimsey, Senior Trader, 15 September 2017