Investors are tetchy and they’re worried. Stock markets in the US are at an all-time high, and the ASX/200 is touching two-year highs at 6000. We worry about three things. How high can the market go, when and by how much is it going to fall and what should we be doing? We asked the same questions early in 2015 as the market touched a high at 6000, and again in early 2016 as the market hit a low of 4800. The third part of that question, what should we be doing now, does not change. Many of us are loaded up with equities to different degrees and at Stockradar across most portfolios you will be about 60 invested and have a cash cushion of 40%, depending on your degree of aggressiveness. We must be able to navigate the ups and downs of the stock market with confidence and be in the optimum position no matter what the market delivers.

How can we set a portfolio and manage it so we can sleep at night and not worry?

We need understand that the process of building equity is a somewhat tedious, long-term one – a process that is not a case of repeated short-term adrenaline hits and wild profits year-on-year. Keep a little cash aside for the speculative punts should you so wish, however there are three important elements to a successful ‘equity building’ tradeplan

Firstly the right expectations of how you are going to achieve the objective of a steady increase in equity are absolutely necessary. It will help keep your mind at ease and you’ll rarely be disappointed. Realistic expectations are the first step. Some years you will do better than others depending what the market delivers and history teaches us that there are always some very good years.

The second priority is to make sure you are winning as much as you can when a stock goes up and that your capital is protected when the stock goes down. That means strict money management that entails the necessity of cutting losses and running profits and in turns this also means buying or selling when you don’t necessarily want to. That’s the tricky, but very necessary bit.

The third part of the equation is belief. You must have belief in your trade plan. If that trade plan has years of history to prove itself then that’s an added benefit and confidence will become the norm but that has to develop over time. The key to taking the right approach to developing a trade plan is to understand that success comes from not ‘picking stocks’ but about managing your money. That seems sensible. If you are managing your money correctly you should never have to worry because you’re making yourself safe and that’s a choice we can make, or not.

But we do worry, it’s a natural human instinct that has always driven the ups and down of the stock market. Sure we’ll lose a few but a good trade plan not only loses but it must win more that it loses. So losses are simple a fact of being involved. Managing your money properly on the stock market means exactly as I have expressed it above, make money when a stock is going up and protect it when it is going down and this is entirely isolated from knowing what the market or individual stocks are going to do because we don’t. Good stock market investors succeed because they have a plan that lets them sleep at night because they know no matter what, they are going to make money over time with a plan that has all the necessary elements that drive long term profits. That’s what I am here for, to help you understand what’s required and to understand how to build that equity. For many of you your degree of comfort in retirement depends on it.

Interestingly most of the calls I get focus on losses and why they occur and of course I can’t always answer that but it does tell you something about the worry ‘psych’ of investors in general. It is what it is and all good trade plans suffer them. There should be more celebrations of wins. Let’s take the recent example of QAN for instance. A dog stock for so long that took off in 2014 and is now nearly 500% higher. That’s cause for celebration. There are some members who do call me when a big win occurs and they are the people that get it because those wins are so important and in Stockradar speak vastly outweigh the losers and that’s why the equity on the conservative balanced portfolio just keeps growing steadily. It holds QAN. In this case it had nothing to do with ‘cleverness’ it was just about taking the trade plan signals as they come up and managing the trade from a money management perspective.