This is your 6-step plan for playing this wobbly, wobbly stock market

Who in their right mind would be buying shares now?

In advance of the US presidential election, where a shock Trump victory would almost certainly send global share markets into a tailspin?

After $40 billion has just been wiped off the value of the S&P/ASX 200 Index in the space of just two trading days?

When Australia and New Zealand Banking Group (ASX: ANZ) has just revealed a $360m charge against its profits?

And after AMP Limited (ASX: AMP) announced it will take a hit to profits of at least $565 million after conditions deteriorated in its life insurance business, sending its shares down 9% today?

And don’t forget Wesfarmers (ASX: WES). The owner of Coles, Bunnings, Officeworks, K-Mart and Target has seen its shares crash over 8% in the last two trading days after it announced a slowing in growth in its supermarket business.

Then there’s Marc Faber, author of the Gloom, Boom & Doom Report who is saying the West needs a serious recession.

Time to give up the ghost, huh?

Don’t get me wrong. It feels pretty tough making a buck or two in the stock market right now.

And on days like the last two trading days on the ASX — where most stocks are whacked, seemingly indiscriminately so — there is nowhere to hide.

And today, after a promising start, is looking like more of the same.

What’s happening?

Nothing obvious. Sure, ASX large-cap stocks are struggling to grow, not that regular Motley Fool Take Stock readers will be surprised. Sure, US interest rates are likely to rise in December, but that’s been widely flagged. And the odds of Trump actually becoming president are totally stacked against him… thankfully!

Put it down to volatility. To sentiment. To the Friday blues…

And so it goes. Stock market investing. A game that is won over the long-term, but so often lost in the short-term by Nervous Nellies bailing out at the first sign of trouble.

Don’t be that person. Commit to being a lifelong investor, not a fair weather investor.

Invest regularly, ideally every month. Take starter positions in new stocks. Add to your winners. Reinvest your dividends.

Sell rarely. And when you do sell, sell your losers.

Let your winners run.

Avoid speculations. Just say no to that explorer with millions of barrels of oil or millions of ounces of gold in the ground, and no hope of ever profitably extracting it.

Let time — and the power of compounding returns — be your friend.

One of the few stocks to rise yesterday was Motley Fool Share Advisor recommended stock, Corporate Travel Management (ASX: CTD). The company reiterated at its AGM that it was on target for between 23-30% profit growth in 2017.

In early trade today, the Corporate Travel Management share price hit yet another record all time high, trading as high as $19.

When our own Scott Phillips — of Motley Fool Share Advisor — first recommended the stock back in August 2012, it was trading at just $2.40.

Take a look for yourself…


Source: Motley Fool Share Advisor, August 2012

Including dividends, since then Corporate Travel Management shares are now up over 770% for the Motley Fool Share Advisor scorecard.

Almost as impressively, since Wednesday evening, Corporate Travel Management shares are up 41% based on the share price when Scott first recommended the stock.

Since Wednesday. Up 41% on the original cost base in less than two full trading days

That’s the power of compounding returns right there, staring you in the face.

And it’s the power of not selling. Not being a Nervous Nellie.

Not selling just to lock in a profit. Not selling because the stock hit some ridiculous and stupid stop-loss limit. The only thing a stop-loss stops is big profits.

Stocks like Corporate Travel Management only come along every so often. Sure, you need a little bit of luck, but in this game, you make your own luck.

Start making your own luck with a plan.

It’s my 6-step plan…

— Only invest with money you don’t need to touch for at least 3 to 5 years, the longer the better. Keep your spending money totally separate from your investing money.

— Aim for a diversified portfolio of between 20 and 40 high quality, well managed individual companies.

— Buy regularly, and consistently, whatever the market, whatever the economy, whoever the prime minister or president, and whatever doom and bloom story is being peddled by Marc Faber, Jim Rogers or Nouriel Roubini.

— Add to your favourite positions monthly. $500. $1000. Or more. Pick a date — e.g. the 15th of the month — and put a monthly recurring reminder in your smart phone or diary saying “buy more of my favourite stock.”

— Reinvest your dividends. Where possible, do it through an automated Dividend Reinvestment Plan (DRP).

— Maintain a solid cash balance, up to say 20% of your investible assets. Not only will it help you sleep better at night, it will give you the firepower to make additional investments during those inevitable times when stock markets wobble. Like now, for example.

That’s it really.

As to where to find those “high quality, well managed individual companies,” my suggestion is to outsource the research to a totally independent and trusted advisor. I’m talking about someone like our own Scott Phillips and our Motley Fool Share Advisor service.

Such a person is unlikely to be your broker or financial advisor — they make their money when you trade. As such, they are conflicted.

Numerous studies have concluded those individuals who trade the most are also the most likely to under-perform the market. Think about that the next time your financial advisor tells you it’s time to re-balance your portfolio, or suggests you sell your BHP Billiton (ASX: BHP) shares and recycle the funds into Rio Tinto (ASX: RIO) shares.

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Of the companies mentioned above, Bruce Jackson has an interest in Corporate Travel Management and BHP Billiton. The Motley Fool Australia owns shares of Corporate Travel Management.

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