2016’s ultimate market lessons: be flexible, expect shocks, cut your losses

If I had to plot a red dot for each shock last year, my calendar would resemble a secondhand dart board.

Last  year was one of the most unpredictable years in finance, with market shocks and surprises seemingly around every corner.

It has certainly been a wake-up call for me.

I reflect on some of the major “events” that have occurred and I wonder how any trader maintained their sanity, through what can only be described as one of the craziest years I have witnessed.

Never before have I seen the human emotions of fear and greed, be more prevalent than in 2016.

I would like to share with you, what I believe to be the three biggest lessons the market taught us in 2016.

Lesson one: expect the unexpected

We already started last January on the back foot after president Jacob Zuma almost single-handedly pushed our financial markets into a dark abyss, when he ‘reshuffled’ the finance ministry.

That single event saw hundreds of billions of rands wiped off our market in December (2015).

But Zuma wasn’t done yet.

The next shock which rocked the rand, was the fraud charges brought against finance minister Pravin Gordhan.

The rand was hit hard and as a result, our stocks followed suit.

January itself was historic for all the wrong reasons too, when we got our first shock from China.

Disappointing economic data from one of the world’s largest economies, resulted in the biggest “one day sell-off” in stock market history.

The markets have since recovered, but this illustrates the point that one should always prepare your emotions for shocks; and stick to your goals and maintain discipline.

Expect bad things to happen (they always do) and deal with them as they come.

Lesson two: nothing is ever a certainty

A perfect example of this was the UK referendum, which led to the decision that the nation would no longer be a part of the European Union.

“They will never leave” I heard all the experts say.

Well guess what, they left!

They’re gone and the pound has made 30-year lows – and the repercussions of this are still to manifest in the next few years.

Oh! And who would have ever thought that Donald Trump would be elected as the US President? Well… only Donald Trump did.

Lesson three: live to fight another day

Nobody likes to lose money but the reality is, it’s part of the game.

It’s managing risk that makes all the difference.

Trust me on this, lessons one and two can go horribly wrong and when things go bad, there’s often no way out.

I’ve seen many clients wipe out their own trading accounts this year.

Draw a line in the sand and cut your losses if you have to.

Money doesn’t give a damn about your pride.

Save some ammo and live to fight another day.