Originally Posted November 30, 2018. Last Updated May 11, 2019.
What is a Binary Event?
Binary events are market-moving situations where there are only two outcomes – one which will make the markets move up and one which will make the markets move down.
Binary events can flummox the best of investors.
So, how can you prepare?
Option 1: You’re Uninvested.
If you feel the outcome is going to be positive and give a boost to the markets, you might consider opening a very small position in the stocks you’re interested in, buying 1/8-1/4 of your entire desired allocation.
However, use extreme caution and only risk funds you’re prepared to have stuck in the markets for potentially years in case the negative outcome happens, instead.
Option 2: You’re Partially Invested.
If you already own positions and have been Buying in Stages, don’t do anything in advance of the event. The time to sell and take profits was before the news of the binary event hit the markets, not now.
Keep your powder dry and wait to see what the outcome is to determine how to proceed with your next move. If it’s positive, you’ll have the opportunity to consider taking profits. If the outcome’s negative, you’ll have buying opportunities.
Option 3: You’re Fully Invested.
If you have no cash on the sidelines and are already “all-in,” consider selling some of your positions that have the largest exposure to downside.
In the event of news involving another country like China, review your positions for company- or sector-specific exposure: think Apple (AAPL), the car manufacturers, the industrials like Boeing (BA) or Caterpillar (CAT) and other companies with exposure to the country or location in question.
“Pull the weeds, keep the flowers.”
Should you decide to trim positions, unless you have companies with specific exposure to the impending downside risk, sell your losers, not your winners. Many new investors (and even seasoned ones) will sell the stocks where they have profits, feeling that taking profits is preferable to taking losses.
However, which stocks do you think will perform better after a sell-off – your proven winners who have consistently demonstrated a great track record and earned you profits, or your losers who weren’t able to earn a profit before the bad news made their jobs even harder?
For Everyone: Don’t get mad, Get Irked.
Remember, no matter how bad (or good) the eventual outcome is, this too shall pass. Even a bad outcome for your portfolio provides a valuable learning experience for future investing strategies.
Plan ahead, don’t make rash decisions, and avoid allowing emotion to affect your judgment or decisions.
Sometimes, the best remedy is the fact that misery loves company. We’re in the markets right alongside you! Don’t get mad, Get Irked, and visit our website for regular updates.
Disclaimer: Eric "Irk" Jacobson and all other Get Irked contributors are not investment or financial advisers. All strategies, trading ideas, and other information presented comes from non-professional, amateur investors and traders sharing techniques and ideas for general information purposes.
As always, all individuals should consult their financial advisers to determine if an investing idea is right for them. All investing comes with levels of risk with some ideas and strategies carrying more risk than others.
As an individual investor, you are accountable for assessing all risk to determine if the strategy or idea fits with your investment style. All information on Get Irked is presented for educational and informational purposes only.