How Do We Trade In A Weaker Market?
Although 18 months ago the average collector would probably never have contemplated that the world oil price, living expenses and the availability of credit could have an impact on their numismatic pursuits, I expect that has now changed, or at least is starting to change.
Signficant rises in the cost of living (petrol, food and rent / mortgage repayments), coupled with significant drops in asset prices in other markets (equities and real estate) in recent times has hit the hip pockets of many collectors, and not just at the lower end of the socio economic scale. Although it's dawning on Joe Average Collector that he has a bit less money to spend on his indulgence, many collectors that are able to concentrate on the upper end of the market have either been hit hard by margin calls on their equity portfolios, or are holding off on their next acquisition because they're not sure if there'll be a possibility that they might be able to pick them up cheaper in the coming months!
So how does an investor trade a weak market? I reckon it's useful to answer this question from the position of a collector - a dyed in the wool collector that knows his market backwads. Someone like this is invariably not in hock up to their eyeballs and spends within their means (I'm talking in general terms here obviously), and has concentrated their efforts in one specialized field. They know just how often each and every item in their "set" turns up, they know what is superior quality and what's not.
Someone like this has an excellent understanding of relative value - the key method in determining "entry prices" when trading non-income producing assets such as rare coins and notes. He knows a bargain when he sees it, and has the resources to take advantages when they do turn up. I've read stories about famous collectors going into hock in order to take advantage of a once-in-a-lifetime opportunity (John J Pittman comes to mind - google him if you don't know who he is), if the market doesn't recognize the wisdom of their actions, they couldn't care less!
And this is what it boils down to for the rest of us - if we are to trade a weak market sensibly and responsibly, we need to discount whatever negative activity we see may come our way in the coming months or years, set a price level for each item we want to acquire, and take action accordingly. At the end of the day each trading decision turns out to either be "right" or "wrong" - and it ain't until the time comes to sell that you really get the right answer! If we understand our market and area of interest well enough, and aren't in a position where we're forced to either sell or buy when we don't really feel inclined to do so, any drop in the market can't really do more than make life interesting!