Getting Sucked In - Or Being Pushed Out?

The stock market's starting to play mind games with us. As bouts of volatility increase, many who've been mostly out of the stock market since 2008-2009 - and there are apparently a lot of you - will likely continue to sit on the sidelines. If you do, be careful not to get sucked into the market at exactly the wrong time.

How could this occur? Well, volatility doesn't only refer to prices going down; prices can go up dramatically as well. And the history of the individual investor has been to wait until there's a REALLY dramatic turn up before buying in. Yeah, I realize you're probably not antsy to get in right now. The latest volatility's been more down than up. But don't be surprised if there's a breathtaking upturn at some point in the coming weeks and months. Not saying it'll happen; but I won't be shocked if it does. At that point, many of the side-liners will get caught up in a kind of manic euphoria and dive in head first. If and when that happens, we'll likely get the "Big One" so many folks have feared. And those who jumped into the euphoria will lose a ghastly amount of their wealth.

What'll be really sad if that happens is that those who lose will be mostly those who can least afford to lose. Individual investors who are retired, or about to be retired. Maybe just middle class working folks who throw their 401k money into stocks last minute. It's always been this way and always will: The individual investor, lacking professional skills and experience, gets sucked in at exactly the wrong time and loses his or her shirt.

So if you've been sitting on the sidelines all this time, be wary of jumping in because you see stock prices jump. Be especially wary if you "feel" a sense or urgency about taking the leap. There's an acronym for that feeling: FOMO. It stands for "Fear Or Missing Out." For investors, it's one of the most dangerous emotions out there.

With that being said, maybe some of you who've been invested stocks - whether modestly or in a big way - are getting antsy with all the downward price action. If that's the case, you should already have a "Sell Discipline" in place to address what's been going on. If you do, that follow your discipline - assuming it's well thought through. We've got a relatively modest stock position and a sell discipline. As prices plummeted - or as they might do so in the near future - we keep our eye on certain indicators that tell us when it's time to sell.

If you don't have a Sell Discipline of some sort, you shouldn't be invested in stocks in the first place. Without that Sell Discipline, you'll likely get pushed out at just the wrong time. And once you are, you can just bet that the so-called "Melt-Up" will drive prices to the moon - and drive you crazy along the way.

The point of all this is: Don't invest with your emotions. Do your best to keep emotions out of your decision-making. Of course, you likely won't be able to eliminate emotions. It's not reasonable to thing you can. But if you're carefully thought through your buy and sell disciplines, if you have confidence if them, then stick with them. Even as your emotions rage, develop the self-control needed to stick with your game plan.

It's not easy. We've worked at this for years. We know professionals get sucked in and pushed out. We don't want to be part of that crowd. So we keep reminding ourselves: Stick with the game plan.

We're all in the same boat when it comes to emotions and making investing decisions. They simply don't mix well together. Try to remember that.

I was going to say that emotions and investing don't mix well together. But I've never been able to find a way to keep emotions totally out of the picture. They come and go. If you can't lose 'em, just be sure not to join 'em.

Comments

Popular Posts