Confidence In the Face of the Bear
Every time I buy a stock that is already down a lot-- the one that my analysis leads me to believe is cheaper than dirt-- it declines more. Did I completely lose my ability to value stocks? Did I start ignoring Will Rogers' advice? Buy stocks that go up, and if they don't go up, don't buy them.
No, I didn't get much dumber, and my stock picking skills haven't diminished that much over the past year. I was simply a willing participant in the latest cyclical bear market. Bear markets make you feel dumber than you are the same way a bull markets make you feel smarter than you are. Feeling dumb makes you do the opposite of what you should be doing. Painful losses are a dangerous thing because they can make us panic, lose confidence and do the opposite of what we should be doing.
To alleviate the pain we sell, react, and default to the only asset that made us money (so far) in the bear market – cash! Cash is only a king when other assets are princes, and when you can’t find a stock with long-term superior risk reward profile. However, during a cyclical bear market, cash is slowly demoted to a prince as great companies are thrown out the window with the junkie once. You have to actively make yourself aware of the eight-letter word T-O-M-O-R-R-O-W! Yes, tomorrow. Think of the lyrics from Annie:
When I’m stuck with the day that’s gray and lonely,
I just stick out my chin and grin and say, ohhh,
The sun will come out, tomorrow,
So you gotta hang on til tomorrow.
Of course, we don’t know if tomorrow is tomorrow or years from now. But investing is a marathon, not a sprint. Don’t let the bear market turn you into a sprinter.
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The election will be over, the pols will have laid out their plans and got somewhat organized for the new Congress and the new agenda.
As we emerge from what complexity scientists call the "edge of chaos", that is the time I will start moving.
Remember that "The market can stay irrational longer than you can stay solvent."
Courage has been said to be "Keeping your head while others are losing theirs."
The rules have changed profoundly since the summer of last year.
They are the financial analysts, the commentators, the professors, the CEO's and the traders. They went to the same schools, read the same books, have the same life experiences and ideologies and assume their knowledge and observations represent universal truths. They take comfort in the fact that 'everyone they know' thinks the same thing. And now for probably the first time in their lives they are havig these principles questioned. They are seeing, with their own eyes, their first 'black swan'. But given that these core beliefs represent their identity, perhaps even their soul, I guess it is understandable if they are hesitant to give them up without incontrovertible proof that the swan REALLY is black.
Does anyone actually believe that these people are going to be the ones to tell us when 'its time to panic'? These people who have spent their lives espousing these beliefs, who are in danger of not only losing their money, their livlihoods, the Golden Goose and most importantly their prestige and self image.
But what if the game has changed and they're stuck playing 'Monopoly' while the game has changed to 'Old Maid'?
You see, its always the same until its different.
This time its different.
The truth WILL set you free but first it will probably make you pretty dang angry!
