- The condition of a system in which competing influences are balanced.
- Mental balance.
Did you ever miss the bus when you were a kid? Do you remember that pit in your stomach as you watched it disappear down the street without you on it? It was a helpless feeling, sickening and slightly humiliating. Really awful.
Well, if you're an investor who's been watching this market from the sidelines, you don't have to remember. It's probably how you feel right now. And worse than that, it can leave you paralyzed or impulsive in your decision-making. Let's do an impromptu diagnostic check on your investing mindset.
* Impromptu MarketPsych Missing the Bus Quiz (I.M.M.T.B.Q):
Have you had any of the following thoughts lately:*
1) “The market has had a huge run up. There's no sense in getting in now.”
2) "I'll just wait for a correction. It'll happen soon. It has to.
3) "As soon as I move into equities, they're going to come crashing down. I just know it."
4) "Did I forget to lock the door to my car again? I'm pretty sure I hit the button, but now I don't remember hearing a click... Damnit!"
Answering "yes" to numbers 1 through 3, indicates you lack what MarketPsych calls Emotional Equilibrium©: "The mental balance that comes from feeling positive – or at least “okay” - no matter what the Market does."
(Answering yes to #4 indicates OCD tendencies, which are annoying, but completely different.)
Achieving Emotional Equilibrium © is crucial to healthy investing. Without it, we are perpetually at risk for all the classic mistakes that torpedo long-term performance.
The best way to begin the restoration process is with a Stabilizing Purchase ©, a small, largely symbolic entry position that achieves the following effects: 1) If the Market goes higher, you feel glad that you are making money. 2) If the Market goes lower, you feel glad that you have plenty of cash and an even better entry point.
An important note: Under no circumstances are you to stress over the performance of your Stabilizing Purchase ©. (Goes up? Fine. Goes down? Equally fine.) This investment has one purpose only; to smooth out the waves and stop the binary, whipsaw emotional pattern that wreaks havoc on your portfolio and sanity.
When it comes to the Stabilizing Purchase ©; remember the immortal words of North Star Camp Counselor, Bill Murray; IT JUST DOESN'T MATTER!!!
After you make your initial Stabilizing Purchase ©... make another.In no time at all, you will find yourself on the bus with all your friends sitting in of those oversized green vinyl seats. That queasy feeling will be fading in the rear view mirror.
Of course that school bus may get stuck in a traffic jam or get wedged beneath an overpass... but one problem at time my friends, one problem at a time.
"And hey… let’s be careful out there."
- Dr. Frankenstocks
Frank Murtha, Ph.D.
Co-founder of MarketPsych
As always, if you would like more information on behavioral finance speaking, training or consulting, contract us at [email protected]_