THE LATEST DISEASE TO AFFLICT THE MINDS OF INVESTORS
I can't blame any trader or investor for the behavior I am about to describe. It is, after all, inherent in the market's DNA to condition an investors mind into thinking a certain path is the only path possible before doing the exact opposite. At times, this conditioning takes a period years or even decades, causing the resulting market reaction to be that much more powerful in the direction of least expectation along the path of minimal participation.
The behavior that has become prevalent among even smart, experienced traders is that of attempting to search for peaks in a bull market instead of simply allowing the trend to work in their favor. More time and effort is being devoted to looking for reasons the current bull market is about to peak than looking for opportunities to profit from it.
Additionally, there is a disease of weak hands looking to throw their cards into the muck at the first sign of adversity. It literally takes no more than a couple percent on the downside to create such a stir among investors that they either begin selling short, liquidating positions or hedging exposure to avoid pain. This may explain the reluctance of the market to to down for more than a few weeks at a time. Sellers are too quick to show up, not allowing the market the firepower on the downside needed to result in anything substantial.
It is the job of both the trader and investor to work in the direction of the prevailing trend. You simply study the conditions, allowing your positions to work in your favor until you have adequate reason to believe the trend is changing. Adequate reason. A somewhat vague qualifier.
It seems that adequate reason has come to mean any market that goes down for more than a few days. That is all it takes. The market has fooled the vast majority into thinking that every hiccup is a replay of 2008. Or more recently, August of 2011. How many headlines did we see coming into August about a replay of last year? How many times last year did you hear about a replay of 2008 taking place? Investors and traders are feeling froggy. They want to jump at every shadow and light breeze that blows their way.
The brain washing at the hands of the market is complete and now you are being bent over for a wax. That is the essence of the what is occurring here. You have been conditioned, no differently than the bell ringing for Pavlov's dog, that when a market dips terrible boogie men are about to jump out from the bushes and eat you alive, starting from your toes. This conditioning will be what is behind a vast majority of investors missing out on bull market trends over and over again.
Bull markets are not born of comfortable environments that inspire confidence. They are born out of fear driven, psychological angst that doesn't allow investors to rationalize properly. They are born out of the susceptibility to negativity which just so happens to be prevalent at the start of every bull market. They are born out of the desire for cash and a disdain for equities, especially among the retail class. They are born out of mistrust for everything having to do with corporations and Wall Street.
Before you go selling at the first 1% drop in the market after a new multi-year high for the S&P, keep in mind that your mind is longer your own. It has been stretched, contorted and perverted by everything you have been digesting over the past several years. This realization is the first step.
Keep fighting.
