On a day like today, as stocks plummet further below their November lows, its hard to blame investors for failing to be greedy when others are fearful, as Warren Buffett advises. Buying into this market would feel like throwing money into a meat grinder. Indeed, it may be enough of a challenge just to keep an even keel emotionally as portfolios tumble ever deeper into the red.
I agree with those who say investing is as much about character as it is about analytical capability. Character is about having strength in the face of adversity, of being able to hold onto what you believe in while others around you are losing their moorings. Its about following your own counsel regardless of the crowd view. Its about having perspectives such as the following:
1. Things are easier to endure if you maintain a healthy balance in lifestyle proper diet, fresh air, exercise, and other diversions. In Ottawa, a good two-hour skate from one end and back on the canal (worlds longest skating surface) does wonders for clearing the mind. So does a trip away somewhere where the activities are guaranteed to occupy you, like a visit to a cross-country ski resort in the Laurentian Mountains north of Montreal. Needless to say, checking your account and the pulse of financial markets every hour is not part of the prescription.
2. Using mental imagery techniques may help for example, envisioning what the stock market will look like three to five years from now. Chances are it will be more like the beginning or middle of the last bull phase, from 2002 to 2007. All this anguish will be a faint memory.
3. As mentioned in my column, Why investors get burned, realize we are in the phase of the bear market when all the doomsayers look like they were right and are getting major air time in the media. After awhile, they begin to sound plausible. The bottom in the market is four years away says one.Civil unrest in the streets says another. So like Ulysses, you have to tie yourself to the mast lest the Sirens song lure you into changing direction or jumping into the sea.
4. If the thought of having lost so much money wears on you or even keeps you awake at night, get proactive with making and executing plans for recouping some of the losses via application ofyour human capital. That is, you may be able to leverage your career training and experience more. Perhaps that might require spending less time on hobbies and more time in income earning pursuits.
5. Keep in mind the history of stocks markets. For example, the greatest rally in themarket occurred in the midst of the Great Depression, when the Standard & Poors 500 Index rocketed over 100 per cent during the three months from July to September of 1932. The second greatest rally also occurred during the Great Depression, in the 1933, the year after the first greatest rally.