Fear of Investing

Is fear holding you back from making a decision to invest? The challenge is all the news seems to be focused on the negative. The media instills fear as it jumps on these points and beats them to death. CNN’s famous around the world in 30 minutes. That means that 48 times a day they are telling the same stories and 90% of them are negative. Imagine the impact on your psyche. CNBC, FOX Business and Bloomberg are doing the same thing with the financial news. Web pages have headlines, and if the markets move enough the general news channels have headlines. No wonder volatility in the market is a daily occurrence. You, the investor, have to deal with all this noise in order to accomplish your goals for investing.
Step back take a deep breath and ask yourself:
Do I have a goal for this investment? Visualize it.

• How specific is the goal? The more specific the better.
• How clear is it in my mind?
• How do I intend to reach it? What needs to happen?
• What discipline do I need in place? Entry, stop, target, etc.
• What obstacles are in my way? Fear, Greed, etc.

In the case of investing use your emotions to lead you to success versus defeat. Fear is one of the most intense emotions on the planet. It doesn’t have to be in control, it can be used to push you forward. One key element of fear, that is a positive, is the awareness it creates both mentally and physically. It creates focus and leads to action. Good or bad it will lead to action. You need to use it to take positive action versus negative reaction. If you have done your homework (research) and you are confident in your decision, take action. In other words be proactive based on your knowledge and plan. Even if it doesn’t work out, you know that you tried based on your knowledge at the time. If an investment doesn’t pan out according to your plan, use it to learn. The learning from doing is more powerful than learning passively. Emotions of doing are a powerful teacher. Without a plan the mistake can create paralysis next time around. The fear of experiencing the same thing all over again will keep you from putting your money to work.

Now is a difficult time to invest due to all the negative news. Headline in the USA Today newspaper read, “Where’s the bottom? NO end in sight!” The date was October 10, 2002. The Dow closed at 7,286, coincidentally that was the closing low as the market moved into a five year bull rally with the Dow hitting a high of 14,093 on December 12, 2007. There are similar headlines in the newspaper and on the news today. So it would seem history teaches us when everything is doom and gloom it is the best time to start looking for what to buy. On SectorExchange.com we are in the process of building long term positions in various sectors. Why? For the simple reason no one knows where the bottom is and if we look forward five years the question is, “Will it be higher than it is today?” The best answer would be “Yes”. Therefore, after pulling back to a recent low of 11,740 the outlook longer term is for a bottom to be formed. Our goal is to ladder into these positions through dollar cost averaging and not trying to pick the bottom. In other words, we have a strategy on how we are building these positions. We have a disciplined approach and that takes the emotions out of the decision process. For the last 25 years this approach has worked more times than not which gives me confidence versus fear. We also know with the proper stops in place our downside is protected. In other words we have done our homework, set in place a disciplined strategy, and we are following the strategy based on past experience. This takes fear out of the picture, or at least puts in the corner where it can be monitored and dealt with when it tries to come out.

I saw an article on “Post Traumatic Trade Syndrome” recently and at first I thought it was a joke. Then I realized as I read it that there really is such a thing and psychologists have studied the impact on investor’s psyche. The basic cause of this stress is when individuals trade without experience, plans or a strategy, and stops to prevent excessive losses. While I am not a psychologist by trade, I can tell you more times than not that when individuals have an innate fear towards investing one or all of these events have taken place at one point in their lives.

Don’t look back on the current opportunities in the market and say “if only”. Turn those into “I did” by approaching the market with a disciplined strategy to accomplishing your goal. You have everything you need to achieve your desired objectives. If not, take the time to learn, but experience is the best teacher. Get the experience you need by putting yourself out there to learn and develop a disciplined strategy that works for you. You’ll be glad you did.