Stops are getting hit everywhere. It’s time to celebrate.
If your stops got hit and you executed on your premeditated plan then then pat yourself on the back, breathe a sigh of relief and raise a glass to yourself.
Could we see a sharp bounce back? Yep.
Does it matter? Nope.
What matters is that you stick to your guns, follow a disciplined investment strategy and don’t look back. Take some money off the table. Keep some powder dry.
What you absolutely cannot afford to let happen is a total disaster. You’ve got to survive in order to thrive.
You know you’re arriving as an investor when you’re happy to take your lumps and wait for the next opportunity. Capital is finite. Opportunity is infinite.
Let’s face it. We are, at least in part, creatures of habit. This is particularly true in today’s world where everyone is so busy and overloaded with information. It’s very difficult to take the time to make thoughtful decisions.
Instead we look for mental shortcuts like, “When is the last time I had to make a decision like the one I have to make right now? What did I decide then and did it turn out good or bad?”
This is called recency bias. We don’t look at the big picture. We just look at the most recent events and try to use them as a basis for predicting the future.
If you’ve never read Robert Cialdini’s national bestseller Influence: The Psychology of Persuasion, you really owe it to yourself to do so. It’s about all the ways a fool and his money can be easily parted. Cialdini, like myself, realized that he was an easy mark and he wanted to understand why.
No less an investor than Charlie Munger of Berkshire Hathaway has cited it as one of the most important books for any human being to read… especially investors.
Recency bias is just one example of the mental shortcuts that we rely upon to make “expedited” decisions. Marketers and the media certainly understand this about us. It’s high time that we understand it about ourselves.
Investor, condition thyself.
Believe me, if you don’t do it, somebody else will.
Positive reinforcement of your good decisions is one of the best ways to make sure that the next time you have to make a quick tough decision, you’ll make the right one.
So if you stuck to your guns, give yourself a little inner fist pump. Heck, give yourself a couple of real fist pumps. You did it. You made a plan and you stuck to it. You’ve put yourself in the minority of elite investors.
Richard M. Smith, PhD
P.S. I’m sure that you’re interested in where the markets stand relative to our proprietary indicators so I’ve included some charts on the major indices and the SPDR Sector ETFs below. These are all as of the close on Friday, August 21.