Today during work, I clicked on MarketWatch to see how the market was doing. It was down about 2%. The fear was nagging in me that my investments were in danger. This fear seems quite normal. As the market bounces up and down, you think to yourself: maybe this time the market won’t deliver. I have been suckered into a fools market before and suffer from anxiety producing self-talk.
It is this kind of self-talk that makes you sell into the teeth of a bear market to forever seal your losses. It is losing faith in “reversion to mean”, that eventually the stock market aligns to the growth in corporate earnings. Its departure from reality is eventually ended and it bounces back to the boring growth in earnings.
It is the unreasonable belief that the market is going to defy over a hundred years of documented behavior, and that this time is different. It reminds me of Sigmund Freud with “it, ego, and superego”. One part of our brain is screaming that we should be afraid of losing it all, while another part of our brain is telling us to chill and ride it out.
When the market is volatile, we’re required to reassure ourselves and talk ourselves out this panic. Human behavior and markets haven’t changed, and the stock market on average will continue to earn a boring 8-10 percent. Volatility is to be expected because other investors are like you and have to deal with “it, ego and superego”.
Earnings and company appreciation are the constant. If you can control your fear and point your face into the storm you, too, will be rewarded. However you have to win at “self-talk”. Do you have what it takes?
The Late Frugal