How You Relate To Volatility Matters

Since the early 1990s, the stock market has been quite volatile. There appear to be several reasons for that. Among them are these:

  • Technology is more volatile than traditional manufacturing. Obsolescence is in the short run, or at most the early intermediate term. When people relied on oil companies and large manufacturers for their investments, things changed more slowly.
  • People can trade directly using the many online services. Cheap and easy. Most of those traders are not professionals and are more affected by their emotions. Emotions may not start the swing in the market, but they certainly accelerate it.
  • Professionals can use modern medication to deal with their “fear, worry, and anxiety.” Prozac and its cousins allow positions to be less threatening with the result, the end game is much more dramatic.

“Fear, worry, and anxiety have useful roles to play in our lives,” Daniel Gilbert.

Forest fires

How like forest fire management. You need many small fires. If you deny those, you will have a huge one later.

The managed emotional approach is to understand the problems in terms of fear, worry, and anxiety. When you notice those, recognize you are conflicted. When things are working out differently than you expected, take stock. Don’t let your ego and your avoidance of recognized losses force bad decisions. Especially don’t deny your early warning system by using chemicals.

Some thoughts:

The first loss is the least loss.

“If you sell your winners at small profits and keep your losers in the expectation they will come back, you will eventually own every dog that hits the floor of the exchange.” Ira Gluskin

If you understood why you bought something, you can tell it’s time to sell when it’s characteristics change adversely. The keeping mistake usually is informed by poorly considered purchases. Good foundations make for easier decisions later.

Both being up and being down cause emotional turmoil. Sell ’til you sleep. Without the help of medication!

I help business owners and professionals understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.

Please be in touch if I can help you. 705-927-4770

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