Right Idea… Wrong Question
Happy Fourth of July Weekend!
I’m Keith Fitz-Gerald, Chief Investment Strategist for Money Map Press and Founder of Total Wealth Research.
I’ll keep things short today because I’m keen to get on with my holiday weekend, and I hope you are, too.
Right now there are a lot of people asking what could go wrong with the markets, and that’s logical, given the headlines. The list, of course, is long but hardly distinguished.
There’s China, Russia, the Middle East, domestic politics, fears that the bull market is running on “too long” whatever that means… going on would be moot.
Studies show that trying to guess what happens next is a fool’s errand. In fact, Barron’s research years ago showed that as much as 85% of all Buy/Sell decision were wrong; meaning investors bought when they should be selling and sold when they should have been buying 85% of the time or more.
Psychologists believe this is because most people would rather be part of a herd than strike out on their own – get this – even though they know better.
Leaders are the ones who make profits year-in, year-out in all sorts of market conditions while the ones who follow the “headlines” are more likely to get separated from their money.
Take the Dot.com crisis, for instance.
Savvy investors – the leaders I’m talking about as being examples you want to follow – began taking ownership in 1994, 1995, and even as late as 1996. The masses, on the other hand, didn’t grasp the rally until mid-1998, or even 1999, right before the market blew out.
It was the same following the Financial Crisis a decade ago. Really sharp folks – including many members of the Money Map Report and Money Morning who were on board at that time – started buying in earnest in late 2008, and even early 2009. The herd didn’t pile into markets until nearly a decade later, when FOMO took over and after the S&P 500 had nearly tripled.
Unbelievably, many still haven’t reinvested which means they’re missing out and have cost themselves tens of thousands, even millions of dollars in lost profits.
Incidentally, if you’d like to read up on where stock market psychology and pricing intersect, click on this link and you’ll be taken to a great primer on the subject from Stanford Business.
I think it’s absolutely worth a few minutes of your time given today’s market conditions because this research will help you understand why people care more about perceived changes in financial wealth than absolute value. It will also help you gain a better understanding of why most investors are more sensitive to loss than to gains.
And, of course, how to use that information to rack up huge gains.
- Market psychology has more to do with finding big winners than avoiding big losers.
- Asking what could “go right” could uncover some spectacular profits.
- What prospect theory has to do with it all.
Until next time,