It’s the Fear, Stupid

• Posted by Derek
• on September 9th, 2011

I know we hear about fear and greed, and the “slope of hope” and “wall of worry”.  I personally think these are all different ways to express the real emotion…fear.  Consider the following:

1) Greed- isn’t this just the fear that we might leave a huge profit on the table?

2) Hope- isn’t this just the fear that we’ll take a loss that then reverses into what might have been a gain?

3) Worry- isn’t this just the fear that our gain will evaporate into a loss?

Perhaps beginners experience the raw “greed” and “fear of loss” emotions that are perpetuated by the financial media.  But once we’ve been through a few rounds with the market, our mental database becomes filled with instances where we regret not having made the timely decision to enter or exit.  In my opinion, this is what drives the market’s swings…NOT the simplified version that money is the driver of our actions.

I think the Carolina Panthers drafted Cam Newton #1 because they feared years of looking stupid if he turned out to be the superstar he was at Auburn.  The rational move(trading down) may not have been an option, so with the spotlight on they took a guy rated in the teens on most draft boards.  Football coaches punt on 4th and 2 because they fear the regret they might experience if it doesn’t work out.  President Obama gave a speech on jobs not because he was chock full of great ideas, but because he feared the fallout from just sitting on a floundering economy.  He would have gained more respect by acknowledging the massive structural and demographic shifts that no one short of the Almighty can fix overnight.

Steve Jobs showed no fear in building $AAPL.  Jeff Bezos showed no fear in building $AMZN.  Bill Belichick shows no fear running the Patriots.  Michael Bloomberg shows no fear running New York.  Like these guys or not, these are rare folks who see right through fear and regret.  For the 99% of us who don’t, it’s critical to create blueprints that acknowledge our own fears yet see the potential in handling them better than the competition.  Besides liquidity, the advantage private traders have over fund managers is as simple as having only one’s own reaction to consider.

Measuring, writing, and the use of options helps me get through most but not all of the fear.  The common element I seek to emulate from winners boils down to one thing…a complete commitment to process.  I’m sure there’s some psychology here about transferring the emotion from ourselves onto the “system”; whatever it is, we can all use every tool of fear-busting we can find.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus