THE NUMBER ONE ENEMY OF ANY INVESTOR: EMOTIONS

If you are among the lucky and shrinking few who have lived above paycheck to paycheck, you may have noticed that 2022 has not been a good stock year. In fact, not only has 2022 wiped out most of the market gains so far, but it has wiped out over five years of stock growth for some companies. 

Most people try to sell and cut their losses; according to CNBC, that seems to be the primary source of falling stock price at writing (5/10), and they are just glad they bought high and sold not too much lower. This is a recipe for losing money in the stock market, and today I will reiterate lessons from David Lynch and Benjamin Graham to help you navigate this upset.

When you buy stocks, you have effectively invested in that company; you buy into a company because you trust that company. It is the fundamentals that you should be buying it for, not for any emotional sense. Even when the market is in turmoil, a good company will remain. This means the good company will recover when conditions improve, while a bad company may never recover the heights it reached when the market felt jovial.

When a price change occurs, you need to ask, “Why did that occur?”

There are two reasons: the fundamental evaluation has changed, or the overall market conditions have changed. In today’s market, we see inflation problems, thanks to wanton money printing of FED, the continuing pandemic, and the war in Ukraine. This, of course, had caused the markets to downturn until these problems were resolved. These issues are compounded by the retail investors, which is the fancy name for individual, smaller investors, selling their shares to cut their losses—plunging the markets even further.

Benjamin Graham likens the market to a madman who comes to your office whenever you open your stock account and tells you the price he will buy or sell a piece of the company. At times, this madman is fearful; a good investor buys these companies at lower values than they are fundamentally worth. When the madman is greedy, he believes and sells them at higher levels than they are fundamentally worth.

This naturally makes you think that you may be able to time the market right and buy when it is low and sell when it is high. Sadly, there is little way of knowing how the market will react to a particular news piece, but it certainly always comes around. For intelligent investors, now is the time to buy what they can and hold what they have.

Otherwise, you fall into the #1 enemy of any investor: Emotions.