Wednesday, January 13, 2010
Tuesday, April 28, 2009
Swine Flu: Don't Panic! (Seriously. Don't.)
In 2009 it's pork, bacon and ham. Once again, the world's tastiest creatures appear bent on revenge.
Yes, we have another potential pandemic on our hands, this one goes by the name of Swine Flu. And like most every medical scare, the response is all out of proportion to the facts as we know them.
Since Swine Flu touched down here in New York City, it's all people seem to want to talk about. And the media reports rather than dowsing fears, have predictably poured gasoline on the fire.
"New virus"... "no known cure"... "quarantines"... "stockpiling Tamiflu"... and now this "money quote"; "I fully expect we will see deaths from this infection." (Richard Besser, acting director of the CDC.)
A little perspective is called for here.
Yes, there may be deaths resulting from the Swine Flu in the United States. There have been 150 deaths (at last count) in Mexico.
But there are ALWAYS deaths from an outbreak of influenza. (Sad but true) How many? The CDC estimates that complications from influenza kill approximately 36,000 people each year.
Today I read "Fears of Swine Flu" were the reason the DJIA gave its gains back. If this episode seems like a repeat (perhaps of repeat of Quincy), it is. A few years ago it was Avian (Bird) Flu that captured the imagination of the media. It weighed on the necks of the world markets, like an infected albatross.
Let's check the stats on that "Superbug". In the last 10 years (according to the World Health Organization) it has killed 248 people (as of January of '09).
Look, I am not making light of Swine Flu. It has already inflicted horrible suffering on people. It is truly a killer and all out effort to combat it should be taken with the utmost alacrity.
But if people feared the mundane killers out there a fraction as much as they fear these inflated medical scares, they'd never leave the house.
My wife, (bless her heart) worries when I take a plane. "Let me know when you get you there, honey", "Call me when you get in", she says to me.
What I (wisely) no longer bother to point out is that the most dangerous part of my journey arrives after I get into JFK.
Flying is amazingly safe. So safe, that when something bad happens amidst the millions of flights that take off every year, it makes news. More than that, it IS news. Cars on the other hand...
You know what kind of flying isn't safe? Flying down the Long Island Expressway at night and weaving in and out of traffic on the Triboro bridge at 75 miles an hour, while your Russian taxi driver is screaming epithets at his girlfriend over the phone.
That's legimitately terrifying.
Turbulence? Piece of cake.
So let's not lose sight of the baseline here.
We have enough real economic indicators out there scaring us already.
Do we really need the Pig Flu torpedoing our rallies?
Friday, October 10, 2008
The Value of the Time Out
Wednesday, October 08, 2008
Pressure Valve: Letting off Steam
I did. I was in Boston driving down Boylston. I heard an explosion, checked the rear view mirror and what I saw looked amazingly close to the above photograph.
On one hand, uncertainty causes indecision.
But on the other hand, when we are anxious, we naturally feel a need to do SOMETHING.
The result of these two psychological forces work against each other until -- Kaboom! -- the pressure becomes too much.
It's a vicious cycle and it goes something like this: Do nothing (and suffer), do nothing (suffer some more), continue to do nothing (suffer to the breaking point) then PANIC!!! (do something rash).
It's a wealth killer.
We need a way to let off steam, so that the pressure doesn't build to the point of explosion.
Now, let it be said that we don't give specific advice to investors here at MarketPsych.
Nonetheless, there are some tricks that people often employ to relieve the pressure.
One of the best pressure valves we have is to sell a small percentage of certain positions to free up some cash.
This works on a financial level, but more importantly it works on an emotional level.
Why does it work?
1) It fulfills a deep-seated psychological need to do something, to take back control of our lives.
2) It creates something safe. It lets us know that at least part of the money that was at risk, is now safe. We have less exposure to pain.
3) It gives us freedom. We now have money that we can put to work on our terms. Emotional forces can no longer compel us to sell what will we have already willingly sold.
4) It's a hedge against regret. We all have the same nausea-inducing fears of regret: E.g. "The moment I sell, the market will bottom out" or "It's going to keep going down, and I'm going to hate myself for riding it to the bottom." Selling a small percentage mitigates this crippling fear.
5) It allows us to reframe crises as opportunities. We know that market panics create opportunities. The problem for so many people is they simply don't have the cash available to take advantage of those opportunities. The ability to engage other parts of our brain is another fear-fighting tool that helps put investors back on a healthy investing track.
How much is enough? 1%? 5%?... 20%? Only you can decide. Sit down with your advisor and see where you stand.
If you would like more information on our trainings, please feel free to contact us.
In the meantime... good luck out there.
Friday, March 14, 2008
Nice Call, Master Yoda
The MarketPsych Fear Index has seen an uptick recently.
One reason I believe it has meandered of late is that a critical and catalyitc component was missing: The appearance of a nightmare scenario that the individual can; 1) experience viscerally, and 2) consider credible.
The Bear Stearns news today presented just such a scenario, and it sent a shockwave of fear through the markets.
We simply do not live in a world where "Modest CPI Numbers" can compete with "Wall Street Institution Imploding Overnight" in a market-moving contest.
If it sets off a "fear cascade" (think dominoes), we may just see Market Panic make it's first reappearance in years.
Getting my cash ready now...
Thursday, February 07, 2008
How To Scare the Pants off an Investor
(Actually, I find all Barbra Streisand movies utterly terrifying... perhaps that's a bad example)
First off, ditch the math. The odds of experiencing a loss don't scare people; it's the amount of that loss that scares people. This is the first crucial step toward sewing fear. Ever seen that show, Deal or No Deal? (e.g., I know my odds, but I could lose a guaranteed $300,000). It illustrates the difference beautifully.
Wednesday, November 07, 2007
THE EROI (Emotional Return on Investing)
Recently I sold half of a position (large drug company) that I had held for 5 years. Did I have a good reason? Not especially. I figured that as a solid company it was wort owning - I just didn't need THAT much of it.
But - as is always the case with Whack-A-Mole Syndrome (TM) - it immediately started to move up. In fact, it almost seemed that the stock had become aware that I had sold it and used that information as the catalyst to move up 3 percent over the next two days.
Then something weird happened; I found myself rooting against it.
As a rational, self-interested being I was struck by this reaction. After all, since I still owned the stock, every move higher was making me money. But every move up was also a stinging rebuke of my in retrospect completely arbitrary decision to dump half my shares. This resulting conclusion was inescapable; I literally found myself wanting to lose money.
Why would an investor ever want to do that??
It's simple. We invest for an emotional return that more important even then the financial return. In fact, money is never the goal of investing. It is the means to the end, a currency that buys us emotional states (e.g., feeling safe, feeling proud, feeling free).
Unfortunately, sometimes our emotional goals and financial goals are imcompatible.
Being aware of our secret reasons for investing The E.R.O.I (Emotional Return on Investing) is what helps us overcome our psychology and navigate through the emotional mindfield of equities investing.
Are there any times you felt yourself actually wanting to lose money? Feel free to post a response.
In the meantime, happy investing.
Oh! And check out Dr. Peterson's cool book for more great insights into how to become a better investor.