) -- As I pointed out

in my last article

, there is a palpable anxiety afflicting investors who haven't benefited from this year's rally. Based on market action during the first two days of this week, it's clear their worries are overpowering those of investors who want to protect their profits.

Those who have been on the sidelines are now in a process of capitulation. They see the

S&P 500


Dow Jones Industrials

(^DJIA) and


(^IXIC) rising and they say: "I can't take this anymore!"

If you find yourself in this situation, heed my warning: If you buy stocks now,

there is no hope for you


Also see: Gold Is Poised to Crash >>

Investing Is a Craft That Requires More Emotional Than Logical Resources

Let me be clear: Stocks will probably rise further from current levels.

Stocks are not expensive now; they are actually well within ranges considered to be "normal" by historical standards, if we look at price-to-earnings ratios based on trailing earnings, forward earnings and even properly constructed estimates of normalized earnings. In addition, despite some recent hiccups, medium-term economic fundamentals in the U.S. are actually improving, and the economy could be growing by over 3% by the end of 2013.

Furthermore, most technical indicators suggest that the market is in the midst of a prolonged uptrend.

So why do I say that there is no hope for sidelined investors who buy stocks now?

It has nothing to do with their analysis of fundamental or technical indicators. It has to do with their emotional endowment.

You see, successful investing is not just about the ability to rationally analyze fundamental and technical indicators. Success in investing has more to do with certain emotional traits and skills. For example, the ability to: A)


sell when seemingly everybody else is selling and every fiber of your body is screaming at you to sell whatever you can before it is too late. B)


buy when seemingly everybody else is buying and every fiber of your body is screaming at you to buy before it is too late.

If you have been on the sidelines for all of 2013, you are currently being put to a test. You are experiencing the situation described in point B above, and you can hardly stand it.

However, if you cannot pass this emotional test, if you cannot resist the urge to buy, you simply have no business investing in stocks at all.



If you cannot emotionally take "not making money," then you will definitely never be able to handle the moments when you will be losing money (a situation that is totally inevitable). Because the psychological distress from prospective a loss is far more intense than the distress caused by foregone gains. If you can't take the latter, then get out of the kitchen because you certainly cannot take the former.

Also see: Prepare for Bank Runs in Europe >>

If you're an investor/trader who has been sidelined of all of 2013 and you can pass this test, then there is hope for you. There is lots of hope, in fact. Because the laws of human nature and markets are such that investors

TheStreet Recommends


get a second, third, fourth and fifth chance. For as long as financial markets exist, stocks will go up and down. They will become expensive and cheap. Therefore, there is

absolutely no doubt that you will have another opportunity

to buy stocks when they are down and cheap. Today is


the last day that stocks will be at these valuations. In fact, it is guaranteed that no matter how high stocks rise from here, valuations will eventually be lower than they are today. You can bank on that.

What If You Are Already Long?

Conventional investment advice would be that, when making investment decisions, it should make no difference whether you are already long or not. If stocks are attractive based on fundamental or technical indicators, then investors in cash should buy stocks, while current owners of stock should hold.

But the conventional wisdom comprehends very little about the role of emotions in investing. People who are currently on the sidelines are simply not in the same situation, from an emotional point of view, as people that bought in 2012 or before. Therefore, giving these two sets of people with different emotional situations, the same investment advice is a mistake.


The person who has been on the sidelines this year simply needs to accept that he did not catch the big up move in stocks and index ETFs such as


(SPY) - Get SPDR S&P 500 ETF Trust Report


SPDR Dow Jones

(DIA) - Get SPDR Dow Jones Industrial Average ETF Trust Report


PowerShares QQQ Trust

(QQQ) - Get Invesco QQQ Trust Report

. That is history. Now they really need to step back, take a deep breath and focus on capitalizing on the next opportunity that will present itself, because there will be one.

So do you feel that you are at the station and that you just missed the train to gains on Wall Street? Don't worry. Go over to the concession shop, pick up a book and have a nice cup of tea. The next train leaves in 22 minutes.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

James Kostohryz has accumulated over 20 years of experience investing and trading virtually every asset class across the globe.

Kostohryz started his investment career as an analyst at one of the US's largest asset management firms covering sectors as diverse as emerging markets, banking, energy, construction, real estate, metals and mining. Later, Kostohryz became Chief Global Strategist and Head of International investments for a major investment bank. Kostohryz currently manages his own investment firm, specializing in proprietary trading and institutional portfolio management advisory.

Born in Mexico, Kostohryz grew up between south Texas and Colombia, has lived and worked in nine different countries, and has traveled extensively in more than 50 others. Kostohryz actively pursues various intellectual interests and is currently writing a book on the impact of culture on economic development. He is a former NCAA and world-class decathlete and has stayed active in a variety of sports.

Kostohryz graduated with honors from both Stanford University and Harvard Law School.

View Kostohryz's LinkedIn profile and connect with him


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