Dr. Hendlin -- I'm stuck in psychological bear country! Having suffered losses (along with many others) because I continued to be optimistic in the face of a downtrending market, I have psychologically changed into a bear, finding my belief in stocks going down far stronger than I can ever believe a stock will go up. Hence, I am extremely hesitant to place money toward a stock that's rising. Thus, I miss half the market moves. While I am comfortable with the knowledge that I am a bear, I am appalled by my lack of flexibility, or perhaps appalled by my fear of rising stocks. Any suggestions? -- D.S.
You are not alone. Many investors and traders are having trouble shifting their mind-set from the expectation of a continued downward trend to the beginnings of an upward trend. Inherent in this "bear mind" is an underlying fear of further loss and an unwillingness to take risks that you've previously learned will cost you money and pain. Furthermore, you no longer trust that the trend can really change. Not so surprising, is it?
Bear in mind
that this is to be expected after the severe and merciless pounding the market has taken for close to two years. Your lack of flexibility is not really "appalling" when viewed in the context of your mind's simple adaptation to protect you from further risk and loss. It is especially understandable given that every short-term rally only served to ultimately disappoint investors further. No wonder so many ended up
It is a nimble and risk-taking trader who can quickly make the change in mentality at the early signs of trend reversal. Why? Because it calls for a rather sudden altering of assumptions and beliefs -- as well as a partial leap of faith -- that goes against the grain of how we develop attitudes. Think of an attitude as a fixed position slowly established and reinforced over time. Interestingly, some traders with
attention deficit disorder actually claim to have an advantage here, in that they are less firmly attached to trend attitudes and more able to react to what is presented to them in the here and now.
Worldview and Mental Flexibility
If you listen to analysts, experts and fund managers giving their views in the media, you will notice at least three varieties: those who have significant trouble making the mental shift from a bear mind to a bull mind because they refuse to believe it or have a stake in continuing the downward trend; those who move begrudgingly with the change in trend as the positive signs increase but are not enthusiastic and play both sides of the fence; and those who anticipate the change, eagerly embrace it and are committing money to it while most others are still dragging their (mental) feet.
My point is that when you are listening to individuals discuss their view of the market, their personality and worldview should be taken into consideration. Some are much more conservative, tentative and pessimistic than others -- not only in their views of the market, politics, economy or the future, but in all aspects of their lives. And others will tend to be riding the wave of change just as it is forming but may "pull out" of it because the wave never gets fully shaped. Personality and worldview don't change easily, so it's always a good idea to assess them when you can.
Now, back to the practical matter of helping you change your mind-set. Here's the assumption:
First, change your behavior and your attitude change will very likely follow.
Here's what you can do to change your bear mind: Take a few very small positions in stocks you believe will go up. For the sake of making this attitude change, it doesn't matter if it is only a token position, like 10 or 20 shares. You need to get back to seeing that the stocks you choose can go up
and stay up.
Hold them only long enough to make a small profit. Then do it again with a larger number of shares. Assuming you can make a small amount by playing the upside, this exercise will help you slowly regain the confidence that it is safe to abandon your bearish stance. Also, make sure to allow into your mind news that supports the change.
Depending on the severity of the losses you've sustained in the past two years, again
bear in mind
that it may take you a while to believe that a trend change is actually occurring. So don't push yourself too hard. As I've written
before, better to err by missing some of the upside movement than to once again believe that you can ride the newly forming wave, only to get caught in the undertow.
Steven J. Hendlin, Ph.D. is a clinical psychologist in Irvine, Calif. He has been in private practice for the last 25 years, investing for the last 20 years, and actively trading online as a swing trader and long-term investor since 1996. He is the author of
The Disciplined Online Investor
recently translated into Spanish. He is pleased to receive your comments and questions for publication in his public forum columns at
firstname.lastname@example.org, but please remember that he is unable to provide personal counseling or psychotherapy through the mail.
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