Coronavirus fears are gripping the globe.
If you’ve reaped larger than usual losses this past week, know that you’re not alone.
I too have, and many others have.
This is a good reminder to never be complacent in the market. Nothing trends in one direction forever.
If you’ve been following me for a while, you know I advocate being strict with risk control by using conservative position sizes at all times and taking small losses.
Risk control is what saves your butt when the music stops.
What we are seeing across the board is fear. This is a great opportunity, but most people will miss it because they’re locked in a certain narrative and state of mind.
As painful as losses are (small or large, they all suck) now is not the time to get into self-defeating mindsets.
While people are losing their minds, I urge you to stay rational and ready because this is when fortunes are made in the blink of an eye.
From now, the SP500 could easily drop another 20% or more.
But, in the long term, I remain bullish on stocks for two main reasons:
- The current monetary policy – the U.S government is bent on propping the stock market, and despite not being a fan of printing money, I also learned not to fight the Fed.
- Disruptive technologies – Blockchain, DNA sequencing, new energy storage, robotics, A.I…I believe those will transform the economy and keep the bullish momentum in stocks despite short retracements here and there.
So, hopefully, you haven’t blown up your account this past week and still have ammunition left for what’s to come.
This current bearish phase will eventually pass and you’ll get be to trade/invest in high-quality stocks at discounts.
In the meantime, if you’re not comfortable trading this market (snappy, volatile markets are vicious!), just sit back, wait for the dust to settle, and be ready for the low hanging fruit.
Do what you have to do to maintain a sober mind. Be flexible, patient, and have a plan ready.
And about this past week’s losses. When seeing a loss, especially if it’s bigger than expected, the part of your brain responsible for watching out for danger and reacting (the amygdala) tends to hijack your other brain functions.
This turns off the part of your brain responsible for thinking and executive function (the prefrontal cortex), and the result is that you just can’t think rationally anymore — your mindset is compromised.
So, if a recent loss is lingering in your mind and causing emotional pain, maybe invest in a thought journal.
Getting things off your mind and on paper will help you make peace with past events.
Meditation also helps. You know the drill.
Meditation won’t necessarily make you feel good when you’re feeling bad.
What meditation can help us do (hopefully) is to recognize the fact that we often ‘feel bad about feeling bad’, and that makes us feel even worse about the situation we’re in.
Meditation gives us an opportunity to sit and face very difficult feelings instead of trying to run away from them as we usually do.
So, we sit, observe our thoughts, and fully experience the characteristics and texture of our emotions.
That way we can stop ‘beating ourselves up’ emotionally for being the way we are at any moment in time.
We’re present and attentive to what we’re feeling. In doing that, we’re less caught up in the storm and are better able to think clearly.
Remember, if you can maintain a more stable mindset no matter what happens in the market, you’ve won 90% of this game.
Trade and invest wisely, my friends.