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No matter how much research I do, no matter how well thought out my decisions, or no matter how strong my commitment, the market has a mind of its own that often runs contrary to my wishes. Oh, I'd like to control it all right. But I have as much chance of doing that as I do in winning at bowling.
I've never been known for my skills with the ten pins. I find the lightest available ball that doesn't devour my fingers for lunch and proceed to the starting line. Taking a deep breath, I wind up in my best fantasy of what a bowling technique is, only to clumsily drop the ball in a forward motion towards the pins, which have a moment of hysterical laughter contemplating my chances of ever actually touching them. Then my coup de grace -- I frantically twist my body in an attempt to direct the ball so that it might hit a pin or two. My technique is a lot of sound and fury, signifying gutter balls.
I don't have the mind-set that I can succeed in bowling. (And with good reason.)
A mind-set is a mental attitude or inclination that can contribute to success or failure at accomplishing a goal. A positive investing mind-set can help us adhere to our principles through times of market volatility and short-term setbacks. With a long-term view to guide us, setbacks enable us to learn from our experiences, helping us to develop new mind-sets to cope in the future and stay the path.
For example, a novice investor reads our "13 Steps to Investing Foolishly" and begins building a portfolio using an S&P index fund and the Foolish Four. Then, confidence increases, research ensues, and the portfolio is expanded to include individual stocks. One day, the well-researched stock with the stellar future announces that it'll miss earnings estimates and drops 20-50% in one day, like Gateway and Lucent recently have done.
What's an investor to do?
If you have a positive mind-set, a long-term vision, and confidence in your reasons for choosing the company in the first place, a rational decision can be made. Learn why bad times have fallen on the company. Circumstances outside their control? Poor management? Unanticipated market shifts?
Then, identify steps the company is taking to remedy the problems. Is management aggressively stepping up measures to ensure this doesn't happen again? Are the circumstances political or economic and likely to be less influential in the long-term? Or is the company simply in deep doo-doo?
Whatever the reasons, you must then decide what steps you'll take in the overall context of your portfolio. But you will need confidence in your decision, and the assistance of a positive mind-set to help lead the way.
The first time a stock I owned collapsed in one day, I panicked. And sold. If a stock wounded me so deeply, I never wanted to see it again. Out, out, damn spot! Unfortunately, this Lady Macbeth acted prematurely as management took measures to rectify the situation. Had I the mind-set and confidence to believe in myself and my research, my portfolio would have been the beneficiary of a tasty return.
The second time a stock I owned tanked, I got sick to my stomach. I believed strongly in the company, but the market saw fit to send it to a nunnery. I studied all the data and decided that the pundits were wrong and overreacting. So I held. Because of my first experience, my Foolish mind-set entertained the possibility that the market could be wrong and I could be right. As a more mature investor, I was able to focus on the future, and not be pushed off the course by a short-term panic. The jury is still out on this one.
The third time a stock I owned tanked (and I sure hope this isn't getting to be a habit), I just took a deep sigh. To sell or not to sell was never the question. I'm still studying the circumstances of the drubbing and contemplating my future relationship to the company. However, because I've developed a positive mind-set about my investing savvy, which includes analyzing the company's future 5, 10, or 20 years going forward, I am less likely to sell unless there are serious unrectifiable problems with the company.
The challenges to having a positive Foolish mind-set are plentiful. The Foolish Four is currently being re-evaluated, causing a flood of doubt. Investors wonder if it's a viable strategy for them. At the same time that the Rule Maker Portfolio releases the method, the Retiree Portfolio embraces it.
Fools, there will always be two sides to every coin. Set your mind on your goals, develop your strategies, and don't let other people's opinions sway you from your philosophies.
Having a positive mind-set has made me a better investor. As for bowling -- all I know is that the shoes are really cute.