1) There is always, always, always something to fear when to comes to the stock market. Fear is good because it’s the fear that creates opportunities. Rather than avoid fear, you should welcome it. It is in the grip of stock market fear and exuberance that the most money is made in the shortest timeframe.

2) When fear starts, we perpetuate it. Fear is great for us, for the financial media, the brokers, the financial planners, the fund managers, for financial advisers, in fact it’s great for the whole finance industry. Why? Because fear triggers insecurity which drives investors to us. Fear is the sheep dog of financial services. It rounds up the sheep so we can shear them.

3) Fear is a powerful magnet. It attracts eyeballs and in a competition for clicks, when investors are at their most fearful, the clicks and eyeball numbers explode. Everyone wants advice and we will provide. Advice is a Trojan Horse for commercial purposes, much more effective than common cheerfulness.

4) Fear creates the lows, it creates the best opportunities and for the finance industry, it is gold. Whether it is a broker looking for an order, a media person looking for attention, or a financial planner looking to convince a client that they need them, fear gets more traction than optimism. Fear gets attention.

Approach downturns with the intention to exploit everyone else’s fear.

So when the stock market drops 5% in a day there are a few things you don’t do. Don’t join in. Fear makes you vulnerable as an investor. It distorts your normally objective state of mind. If you get fearful when the market loses its head, you become part of the herd. Far better you recognise it for what it is: an emotional ‘moment’ in other people’s minds. Rather, think about how you can exploit it. It will vary depending on the sort of investor you are and the sort of risk appetite you have.

When the market loses its head in fear, don’t join in.

• Stay cold, objective, logical. Look down on the fear. Emotion will not help you, it will cost you.
• Accept what your shares are worth now. Don’t dwell for a moment on the highs and how much you were ahead. The highs are gone and there’s nothing you can do about it. Anchoring yourself to yesterday’s prices will deliver nothing but regret and a feeling of stupidity. Look at the bottom of the spreadsheet. That’s what you’re worth. Accept it.
• Take 10 seconds. Tiger Woods says you are allowed 10 seconds to express your emotion after a golf shot, but that’s all. Take 10 seconds. It’s good for you, but there’s nothing to be done about the past now. Time to move on and decide what to do next.
• Take an informed guess at what you think is going to happen next. The only thing that matters is what’s going to happen not what has happened.
• Get excited. The market only presents great opportunities occasionally. One is coming. It is from moments like these that quick money is made.
• Identify the core issues. I identified the core of the issues for the recent correction. Macro stuff. In this case inflation, interest rates and the fear of a U.S. recession, with a sprinkling of China lockdowns and Russian risk.
• Decide if it’s a blip or a trend. I made an assessment of whether the main issues are likely to persist or turn on a sixpence. I decided this time they were more likely to persist.
• Do something or decide to do nothing. Understand that no-one knows. Do your best. Just decide and live with it. Accept the outcome right or wrong.
• Take it day by day until the bottom. Now the game is to watch and wait for ‘Peak Fear’. The market will bottom one day. It could this week or it could be in a year. You must take it one day at a time. Wake up every morning and react. There’s no predicting it. I know I’ll make more money in the recovery from the bottom, and more quickly, than I lost in the last few days. If I can get it right, it will be fabulous.

Embrace the fear.

Welcome corrections and other people’s fear. The most exploitable moments of the market are the fabulous exponential, irrational, exuberant bits at the top and the most fearful, despondent, capitulations at the bottom. They are the bits, the extremes, the opportunities, that make the market worthwhile. Those extremes, those moments of stupidity, absurdity, farce, ridiculousness and nonsense are brought on by other people’s irrational fear and irrational exuberance.

You should expect them, look forward to them, and use them, not avoid them.

A good investor watches and exploits the herd. Let that be you.

Source: Morning star by Lasinna Fernand on 10^th October 2022