Fall in Love with "Deep in the Red Days"
What is your favorite color?
Mine used to be blue (though you probably thought I'd say Orange based on the colors of my website, which is a close second), and I mean ALL shades of blue. Ok, I admit for the most part it still is. Odd's are if you see me out and about, I'm in a blue shirt, or blue jeans, or blue socks, and maybe even some blue in my shoes. Thankfully my eye's are blue so I'm comfortable knowing I'm wearing it at all times, even if it's not in my clothes at the moment.
My mother's favorite color is red and will always be red. Christmas, Valentine's, and Mother's day are her favorite... shocker. She stock's up on bags of "only red" M&M's during these holidays and can't wait for those dozen red roses. As a child, if for no other reason than to be the son that rebelled against his mother, I hated red. I wanted nothing to do with it. I always thought about devils with big spiked horns and Vampire's. Once, I was bowled over by my pet goat, Frankie, who had decent sized horns, and I HATE Vampires... so red just wasn't my thing. Besides, I enjoy the calm, ocean like feeling of blues and greens.
But, if you asked me today what my favorite color is, it is now and will forever be red. If you answered any differently and you plan to be an investor, or wish to learn the truth of "When to Buy" and "When to Sell", I strongly suggest you fall in love with it too.
All too often we as humans succumb to emotions and temptation to wait until things are better before we act. We need confirmation, or perceived confirmation that a particular situation is resolved and a signal that "all things are good." It's been hardwired in us through thousands of years of fighting, chasing, and being chased by hungry bloodsucking creatures. Just like fisherman who long for the calm of blue waters and full nets, market participants fall all over themselves on those joyous "Green" up days. It's human nature. These events help confirm, or rather make us feel as though every thing is getting better...
It's these "feelings" that get in the way of sound, principled investing. I'm sure you've heard it before, but if everyone is bullish, then who is left to buy? Bullish sentiment reading's jump when we see string's of green up days in the markets. Heck, sometime's week's or months go by and 90% of the days closed up. It is precisely these time's where instead of gloating (inside or out, doesn't matter) about the increases in your investment accounts, you should be looking for hedges, trimming positions, or selling outright. Take a look at the image below. It sums up the layman's investor sentiment perfectly.
If you look in the center of wheel, you will notice the absolute best time to buy coincides with the face of sheer agony. That same block is colored deep red (notice where typical calm, favorite colors like blue and green reside). It is no coincidence that agony is colored deep red. Bearish market's produce some of the most agonizing drops, where virtually every stock on the screens are red.... DEEP red. It's brutal. Your mind panics and yells "Get out now!" or "Don't buy yet, are you crazy?!?!?"
It is at these moments one must embrace the deep red. If you don't love it, you will be doomed to fall in the age old trap of buying high and selling low, instead of the other way around. Now, if you try and fail to find comfort in red flashing on the screens, find a charting tool that allows you to customize the color's of ticker prices or candlesticks (TradingView.com is one such tool). At certain times of the year, when we endure these day's of extreme selling or my emotions seem to be getting the better of me, I literally switch the percentage change color's around to ease my emotions. For stock's that are going up, the prices are shown in red and prices that are going down are shown in green. I used to do this more often when I began the change from hating red to loving red, but at times, I even I need a refresher. Try it some time.
A friend recently told me he was making strides to not get caught up in bullish moves and make the top buying mistake. My response was fall in love with deep in the red days - buying the top is much harder if you do.
Oh, and I guess mom's DO know best.