Finding Bravery to Buy Stocks in a Falling Market

“Who said I wasn’t scared? Kid, if you ain’t scared when a crocodile is biting you in the face, you ain’t alive!”
– The Good Dinosaur

Buying stocks can feel so hard right now. I was reminded of how hard it can be when I watched the movie The Good Dinosaur.

In the animated movie, the timid dinosaur Arlo was in awe of his much larger friend, a T-rex, who survived a bite from a crocodile. Arlo had assumed that it was an act of bravery to escape the crocodile’s jaws. But, his T-rex friend quickly retorted that he wasn’t brave – he merely acted despite the fear he was feeling.

For a large T-rex to admit his own fear, it was quite an enlightening moment for the pint-sized Arlo.

Fearful places

As an investor, the good news is that the stock market doesn’t quite require you to survive a crocodile biting you in the face (phew!). But, the stock market can still look like a scary place, especially when share prices are falling.

With a few trading days left for 2015, Singapore’s market barometer, the Straits Times Index (SGX: ^STI), looks set to end the year on a negative note. As of yesterday, the index sits at 15% below where it started off for the year.

Judging from the lower stock prices, the courage to buy might be in short supply.

Can we be emotionless investors?

If the T-rex in the movie is any indication, fear can often- and rightfully – engulf even the best of us. But, do great investors suffer from amplified emotions as well? Author and journalist Jason Zweig shared his thoughts about the matter:

“What the great investors are … is that they have a higher form of rationality. Which is they can take emotion and turn it inside out. This is what [Warren] Buffett talks about when he uses the famous line about – ‘be greedy when other people are fearful and be fearful when others are greedy’.

But it’s harder than it sounds.”

So, are we able to learn to be less emotional when the markets are down? Zweig continues:

“Can people learn that?

I think you can put policies and procedures into place as you try to manage your investing life. Think about people with addiction problems. If you were alcoholic, you would be crazy to walk past the tavern [a place with alcoholic beverages] and say that ‘I will demonstrate the willpower NOT to walk in’.

You can’t do that. And you know you can’t. So, you walk on the other street.

And that’s the kind of governor that people need to put on their behaviour. If you know that you have self control problems, you have to structure your life so that the things that tempt you into bad behaviour don’t get surfaced in your stimuli.

And that is very easy for investors to do. If you know that you have a tendency towards hyper-reactivity to red arrows pointing downward on stock market displays, then turn that website off. Unfollow that person on Twitter.

Follow people who take a longer term perspective and are unrattled by this kind of thing. Improve your mental hygiene. You can’t turn yourself into someone who is unemotional but you can turn down the amplitude of your own emotions if you choose what your exposures are.”

I agree with Zweig’s thoughts.

It’s not to say that all falling stocks are worth buying. But investors are able to help themselves in a falling market by identifying their source of fear and find ways to turn the volume down on that particular source.

If the fear is due to the lack of cash on your side, keep a cash cushion. If the fear is of seeing falling stock prices, then stop checking daily stock price movements. Simple actions, as Zweig alludes to, can do wonders for your investing temperament.

With a rational mind on your side, you stand to make better decisions. And remember, it’s okay to feel fearful – just remember to act (invest) in the face of that fear, just like what our friend, the T-rex, has showed us.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.