The stock market can sometimes seem like a war zone. I have heard traders describe the stock market as being a “bloodbath”, when shares unexpectedly tank. I have heard them claim that they are being “killed”, when share prices fall precipitously. What about “death by a thousand cuts”? That’s when a share falls, falls again, then falls some more after that. They are, of course, exaggerating. Blood was never spilled. Nor did anyone suffer actual physical harm from buying shares. But their graphic description of blood and gore can, nevertheless, paint an unsavoury picture of investing in shares. It can…
The stock market can sometimes seem like a war zone.
I have heard traders describe the stock market as being a “bloodbath”, when shares unexpectedly tank. I have heard them claim that they are being “killed”, when share prices fall precipitously.
What about “death by a thousand cuts“? That’s when a share falls, falls again, then falls some more after that.
They are, of course, exaggerating. Blood was never spilled. Nor did anyone suffer actual physical harm from buying shares. But their graphic description of blood and gore can, nevertheless, paint an unsavoury picture of investing in shares.
It can give the impression that the stock market might be a perilous place to keep our money.
But that is unless….
….. We know exactly what we are doing, or more precisely, what we are buying or why we have bought a particular share, in the first place.
Sun Tzu, the author of “The Art of War“, said: “If you know both yourself and your enemy, you can win a hundred battles without jeopardy.”
As long-tern investors, we can learn a thing or two from the ancient Chinese general, just as many in business have learnt from “The Art of War“.
Wouldn’t it be great if we could buy shares on a hundred separate occasions without jeopardy?
Point is, we could.
Sun Tzu’s tactics have been adopted by both business strategists and tacticians. They have even been taught in business schools.
The secret is to understand ourselves and our enemies, if we are to win a hundred battles, without endangering our wealth.
But who, you might ask, is our enemy in the stock market? That’s easy.
Our enemy is not a “someone”. Instead it is something called volatility.
Our stock-market enemy is the sudden movement of share prices – especially when the shares in our portfolio drop unexpectedly.
Shares can surge higher as well as lurch lower. But we never seem to decry an upward share-price movement as being bad. We only condemn the stock market when our shares move down.
Funny that. Volatility works both ways.
Currently, global markets are largely being driven by the thoughts of one man, Donald J Trump.
The market hangs on his every word, regardless of how flaky his musings might be. And some of his ponderings can border on inanity. Mind you, some do make sense, too.
Every time the US president says anything that can be seen as dangerous and detrimental, traders respond in the only way they know how – they duck for cover. They ditch their shares, without even asking why.
But when Trump says anything that could be construed as beneficial, traders immediately pile back into the market. Again, they do so without even asking why.
That is not a good way to invest for the long term. It is not a good way to invest, period.
But it can be a good way to capitalise on market psychology.
Warren Buffet once said: “Investing is about the study of human nature“.
And we humans can be as predictable as night follows day. Many will sell when they are afraid. They will also buy when they see that share prices are rising. But succumbing to the whims of the market is the wrong way to invest.
Our reasons for buying a stock should be based on the yield that a stock can deliver over its lifetime.
Consequently, we can capitalise on volatility in the market to help us achieve our goals. We can buy more of what like, when the market is gripped by fear. We must never allow volatility to be an obstacle that hinders us from our ultimate objectives.
On that point, I am reminded by a famous quote from the founder of the Ford Motor Company, Henry Ford, who said: “Obstacles are those frightful things you see when you take your eyes off your goal.”
Trump’s musings can be one of those frightful things. But we should never allow him to distract us from our ultimate goal – to be wealthier in the future.
We at Stock Advisor never lose sight of our long-term goals. Find out how we stay focussed here.
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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 Director David Kuo doesn’t own shares in any companies mentioned.