Over the last few weeks, the market has definitely caused blood to be shed in the streets. The fear is back and this is the kind of environment in which I like to fish. However, when you are already invested, it is painful to see everything that you touch tank due to the chaos in Europe. These are the times that test the nerves of investors and make them decide if stock market investing is something they want to be a part of.
If this craziness makes you uneasy, it is useful to review some words of wisdom from the legendary Benjamin Graham because having the right mental attitude is half the battle.
He taught investors that they should visualize market fluctuations coming from a fellow named Mr. Market. In your portfolio, you own several stocks which represent businesses. Imagine that Mr. Market owns these businesses with you. On a daily basis, he visits you and offers to buy from you or sell to you interests in these companies. The problem is that Mr. Market is bipolar and suffers from extreme emotional problems. Sometimes he has a great day and sees everything that is going on around the world as positive factors affecting your businesses. As a result, his price quotations are high because he is afraid that you will steal his interests in these businesses. At other times, he gets really depressed and sees everything around the world as affecting your businesses in a negative way. As a result, he quotes you low prices because he is afraid that you will dump all your interests on him.
Currently, Mr. Market is extremely fearful and depressed. He listens to news about all the problems in Europe and around the world and thinks that they will destroy your businesses. It does not matter to him that some of these companies are increasing dividends and are seeing improvement in their underlying business operations. He completely ignores the fact that the U.S. economy is doing better than it was 12 months ago. Today, everything is negative.
However, besides having emotional problems, Mr. Market does not care if you ignore him and decline his offers. He will be back again tomorrow. As an investor, you have some choices: you can let this emotional wreck rule you and have control over your mental well-being or you can stop paying attention to him and only do business with him when it suits you.
It is not easy to stay in the market and take a beating everyday and not know when the bleeding will stop. I always tell investors that if they do not have a high tolerance for pain, they should keep their money in the bank and not come even close to the stock market.