Investing can wear you down
When I started investing, I knew emotions are one of the biggest factors in making bad decisions. This is one of the main reasons I try to buy and hold. In general the markets tend to rise over time, there are ups and downs along the way. I realize that marijuana stocks are a beast on their own, but I need to be somewhat naive to keep my money in the game.
If you have been watching your marijuana stocks on a daily…ok hourly basis like I have, it can wear you down.
If you are new to investing, hopefully you have seen this diagram.
It looks easy, just buy at the bottom, sell at the top. So why do we struggle with doing just that. Most retail investors will do the opposite.
When you don’t have money on the line, you can look at this objectively. When you see your money disappearing, you will start to feel the denial, fear, panic.
Wear Down Phase
So you know what emotions your going to go through, you are ready for it and have a plan to fight it. Why would you get worn down?
Investing is a long term game, the markets keep on chugging whether you are in it or not. Now imagine going through the above cycle thousands of times, hell even just 5 times. Sure you made it through the first cycle, now you are thinking “I’m an investing pro”. But how will you feel after 5 cycles?
If you don’t have the right mindset, the stress of next cycle could stack up on you. Making it through the first cycle is still lingering with you, chipping away at your emotional bank.
Every time you go through a dip, the fear will kick in that this could be it, the crash of all crashes and I lose all of my money! How many times can you handle feeling that way.
I try to remember the positive side, when you have made it through a cycle, you see the positive reward of holding through the dip.
Day to day, marijuana stocks can easily cycle 5%, so you could easily go through a thousand cycles if you are looking at it on a small scale. Maybe you just bought your first every stock, the 5% drop could put you into fear mode instantly.
Marijuana stocks went on a run from September to early January, while it’s amazing to see the value of our stocks increase, the worry about when to sell was slowly building. To reduce the stress of knowing when to sell I decided I’d rather hold until the peak is found.
While on this amazing run, I continually expected a pull back to happen. We couldn’t go straight up for ever, expecting a pull back is just another way to help fight off the emotions. The first pull back then rebound happened, it was easy, ok not really but I made it through a 100k drop. We rebounded right to peak levels, I feel like a pro.
Now the second pull back occurs, it is more pronounced than the first drop. It also lasts over a weekend, so I stew all weekend worrying just how low it will go. I even wrote a blog post that weekend to help convince myself it was going to be ok.
While I made it through the first drop, by the second big drop I could feel my emotional tolerance weaning. The desire to sell was at the highest it had ever been, which is completely backwards. I should have had the desire to sell at the peaks not the dips, instead I was filled with euphoria dreaming of just how high we could go.
While I did feel worn down by all the dramatic swings, I held strong according to my plan. It took a lot to not sell, had to fight the urge with all I had. The monday that we finally bounced back up, I avoided even looking at my account. I guess if all else fails, don’t even monitor your account. Being a long-term investor, I should probably just check back in a few years…..
The only way to avoid being worn out by market swings is if the emotions are no longer there. I realize now that the day to day changes don’t affect me much, its the longer term/large changes that can have an effect. (Slow decline can be just as bad as big drop)
I felt worn out on the last few swings, due to dealing with emotions that I hadn’t been dealing with in a while. You can think you are mastering your emotions, until the market throws a curveball at you to test you even more. If the short term results are positive, it can reinforce my strategy of holding, so that on the next swing I can look back on this experience and remember it positively.
If the feedback loop of holding becomes ingrained enough, the fear of the dip should start to diminish. This would reduce the emotional toll, reducing the chances of getting worn out, which could lead to making a bad choice.
Bonus shot- I did this up a long time ago, I’ve been through a few ups and downs. Overall though, its an upward trend. Also back then, there was less money involved. You might handle your emotions fine at your current level, what about when it grows. Forces you to build up a new tolerance. (The Nov 2016 dip was around 20k, I’ve now been through a 230k dip)