Stocks, War & Plans

I’m glad I’m not a stockbroker anymore.

I used to absolutely hate the days like today where the market irrationally reacts to news. There is no real reason why the market dropped as bad as it did today; it just decided that resistance was bad, so down it went. Of course, there was also no real reason for the market going up over the last week to ten days, either.

People just never seem to understand that the market has its own psychology. Forget all the reading you’ve done in the self help investing books – the stock market is anything but rational. It reacts to news with gut reactions, just like a person would. The market runs on emotion, not logic. It tends to react almost like it’s bipolar: when it’s up – it’s up. Conversely when it’s down – it’s down.

I get frustrated listening to commentators on the market talking about why the market is reacting to something like it is. They all try to apply logic to an illogical being. They try to apply rational thoughts to an irrational market. They try to apply reason to an emotional organism. They just never admit that sometimes the market is, for lack of a better word, stupid.

I spent time working with investors that made millions and investors that lost millions – both ways literally. $250,000/day swings either way were not terribly uncommon. But you could always tell who was making money and who was losing just by listening to the questions and the reactions.

When things went like the last week has, the ones that made money would be asking for information about what had fundamentally changed. Had a company’s financial situation changed? Was there an overly bearish economic report? They always looked for a justification for a move. They gathered information and then made a strategic investing decision and they stuck to it.

The ones that lost money, they’d be asking what a company was selling for. They’d be asking how much a position was worth if they sold or how many shares they could buy. Why a move was happening wasn’t anywhere near as important as the fact that it was happening. Rather than establishing a strategy, they looked for “opportunity,” never realizing that by the time they found it, it had already passed them by.

Trying to divine the stock market is more impossible than trying to figure out Saddam. People who are successful establish a plan and then take advantage of opportunities that the plan creates. People who are unsuccessful are reactionary and try to take opportunities as they see them.

So why would I bring this all up in the middle of the war? Several reasons, actually. First off, I hated the “why is the market doing this” questions. Hearing a variation of it on the radio is what brought on this rant. Second, I think that people should know more about how the market works if they’re investing. Successful investors know this stuff – even if it is only instinctively. Third, it is part of a larger life lesson and also one of the main reasons why we will be successful in our fight against Iraq.

Part of life is developing plans to achieve certain goals, and then taking advantage of opportunities that advance that progress of the plan. With the war in Iraq, DoD and the Pentagon established a plan to achieve success in Iraq. When an opportunity that advanced the plan presented itself last Wednesday, we took advantage of it. But only because it advanced the plan that was set up to achieve a larger goal.

Saddam on the other hand, has no plan. He is counting on taking advantage of fleeting opportunities to advance his cause. He is planning on reacting to our advances. His goal is avoid defeat, but he does not know what he has to do to achieve that goal. He fails to realize that his reactions will always be a step behind. He fails to recognize to the opportunities he sees will already be closed by the times he recognizes that they were there.

We are working from a plan, Saddam is hoping for a miracle. We have figured out how to achieve our goal; he has not. But most importantly, we can look at the long term goal and find strength during setbacks. Saddam has no long term goal; he can only see reason for panic in a setback. Our plan is why we will win.

It will also help you to tame the insanity of the stock market.