First a few market comments. Since my last post we've seen a notable pullback in the NASDAQ and a more modest one for the markets in general. The frothiest sector of the market has been unwinding somewhat as there seems to be a rotation away from the tech high flyers. Anytime the markets pullback 2-3% I continue to see quite a bit of angst out there....people talk as if the market has crated 15-20%. It once again shows the wall of worry psychology that's still out there. This makes the prospect of shorting the market in the hopes of captializing on a correction quite unappealing to me because it's difficult to get downside traction when you see worry rather than complacency on just a minor dip.
If you pull up a 1 year chart, there's 2 ways you can look at the market - you either see a top forming or a consolidation. From the ways things are unfolding, I believe we are seeing the latter although there could very well be a downside "headfake" sometime in the summer to make it look like the former. I think we could see something similar to 1994 or 2004 whereby the market traded sideways for the majority of the year as the market takes a wait and see approach to the withdrawal of fed stimulus. In 1994 and 2004 the fed was hiking rates from low levels. This time around, we got the withdrawal of stimulus via QE. It's dangerous and rather foolish to believe the market will unfold the exact same way it did in some previous time frame but there are a few times where the action does "rhyme" to some degree when circumstances are similar, but the market never plays out the exact same way. I can't tell you how many times I've seen people overlay a current chart with that of some previous time frame claiming how there's a repeat in history taking place and it never turned out.
Switching gears now. In my year end review, I pointed out how one of the things that I needed to stop doing was checking my stocks every day. It's often the case that I would check them multiple times a day as I'm sure most people do. I've learned the hard way how damaging this behavior can be both to your bottom line and mentally. It causes you to become fixated with the ST and may lead you to take inappropriate actions namely, selling in disgust/fear when the price has been sliding for some time or selling too soon after the stock had a good move to the upside when the fundamentals and valuation warrant doing neither (the mistake I tend to make). Given that I make "conviction bets" with a value focus and LT horizon it's pointless to focus on the day to day or even month to month fluctuations in the stock price (unless your target price is hit which you can be informed via a price alert). The only focus should be on fundamental developments. Even if you are able to resist making an inappropriate ST trade; watching the day to day action will put you on an emotional roller coaster with highs and lows that can take quite a toll on you and impact the other parts of your life. Some people handle it better than others but the more you have on the line the more likely you are going to be impacted by the day to day ups and downs.
There have been a few times in recent years where I have suffered mentally because of adverse ST moves that were not fundamentally driven - they were liquidity driven due to a large seller who wanted to liquidate for non-fundamental reasons or perhaps trivial ones. Despite being pretty sure I got the fundamental story right and being fully aware that the microcap space is prone to nonsensical volatility due to liquidity events as I described above; when a significant adverse move happens I still can't help but worry at least a little if someone knows something I don't or I overlooked some important factor. Those nagging worries can easily turn to doubt and paranoia if the stock has a prolonged slide. It will also make me prone to selling too early once the stock does turn around as I don't want to have to go through another agonizing experience again on the next correction. If I had not gone through the emotional roller coasters I'm pretty sure I would not have made many of the premature sales I made over the years.
It's been about 2 weeks since I've gone "cold turkey" by not checking the price of my stocks. I have real time alerts that will notify me when news is released and I will receive a price alert if the stock hits an upside target price so it's not like I'm just sticking my head in the sand here. If there is a fundamental justification to take action I will. It was hard to do this at first and I felt very anxious but now I've been able to just let it go and there's no urge to check. I feel so much more relaxed and clear headed. I'm more productive with my day as well. If you have a similar LT approach to the market I strongly recommend you try this. You must however, not confuse this strategy with being in denial about a bad situation whereby the company you own is in bad shape fundamentally and you don't want to look at the price anymore refusing to sell a loser. A perfect example of this would be Nortel 10 years ago.
This "no look" strategy really makes a lot of sense if you're a LT value investor. As such, you are not interested in what the stock price is unless it hits at least fair value. You view the purchase of a stock the same way you would the purchase of a private business and so if that's the case, would you then check the value of your business the day, week or month after you bought it? Of course not. The only thing you care about is the business itself and how it's running and if it's doing well, you won't be interested in selling it unless you get at least a fair price for it.
As a result of my new-found strategy I will disable comments and will not answer emails (because I will not check for them) at least temporarily.
