Let's Talk about Brains

No, not that kind of talking about brains.

Yes, that kind.

This is your brain on investment.

The following admission might seem funny coming from a person who likes to talk about investment:

And who started a website on investment.

For the last week and a half, I haven't wanted to talk about investment.  In fact, I've been actively avoiding it.  Whenever my brain passes over the concept of investment (or in fact, calling my mother, who wants to talk to me about investment) the feeling emerges: malaise, ennui, overall dullitude (I made the last one up)   These feelings are the incorrect feelings to have, as they relate to the stock market.      

The correct attitude to have when dealing with the stock market is as you would regard a curious toy or a logic puzzle.

The stock market.

Unless you approach the stock market armed with this sense of logical curiosity, you will not be able to defend against the stock market's insidious and constant attacks against your psyche.  Its goal?  To turn you into a sheep.

No, not like this.

A sheep is the stock market's worst investor.  Buying at any price and borrowing to invest at the market's highest peaks, the sheep sells everything in the market's lowest valleys.  A sheep panics at the slightest negative sentiment and exalts the faintest of good news stories.  To "accomplish" all of this, the sheep expends vast amounts of mental energy.

Yes, the two headed monster kind.

So how do you use your logical curiosity as armour against sheepification?

Simple: Be logical and be curious.  

OK, fine, that's not very helpful.  Perhaps some examples would be more useful.

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Example 1 - A person buys a stock.  The value of that stock increases.

The sheep -  "This stock is awesome;  I'm awesome for picking it.   I should probably buy more. " 

Logical curiosity - "I wonder what would make people suddenly think that this stock is worth more.  Would now be a good time to sell some shares?"

Example 2 - A person buys a stock.  The value of that stock decreases.

The sheep - "This stock is terrible; I'm stupid to have picked it.  I should probably sell what I have so that I don't lose any more money."

Logical curiosity - "I wonder what would make people suddenly think that this stock is worth less.  Would now be a good time to buy more shares?"

Example 3 - A person doesn't buy a stock.  The value of that stock increases.

The sheep - "Augh!  How could I screw this up so badly?  I need to buy some of that stock before it goes up even more!"

Logical curiosity - "At today's price and with today's information, would I buy this stock as opposed to a different stock?"

Example 4 - A person doesn't buy a stock.  The value of that stock decreases.

The sheep - "Ha ha, yes!  I'm a genius!  I knew that that stock was terrible and I didn't buy any!"

Logical curiosity - "At today's price and with today's information, would I buy this stock as opposed to a different stock?"

***

It turns out that I had been sheepified.  I was mired in Example 3, bemoaning the stock market that had risen all around me, bemoaning the "small" amount of money I had put into investment these last 5 years, mourning the Canadian dollar's decline versus the US dollar that would mean that it was more expensive to buy US shares.

What a bad day in the stock market might look like for me.

So how did I get rid of  my inner sheep?  I  wrangled my curiosity and spent a few hours working the bugs out of a brand new stock market spreadsheet, which is now up and running.   Then I curled up with a financial thriller about predictions for an upcoming stock-pocalypse.  

I won't say that my inner sheep is gone forever--she'll probably be back--but at least for now she's resting her eyes. 

Or maybe she's just nearsighted.

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Please realize that "Let's Talk Investing" is not authored by a financial planner, adviser, or a professional investor in any capacity. As such, this is not expert advice in legal, taxation, financial, or any type of information that may be provided. The reader must realize this when reading these articles and must not rely on them as the ultimate source of information but must seek proper verification from the appropriate professionals before acting on any of this information.