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?"

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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.

Let's Talk about Experiences with Money

I was six years old when I lost my skates at the skating rink on a school field trip.

They weren't the first things that I had lost that winter.

"So cold... so very, very cold...  What could possibly cause this feeling?"

My mom wanted to break me of my habit of losing things by showing me that there were consequences for negligence.  I needed replacement skates so that I could participate in the school activity, but she decided that I would be the one to pay for them.

Money wasn't a new concept for me; I had recently started receiving an allowance.  I received 3$ per week, which I would take to the local gas station and buy myself candy.  I liked taffy and chocolate bars and penny candy.

"This offering of silver coins only feeds my inner rage." --Elle, 1991

I was sufficiently well-versed financially to know that my 3$ per week allowance wasn't enough to buy a new pair of skates.

We replaced my skates and I learned the concept of debt.

Every weekend for an eternity that probably lasted about 12 weeks, my mother would call me and my sister over to receive our allowances.  Each of us received three loonies.

Then, every weekend for an eternity that probably lasted about 12 weeks, I had to give the three loonies back to her.

Every week.  For months.

Yes, there was a log sheet.

I credit this experience with making me into a super awesome saver of money.

It did not cure me of my forgetfulness.

Let's talk about Financial News

If investment writing was a sport, Let's Talk Investing wouldn't be called full-contact.  

It's probably not even a non-contact sport.

Let's Talk Investment might have a place in the world of the investment writing sport like a particularly dispassionate commentator.

"...and in other news... ah f%&k it."

Here are a selection of places you might go to locate Serious Financial News:
- Business Insider
- MSN Money / Google Finance / Yahoo Finance 
- Seeking Alpha
- Fark

Consider the above an earnest offering to those people who feel like reading full-contact financial news: company reports, earnings updates, and commentary on why the market is doing what it's doing.

Or in what specific way that it's going to hell.

I do read financial news, I actually find it fascinating.

Because I am interested in the stock market, I often read financial news articles.  These are painstakingly picked for me by Google, through the Google Finance homepage.  This is how I track all of my stocks, carefully not thinking about how creepy it is that Google knows my financial information

There is a trick to reading financial news, and that trick is not to care at all about what you read.

"The trade gap widened"

"Unemployment is down."

"Foreclosures are up."

"Rich people continue to be rich, proof proves."

Good financial news I read like a happy investor, pleased that I made perfect decisions (obviously) on shares that I bought.

Bad financial news I read like an eager heiress might read the obituaries page, looking for news of the ill health of some particularly wealthy relative.  Bad financial news piques my interest, makes my investing fingers twitchy.  This makes me a value investor, a term I much prefer to @sshole.

The odd news article does make me sad... I'm not a total monster.

"Established company crushed by the winds of change, shuts down."
"Large city becomes ghost town due to mass layoffs."
"Puppy factory burns down."

The best, most fun financial news news have great headlines, give people a lot of good or bad feelings and tells the average person absolutely nothing about the stock market.  I submit for your review this little gem:

http://www.forbes.com/sites/investor/2014/01/06/the-most-reliable-indicator-of-an-approaching-market-top/

I read this when it was posted in early January.  The author of the article above gives a number of logical reasons as to why the stock market will "top" soon.  

In our Wellington Letter we have pointed out a number of these indications that a market top is somewhere in the not-so-distant future.

A market top??? What does that look like?

What a market top might look like.

When finally the evidence says that perhaps the (fiscal) environment isn’t as great as thought, the selling starts. But money managers can’t buy more stocks at lower prices because they are already fully invested. Therefore, the decline continues, the selling accelerates, the bad news items become more frequent. And that is how bear markets start.

On the 22nd of January 2014, 16 days after the article was released, a lot of stocks did an abrupt about-face in their prices.  By February 3rd, the Dow Jones Industrial average had fallen by 6% (from 16500 to 15500).  At the time of writing it's risen significantly, almost back to where it started.  So... is that it?  Are we done now?

It doesn’t necessarily predict a top this week, or next or even next month. But it does say that the market is very vulnerable.

This is a cop-out.  Of course the market will crash at some point, it always does.  But what about my pressing questions as to when I should buy stocks?  

Or when I need to build the concrete bunker to prepare for the financial apocalypse???

Our other advanced technical indicators will give us the specific timing. Over the past 36 years, they have allowed us to predict every bear market and often calling the market top within a day or two. 

They're saying that they know the answer, but they don't want to tell it to you.

"Nyeah nyeah." -- Forbes

For one thing, the author is trying to sell you the information, he doesn't want to give it away for free.  (Capitalism!)

The other reason is more subtle.  Suppose I revealed that I absolutely knew that the stock market would be crushed on 21 March 2014 at 12:34 AM.  (You heard it here first, folks).  If you owned stocks, what would you do?

It could go one of two ways.  The long term investor would casually shrug their shoulders and move on with their lives.  They'd rustle up some cash to be ready for 21 March to buy more stocks at bargain basement prices.

The short term investor (supposing they believed my prophecy) would probably start selling parts or all of their portfolios to "lock in" their gains before the fall.

But there's a complication: if enough people believe my predictions, no one wants to buy the stocks that the short term investors are trying to sell, at least not before 21 March.  It's stupid; they know that they will lose money buying now.

If everyone believed my prophecy, it would actually be wrong.  The market would crash today.

Wait... no... not YET!!!

As a result, stock market news has to be carefully vague.  The more trustworthy the publication, the more likely that definitive statements will be proven wrong.  It's a weird quantum public perception/belief/actions vortex that makes my mind hurt.

I read financial news like I read tabloid magazines.  Come for the drama, stay for the vague informative statements that are probably wrong.

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(Just to let you know, there's no financial incentive for me if you click on any of the links.  They're just links.  No one paid me to post them, either.)

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You must 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.