You’re a Sucker If You Fall for This Market’s “Fatal Attraction”

This post You’re a Sucker If You Fall for This Market’s “Fatal Attraction” appeared first on Daily Reckoning.

Irrational. Psychotic. Dangerous.

No, I’m not talking about your ex. It’s the stock market I’m talking about. This market’s a three-headed monster running on pure, irrational emotion. It’s Glenn Close from Fatal Attraction…

It doesn’t follow logic. It won’t listen to reason. And it’ll steal all your money if you’re not careful.

But today I’m going to save you from this beast. If you take a few minutes to think about the market differently, you can save yourself a lot of misery– and guard your portfolio in the process.

So let’s get to it. Here are three things you can do to keep this damaged and irrational stock market from ruining your life:

1. Stop staring at the ticker all day

It’s tempting to track the market all day. A decent online broker now gives you access to millions of ways to absorb real-time data. Any rube with an internet connection can get up-to-the second quotes and one-minute candlestick charts.

Don’t do it. I understand the temptation to set up 24-7 surveillance on your stocks these days. But you can’t will your positions higher. There’s no point in checking in on your 401(k) every 30 seconds or holding your breath every time the Dow lurches 10 points higher or lower.

That’ll cause you to make terrible snap decisions that ruin your trades. Think of all the morning rallies that sputtered into huge losses this month. Anyone who’s tried to play these wild intraday moves probably got a lesson that’ll stick to their ribs.

Go play in traffic if you feel you need to do something. It’s safer. Unless you’re daytrading, that blinking real-time chart is nothing but trouble.

2. Keep market moves in historical perspective.

At its lows last week, the stock market was down about 10% year-to-date.

Listen – that’s far from a crash. But to the wired investing class spoiled by years of rising stocks, it feels like one. Fact is, corrective moves like the ones we’ve seen since last year are fairly common…

“Since 1946, there have been 31 instances of a 10% drop. But a 10% drop doesn’t necessarily lead to a 20% one (which denotes a bear market) — in fact, in just 12 of those 31 instances did a bear market eventually ensue.” MarketWatch reported back in August when the bull market first showing signs it might crack. “If anything, the reason the current drop seems bigger is that it comes after a 47-month period without a 10% correction — the third longest such span in market history.”

Think about that. Nearly four years without a 10% correction – the third longest span in history. That’s incredible. But now that stocks are moving lower, you might wonder if there’s more ahead.

Yes, the bounce we saw late in the week week was impressive. But the damage has been done. It could take a while for this market to snap to life. A big, oversold rally can look completely insane when viewed in a vacuum. It can even get the greed glands pumping again.

But this isn’t a bounce we want to buy with both hands right now. We need to see more…

3. Finally, the market will do whatever it wants, whenever it wants.

You’ve heard a lot of crash talk lately. That’s because everyone and their Aunt Alice is terrified by the market’s slide.

But guess who doesn’t care? Mr. Market. That’s who. The stock market doesn’t give a rat’s patootie what you think. It doesn’t care what anyone thinks. That includes the Warren Buffetts and Paul Tudor Joneses of the world. Too many people waste their time and energy talking about what the stock market should do, instead of focusing on what it actually does.

If that’s not insanity, tell me what is. None of us can make the stock market magically turn into a logical, rational creature. It’s even worse than that bats**t crazy ex of yours.

So you have a choice…

Go blue in the face trying to convince a completely irrational market to behave the way you think it should. Or accept it for what it is. Watch the signals it fires off each day – however irrational – and follow them to profit.


Greg Guenthner
for The Daily Reckoning

P.S. Protect yourself from falling stock prices–sign up for my Rude Awakening e-letter, for FREE, right here. Stop missing out. Click here now to sign up for FREE.

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