Thursday, March 19, 2009

Sucker's rally or the bottom

I felt compelled to do a quick entry on the markets. I want to use this blog to develop my investing skills and part of that is learning how take your emotions out of the investment process.

The tsx has been on a tear, up almost 15% in the past ten days. Oil is up over $50 from $34 a couple weeks ago. With volatility like this, makes one feel like you're living in a casino!

At the last market bottom I invested about 20% of our "investable" money (in other words, the amount I put into Ana'a rsp this year which I've kept in cash awaiting good entry points). Now my emotions are telling me, "why didn't you invest more, dummy, what the hell were you thinking?" That's called the greed emotion - the feeling that I've lost out due to a bad decision. My emotions are also saying, "put more in the market now, if you don't it will just keep going higher and you'll miss out on more". Well, I'm trying to look at this objectively. The markets are leading indicators of an economic turnaround, normally (and I say "normally" with a clump of salt) six months ahead. I honestly think that you would be crazy to think there's any sort of economic recovery coming in six months. In fact, I think the pain is just now starting to be felt and the downstream multiplier effect hasn't even really kicked in yet. Let's say Chrysler pulls out of Canada putting all those uncompromising, union buttheads out of work. That massive job loss will be immediately tragic, but will also lead to all sorts of pain down the road. Most people can hang on for months on savings, liquidating investments, selling unnecessary toys, but once that runs out then we'll be seeing defaults on mortgate payments which, in turn, starts to effect the banks. But this takes a very, very long time.

The way I see it, I could be sitting here two months from now with my emotions telling me, "you idiot, you never should have invested that 20%, now the tsx is down to 6000 and you've lost even more money. Sell it now while it's still worth something! In fact, you should have shorted the market back in March when it went up to 8600, what a lost opportunity you bozo!"

Our emotions can be so insensitive.

For now, I'll just track my feelings, watch the markets, get in when I think the time is right, get out when it seems prudent, be happy with my good (lucky?) decisions and learn from the bad ones. If I can do that, then I'd say I'm doing an excellent job investing no matter what happens.

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