Friday, March 13, 2009

The human side of bear markets

This bear market has been educational for me, and not because of anything I've learned about stocks. If timing the low points in a bear market is difficult, navigating the storm of human emotions that comes with a bear market is even more challenging. I often hear that economic downturns will cause people to focus on what's important in life, which sounds like it would work to improve human relations, but I don't think that's the whole story.

On the one hand, buy-and-hold investors who have been losing money in long-term stock positions understandably resent hearing that someone is making any money at all in a bear market. I learned early on not to volunteer investing advice or news of my success to anyone in person, when a professional colleague actually sniped at me with "F- y-." Even when someone asks me for advice today, I try to tread lightly. Someone who's lost 50% in the market isn't about to pat me on the back with a hearty "congratulations." Instead I'm usually met with skepticism or painful silence.

On the other hand, more recently I've been the object of criticism or outright ridicule by people who think I'm hurting my returns by being too timid with my timing or with my choice of funds. A couple of comments that I've actually allowed to appear on the blog can attest to this. On the stock-rating page of, called CAPS, the overall tone of the public blogs there has taken a somewhat darker turn, even among the successful players who are actively trading and profiting from the bear market.

Aside from the damned-if-you-do, damned-if-you-don't attitudes of others, there is something unseemly about making money in a bear market. Every profitable trade that I make comes with the knowledge that hundreds of millions of investors around the world just lost by the same percentage, and it feels like an ill-gotten gain. I'm not going to stop using bear funds, but I'm not enjoying the whole experience quite as much as I thought I would.


tr said...

You should feel neither guilt nor self-resentment for your hard-earned ability to see what the ignorant and oblivious masses cannot and likely have made no effort/sacrifice to see or learn.

I can understand the bitterness of those you have encountered who have lost money, that should be an expected visceral response given the circumstances... It should come at no surprise to someone of your intellect.

Great job and keep up the excellent work!

Anonymous said...

My husband and I have experienced a similar problem. Because of good advice (thank you) - we preserved much of his 401 pension plan.

We didn't trumpet this, but when engaged in conversations it naturally came out. If I had it to do over - I'd close my trap. But that would have felt pretty disingenuous. Still, I wish we'd been a little more cognizant of the others' natural reactions. It's hard to celebrate someone's good fortune when you've suffered a blow.

Ah, well. Live and learn. Practice kindness - to yourself, as well.

Catherine W.

Anonymous said...

I agree with TR.
People are unhappy they have lost money, unhappy that the market turned south, unhappy that others did NOT lose their retirement. Their unhappiness is understandable.
But - it is not your fault. In fact, if they stopped being bitter and took time to read your blog which offers great insight and information, they could learn something. The last thing they should do is attack you!
I for one think you have done an outstanding job with your blog; very professional, very insightful, very succinct.

qwerty said...

Feel no guilt. Objectively speaking, I find it a little perplexing when others assign moral wrong to selling high then buying low, while at the same time lauding the notion of buying low and selling high. The net effect is the same: you take more from others than you have paid yourself, for an item you've done nothing to improve. The only difference is the order of the transaction.

So, why is going with the arrow of time morally correct and going against the arrow of time morally reprehensible?

To put it bluntly: I think people feel this way because when making money buying long, you are taking from investors who will have a sporting chance to fleece the next busload as the future unfolds. However, by making money selling short, you are profiting not by some future buyers potential loss (because they paid too much now), but by the PRESENT holders current loss (because they paid too much before). This will tend to irk the present holders.

RO said...

I love reading this blog. It's even better than watching 24 - will he jump off the car in time before the bomb blows up? :)

And short selling is allowed, so what's the big deal (well, so is betting on 7 on craps but not a crowd favorite ofcourse!)

After reading the posts and comments, it's pretty clear this is a "How I" and not a "How To" blog - so the info comes as is.

Keep it up!

John from Colorado said...

Interesting perspective and comments from you and other readers. Despite reading and following your blog, I have made numerous poor decisions that have cost me and my family a lot of money. Our losses are born out of my greed, not yours and anyone elses. My actions alone have caused my losses. Even before reading your blog, I saw the sure signs of economic collapse and got into cash. But for me it was pure greed that overshadowed my insight and your recommendations. One of the lessons for me is that I don't see greed as something I need to to "cast out" or deny, for me that's not possible. It will always reside in me. How I respond to my greed is something I may be able to manage better. Lately, I've been practicing by doing the little things like dollar cost averaging into and out of positions, setting stops, taking profits when they exist, understanding that 100% gains usually don't happen overnight, but 40% drops can happen in a hurry, greater opportunity and risk are generally found at the tails of the trading range or distribution, and cash in bear market often means a good nights sleep. As alway, I really enjoy your blog, amazing insight and accuracy. We are all responsible for our own actions in this world, despite all the messages to the contrary.
John from Colorado

Jody said...

Thank you all for your comments.

RO: That's high praise indeed to compare this blog to 24! It's also ironic, because one my primary aims in market-timing is to take the least-risky positions possible. I really don't have the nerves or the courage of a Jack Bauer.

John: I see greed as the energy that free market capitalism channels into productive activity, so I think you're wise not to try to purge it from yourself, but rather to learn to live with it.

jolly_rancher said...

No matter what financial theory states, short selling, short term trading, highly leveraged long or abitrage positions, index funds is not investing and it's not good for the economy. It's part of the problem. The problem is the disconnect between the shareholder and the business. I suspect that if investors really bothered to learn about the companies they invest in and were forced to invest in only those that they really understood, that were well run with honest long-term management, they would find only a handful of prospective companies. I think it's time to stack the deck in favor of the long term holder, and below are a few ideas on how to do that:

1) No margin allowed. 2) No short sale allowed. 3) Set long term capital gains tax to ZERO. 4) Dividends (incl. extraordinary) payable only to long term holders. 5) Net short term capital loss not deductible from taxable income, only long term capital loss.