The Wasp and the Butterfly…
When you think of a butterfly and a wasp, two very different visions come to mind. At first glance, one looks beautiful and alluring, while the other inspires fear. However, it’s important not to let first impressions deceive you. Visuals like this can help you to remain vigilant as you weather the financial climate and manage your own investor emotions in the face of a market environment dominated by “program” traders who are able to push and pull millions in and out of markets with a single mouse click.
Here are a few rules to consider when (if) the market is “bugging” you. And it bothers many individual investors today as money has been bleeding from stock mutual funds for years now.
*DON’T BE FOOLED BY THE BUTTERFLY - In the short term, market is psychology-driven and moved by mood. A series of days or weeks in the green can be very alluring and make you feel like you’re watching a beautiful butterfly soar to new heights.
You could get seduced by this flying beauty to indulge more in stocks, discard your strategy and throw risk management out the window.
So, how do you prevent this from happening?
Be skeptical and slightly fearful of the butterfly. When the market is happy and ignoring the bad news, it’s time to examine your plan and see if you should be trimming your overheated stocks or overweighted asset-class exposure based on a rebalancing plan
For example, this year the U.S. stock market specifically has been the most beautiful and soaring of butterflies. If you were a it skeptical, then you might have trimmed your exposure from areas like high-yield bonds and utility stocks(clipped the butterfly wings a bit).
*EMBRACE THE WASP - Just the thought of this is scary enough. When the market is looking ugliest and most ominous, it’s an opportune time to stay focused, and see the beauty in the sting of it all. Discover the beauty in buying low. Eventually, the sting of a down market will dissipate and you’ll be glad you didn’t panic.
*CONSIDER THE FATE OF THE ANT – According to National Geographic Magazine, ants are sometimes caught in the crossfire between larval butterflies and wasps. During an attack, ants, manipulated by chemicals, are driven to fight each other, turning them into incidental casualties.
Don’t be fooled by the wasp or the butterfly or get caught between them.
Create and follow a personalized plan based on your goals and attitude for risk. Having clear, written investment buy and sell rules will allow you to command the wasp and the butterfly to your advantage.
*IT’S NOT ALL BUGS - When gathering information you’ll see, hear and read opinions that will make you feel more tempted to side with the wasp or the butterfly. In other words, you will notice more headlines designed to validate the current “mood” of the market. Fear begets fear and euphoria begets euphoria. Remain guarded with your written plan and don’t be dissuaded by captivating headlines and the media in general.
Stick to your disciplines! What the hell are they? Do you know?
Using the wasp and the butterfly as visual motivation can help you control your actions in the face of an emotional and volatile stock market — you’ll never look at them the same way again!
I want you.