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The Market Needs Weak People

The Market Needs Weak People
Alex Wong / Getty Images

The stock market feeds on emotional investors. Emotional investors supply the markets with profit potential by making buying and selling opportunity available to strategic investors.

To visualize this statement, think how smart money runs to opportunity while emotional money runs from it. Take oil for example. About a month ago, oil was falling, precipitously. As it fell, news junkies piled up the fear and hype trying to convince their followers (readers, viewers, listeners, etc.) that oil was headed for $15 per barrel or lower. Small investors sold everything. Net outflows from small and mid-cap mutual funds plummeted along with large oil producers. Yet, big investors went on a bargain hunt, snatching up big yielding dividend stocks and anything else from which the panicked weak fled.

Investing in free markets is a carnal experience. The markets have no pity for the weak because the weak are food for the survivors. Skittish investors give money to confident, purposeful investors by providing them with opportunity. Some might view the market as a game of nerves or chess match of preplanned moves, but I would call it most like a sport of training and fitness. I say this because unlike a game, the markets can reward every participant over time. Why? Because the markets are traded on expectations of corporate value and earnings. Over time, as long as the assumption is people will consume, then each of those will increase over time. Thus, the long term expectations of strategic investors is that the markets will appreciate. Yet, the weak look at the short term.

The bottom of a market corrective cycle occurs when the last weak investor throws in the towel and sells. So who do you think stays in the market through this time? The biggest news stories last month were full of fear and how low oil might go. Who cares how low oil might go? Why are we not focused on where it will be in 10 years and beyond? Do you, in your best analysis, really think oil will go away and/or be lower in price than producers can make it for years on end? I don’t. Butthe media knows how to find the chinks in our armor. Those who take action because of the media lose.

There are only two types of investors; emotional or strategic. You get to choose which you will be. Do you want to be hyped up on news and buy into high markets and later sell into low markets? Do you prefer to purchase when strategic sellers want to take a profit and sell when smart money needs to find its next race horse? Of course not! But being an emotional investor means you are among those who help supply the markets with working capital. Why not flip this and be the investor who works with the opportunity the emotional create? You can be a strategic investor. Our markets are still free enough for you to make a choice in what type of investor you want to be.

So, from today on, which do you choose to be; emotional or strategic? When the bullets are flying, are you going to jump out of your foxhole and run? Do you know where you will run? Or, do you trust your training and stick to the strategy? Do you keep your eyes on the prize to completion? Sure, nobody is comfortable when bullets are flying, but your strategy can help you get through it. The market has been volatile, but we’ve seen this before. We know how the long-term story plays out. My advice; don’t bet against the long term success of the US stock markets and economy. Its a great time to be a strategic investor and to take the opportunity the emotional investors are leaving for us.

Keep investing.

Brian Wiley is an Investment Advisor Representative of Tree City Advisors LLC. Tree City Advisors LLC is a Registered Investment Adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified Financial Advisor and/or tax professional before implementing any strategy discussed herein.

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