Not much happened in US markets overnight. There was no follow through buying after last week’s strong close. Nor was there any profit taking.
The Columbus Day holiday kept Wall Street quiet. So we watch. And wait.
For what though?
It’s a good question.
The bulls are waiting for stocks to break out to new highs. The bears are waiting for stocks to breakdown.
The rest of us are waiting for the future. Which is pretty futile. Each day is just another piece of the never-ending market puzzle. Sometimes you know where the piece fits. But mostly, you just set it aside and wait for more clues.
Just a few more clues, you think. Then I can solve it!
But as soon as you think you have the stock market worked out, it smacks you in the face.
It constantly demands respect and humility. If you fail to give it, you’re going to lose.
A few years ago I came to the conclusion that the market is actually the world’s most effective psychologist. It’s certainly not a compassionate or caring one. It ruthlessly exploits your weaknesses and will keep on doing so until you start to look inward for answers.
This is the key to making money in the stock market.
The Key to Making Money in the Stock Market…
That’s just not some throwaway line. It may be buried here in a free Rum Rebellion email. And you may well gloss over it quickly because you’re not really thinking it’s going to give you the key to unlocking consistent market gains.
But there it is. You must look inward for answers.
Let me explain…
I wrote about this a few years ago in my investment advisory, Crisis & Opportunity. I’m pretty sure that most of those who read it promptly forgot ‘the secret’.
But it’s important. And true. And I’m almost certain it’s one you won’t find anywhere else. I started off with a few quotes from my favourite books about the market, The Money Game, by Adam Smith:
‘One of Smith’s rules of the market was this: ‘If you don’t know who you are, this is an expensive place to find out.’ ‘This’ being the market. If you’ve been around for a while, you’ll know the accuracy of that statement.
‘One of the characters in the book coined this classic statement: ‘The end object of investment is serenity, and serenity can only be achieved by the avoidance of anxiety, and to avoid anxiety to need to know who you are and what you are doing.’
‘If there’s a better phrase that sums up the investment game, I’ve yet to hear it.
‘These two quotes contain ‘the secret of the market’. The secret is: You must know who you are.
‘‘What, really?’ I hear you say.
‘I know, it’s a bit of a let down, isn’t it?
‘I mean, secrets are meant to be revealing.
‘They’re meant to open the treasure chest, so to speak. All you have to do is reach in and take the money.
‘But, as I said, only phoney secrets work that way. The world is awash with phoney secrets. I’m not adding to the pile.
‘Most amateur or part-time investors operate on tips. I mean, you’re reading this now to get investment tips, right?
‘You may get them from newsletters, friends, magazines, business TV, or whatever. You want a tip in order to make easy money.
‘But what if you buy a speculative gold explorer? It falls 10% quickly, you panic and sell because you know nothing about it, or don’t like volatility, only to see it recover and double.
‘Or, what if you buy a stock and it falls? You believe in the story and buy more. It falls again and you buy more. But it keeps falling so much that you stop believing in it and sell at a 60% loss. It then recovers…
‘These are all the errors of people who don’t know who they are. And as the phrase from The Money Game says, ‘If you don’t know who you are, this is an expensive place to find out.’ Indeed it is.
‘If you buy a mining junior, but don’t like volatility, you’re asking for trouble. If you don’t have an exit strategy, you’re asking for trouble. If you get emotionally invested in a stock, you’re asking for trouble.
‘If you attribute gains to your good decision-making and blame losses on something or someone else, you’re asking for trouble.
‘The thing that fascinates me about the stock market is that it’s a brutal taskmaster. It will spot any weakness you have and make you pay for it. If you fail to correct the weakness, you’ll continue to pay.
‘It’s like a life teacher, and an unrelenting one at that. But therein lies its beauty and strength. If you’re willing to listen, it can teach you plenty about yourself. You just need to be willing to engage in a bit of self-examination.
‘The first step in this process is to understand that no one else is responsible for your wins and losses. If you lose following a tip, that’s your fault. No one put a gun to your head.
‘Once you embrace this philosophy of extreme responsibility, it will be much easier to start the process of self-examination. Why did I buy that? Was I following my process? Why did I take profits there? Why did I panic and sell?’
That’s looking inward for answers.
It’s something that all good investors do.
Tomorrow, I’ll make it a bit easier for you and show you a few simple things to look for when picking stocks.
Editor, The Rum Rebellion
PS: My Exclusive Investor Report – ‘How to Pick Winning Gold Stocks’. Click here to learn more.