Do you like to be in control? Do you need specifics? Do you have a hard time with delegation? Do you always have to be right? I’m not a control freak but I like to have a say in the outcome. I prefer driving to flying because I feel I’m in control even though I know flying is safer than driving. When I board an airplane, I surrender control to the pilot and the laws of physics. The pilot is well trained and the plane is well built but I’m not in the cockpit and it makes me a tad nervous.
Investors try to control their stock purchases by doing their homework and research on companies to buy. Investors feel entitled for their stock to rise because they have spent hours (minutes) crunching numbers and doing channel checks.
A few years ago, a neighbor’s son purchased a few shares in a company he frequented. After his purchase the earnings report was announced and the stock went down. He was upset because he had done his homework and the store was always crowded. A stock doesn’t know you own it and it could care less how much research you did prior to your purchase.
Investors also try to control the market through market timing. Shareholders will move money in and out of stocks trying to find the optimal time to buy or sell. Market timing is a waste of time. The S&P 500 returned 9.2% from 1994 to 2013. An investor who missed the 50 best days during this run ended up with a return of negative 2.8 percent (-2.8%).
What can you control? You can control how much you spend and how much you save. The more you save and the less you spend will mean more money in your pocket.
You can control your emotions. To make money in the stock market you need to control your emotions on the upside and downside. When stocks rise, don’t get overly excited. When stocks drop, don’t get overly depressed. The stock market has been fluctuating longer than we’ve been alive.
Is it possible for you to change your narrative when stocks fall? Investors are more concerned about the market dropping than rising. It’s not fun to ride stocks through a correction. Loss aversion is the definition given to people who prefer to avoid losses rather than generate gains. Can you change your cues or triggers during a market correction? During a market drop investors want to know what’s wrong? Rather than focusing on the drop or loss of value change your narrative and start looking for stocks or funds to purchase.
The best way to get rich in the stock market and create generational wealth is to buy when everybody else is selling. When the market is going down investors sell great companies at disastrous prices giving you the opportunity to add to your holdings at rock bottom prices.
It takes time to change the narrative in your mind. You must give up control and let the long-term forces of the stock market take over.
Let it go! ~ Elsa
The mind of man plans his way, But the Lord directs his steps. ~ Proverbs 16:9
Bill Parrott is the President and CEO of Parrott Wealth Management. http://www.parrottwealth.com
Note: Past performance is not a guarantee of future performance. Your returns may be more or less than those posted in this blog.
 http://www.fa-mag.com/news/the-difficulty-and-costs-of-timing-the-market-22128.html, by Chris Meyer, June 15, 2015.
 http://loss-aversion.behaviouralfinance.net/, website accessed 1/17/17.