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Visualization Exercises


Saluki
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I noticed another thread on Brain Exercises (to prevent cognitive decline) but I was wondering if anyone uses visualization exercises for their trading? 

 

"Success in investing doesn't correlate with I.Q. once you're above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."

-- Warren Buffett

 

I've also heard Peter Lynch say that if you can add 8+8 and come up with a number close to 16, you have enough brains to be an investor, but what you need need is the stomach for it.

 

What I found to help my jitters when I competed in jiu jitsu was to do visualization exercises. I wondered if the same thing would work in investing. So far it's helped me.

 

Step 1.  For most of my positions I have a 1 page Value Line Summary that I write on the back of.  I write why I think the stock is undervalued in a few sentences.

 

Step 2. I sit at my computer and I close my eyes and pretend I'm looking at the computer and the stock is down 20% (for some reason that doesn't invalidate my hypothesis)

 

Step 3.  I pick up the paper, look at what I wrote and pretend to buy more. 

 

Step 4. Repeat for 30% drop, 40% drop etc.

 

Does anyone else do anything like this? Is there a resource that you can recommend?

 

 

 

 

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In my opinion, until you've experienced a washout of an investment, or seen your portfolio decline 25% or more, you honestly won't know how you would react to such a change in market values. Drops in value can be fast and extremely frightening (think 2008-2009) or slow and painful (like 2000-2003). Your psychology in each can be vastly different.

 

In some cases, the long, slow, painful decline becomes too much to bear, and you'll exit at or near the bottom. In many, many other cases, an investor's belief that their investing prowess is superior to the market will lead them to a permanent loss that feels similar to the 2000-2003 decline.

 

Personally, I've gone through both of the bear markets of the early 2000s, and I don't know how I will react to another one, which is bound to happen soon enough. I hope the martial arts discipline you espouse will help you maintain a steady hand and stable mind during the next big drop for the market. Like you, I personally try to visualize large drops, and I usually evaluate my portfolio for a 50% decline, to see how I would fare. It usually makes me want to vomit, and I adjust my portfolio accordingly; I just don't know if I'm adjusting my portfolio for the better.

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I agree with Shalab. You can tell yourself how you "should" react to a large MTM decline. You don't know how you will feel until you experience it.

 

This is where youth helps. Losing 50% on a 2K investment is a lot different than losing 50% on a 200k position.

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Screw this new age bullshit about visualization.

 

LC is right about youth helps. Like anything related to age when you're young and have that marvelous 2k portfolio is the time to LEARN. You'll make some mistakes (hopefully not too many). But pay attention and learn from them. You'll of course recoup those losses by flipping some extra burgers. Then when you're older and have that 200k portfolio you'll handle situations much better than because you've learned your lessons in the past.

 

The way to calm your stomach is not visualization exercises. It's knowing your stuff. Know what you own. Know what it's worth. This is where investing in individual names is superior to index investing. You know what you own and you know its value vs the mythical "market".

 

Bull markets are fun. Like a nice party. We all showed up, there's music playing, and we're getting drunk on returns. But bear markets are where the wheat separates from the chaff. The market doesn't care about your feelings and let's face it this gig isn't for everyone. Noone's even mentioned the sideways markets between the bears and bulls. Where you know you've put together a great portfolio and you're screaming in the woods because the market doesn't recognize that. How shitty is that?

 

Bottom line, there are bull markets, there are bear markets, there are sideways markets. It's all part of the market. You take the bitter with the better. The ones that work hard and prepare do well. The ones that don't become bear chow.

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I once destroyed my keyboard by smashing it repeatedly with an umbrella. It's not really a visualization exercise but it helps. Make sure there is no order entry window open when doing this.

 

Live and learn. Live and learn.

 

 

;D

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Screw this new age bullshit about visualization.

 

LC is right about youth helps. Like anything related to age when you're young and have that marvelous 2k portfolio is the time to LEARN. You'll make some mistakes (hopefully not too many). But pay attention and learn from them. You'll of course recoup those losses by flipping some extra burgers. Then when you're older and have that 200k portfolio you'll handle situations much better than because you've learned your lessons in the past.

 

The way to calm your stomach is not visualization exercises. It's knowing your stuff. Know what you own. Know what it's worth. This is where investing in individual names is superior to index investing. You know what you own and you know its value vs the mythical "market".

 

Bull markets are fun. Like a nice party. We all showed up, there's music playing, and we're getting drunk on returns. But bear markets are where the wheat separates from the chaff. The market doesn't care about your feelings and let's face it this gig isn't for everyone. Noone's even mentioned the sideways markets between the bears and bulls. Where you know you've put together a great portfolio and you're screaming in the woods because the market doesn't recognize that. How shitty is that?

 

Bottom line, there are bull markets, there are bear markets, there are sideways markets. It's all part of the market. You take the bitter with the better. The ones that work hard and prepare do well. The ones that don't become bear chow.

 

Best said! Could not agree more.

 

 

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I think you need to prepare in advance...if you can't take a 50% equity decline, have 50% in short term money market.  this is the only way you "know" how you will react when feces hits fan.

 

 

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