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Visualizing Bob Farrell’s 10 Investing Rules


bmichaud
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http://pragcap.com/visualizing-bob-farrells-10-investing-rules

 

10. Bull markets are more fun than bear markets

 

As stated above in Rule #5 – investors are primarily driven by emotions. As the overall markets rise – up to 90% of any individual stock’s price movement is dictated by the overall direction of the market hence the saying “a rising tide lifts all boats.”

 

Psychologically, as the markets rise, investors begin to believe that they are “smart” because their portfolio is going up. In reality, it is primarily more a function of “luck” rather than“intelligence” that is driving their portfolio.

 

Investors behave much the same way as individuals who addicted to gambling. When they are winning they believe that their success is based on their skill. However, when they began to lose, they keep gambling thinking the next “hand” will be the one that gets them back on track.  Eventually – they leave the table broke.

 

It is true that bull markets are more fun than bear markets. Bull markets elicit euphoria and feelings of psychological superiority. Bear markets bring fear, panic and depression.

 

What is interesting is that no matter how many times we continually repeat these “cycles” – as emotional human beings we always “hope” that somehow this “time will be different.”Unfortunately, it never is and this time won’t be either. The only questions are: when will the next bear market begin and will you be prepared for it?

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