MarketPsych: How to Manage Fear and Build Your Investor Identity

Chapter 5. Your Investor Values: What's Most Important to You?

Far better is it to dare mighty things, to win glorious triumphs, even though checkered by failure . . . than to rank with those poor spirits who neither enjoy nor suffer much, because they live in a gray twilight that knows not victory nor defeat.

——Theodore Roosevelt

All I need are some tasty waves, a cool buzz, and I'm fine.

——Jeff Spicoli, Fast Times at Ridgemont High

Bob was a coaching client of Dr. Peterson's in the mid-2000s. In August of 1987, Bob had predicted that a stock market crash was imminent and decided he needed to prepare for it by buying stock index puts (insurance in case of a market fall). But, being a frugal man, he didn't like to pay "fair value" for his investments. Throughout the months of September and October 1987 the prices of puts had been rising. Bob had placed his bids well below the asking price, and his buy orders hadn't been filled.

During a trading week in mid-October Bob had the gnawing sensation that the market was about to plummet, and by Friday was convinced he had to take action to protect himself. That morning he contravened his underlying reluctance to "pay up" for the put options and upped his bid to the "current bid," becoming the next investor to buy if a seller entered a market order. Other investors interested in purchasing insurance quickly outbid him, and the prices of puts drifted higher all morning. On Friday at noon he once again raised his price to that of the last trade, ...