MarketPsych: How to Manage Fear and Build Your Investor Identity

Chapter 7. Your Investor Stress: Smoothing Out the Ups and Downs

"Brain cells create ideas. Stress kills brain cells. Stress is not a good idea."

——Frederick Saunders

Dan came to see Dr. Peterson at his coaching practice for an unusual—and improbable—complaint: He had lost money in each of his last 17 investments He was deeply concerned because he loved to manage his own money.

Being familiar with statistics, Dan understood that it's rare to be wrong by a substantial margin 17 times in a row. To put this in perspective, the odds of losing 10 coin flips in a row is 1 in 1,024. And though investing is not the same as flipping a coin, Dan had blown through 17 consecutive risk/reward scenarios without winning. And the streak was still going. Confounding matters was that his investments were scattered across different asset classes and were made during both bull and bear markets. It didn't seem to matter when and where he put his money, he still lost.

Dan was a rational person, but these losses had affected him to the extent that he was beginning to believe "God hates me," and he felt dejected and depressed most days.

So what was Dan's approach? He told Dr. Peterson that he was a fundamental investor who bought stocks and commodities cheaply and sold them for a profit as the market appreciated their true value. Dan enjoyed investing in "penny stocks" trading under $1 per share, because that was where he often saw good value.

As Dan was explaining his buy and sell techniques, it became clear ...