The Little Book of Sideways Markets: How to Make Money in Markets that Go Nowhere

Chapter 13. You Are Not As Dumb—or Smart—As You Think

Moral Support for Buying and Selling in a Sideways Market

Secular sideways markets are comprised of many cyclical bull and bear markets (just as a reminder, take a look again at Exhibit 2.2). Though cyclical bull and bear markets can provide great buying and selling opportunities, our emotions will try to get in the way between us and the right decisions. Markets will constantly try to brainwash us into doing the opposite of what we should be doing. I hope this chapter provides an antidote to this as it contains two missives. Read the first one during cyclical bear markets and the second during the cyclical bull markets. Good luck!

You Are Not as Dumb as You Think (Psychotherapy for Cyclical Bear Markets)

Lately, I've been getting this nagging feeling that everything I touch turns to dirt. Every time I buy a stock that is already down a lot, the one that my analysis leads me to believe is cheaper than dirt, it declines more. Did I completely lose my ability to value stocks? Did I start ignoring Will Rogers' advice to buy stocks that go up, and if they don't go up, don't buy them?

No, I didn't get dumber, and my stock-picking skills haven't diminished. I was simply a willing participant in the latest cyclical bear market. Bear markets make you feel dumber than you are, the same way bull markets make you feel smarter than you are.

Feeling dumb makes you do the opposite of what you should be doing. Fear and pain—yes, continued losses ...