Friday, July 18, 2008

Feeling Snarled up?

Prosperity Scroll
Jane Bellows

I've been strangely compelled to forage through my book stacks. Perhaps it is a inner niggling that I've not completed my book consolidation and organization project.

My slim volume of Musashi's (Book of Five Rings) and Munenori's (The Book of Family Traditions on the Art of War) work has several 'Post-It' flags in it. Putting my hands on this book as well as Sun Tzu's The Art of War.

It's been an indescribable joy to read these. I've been pouring a glass a wine and retreating to the deck in the evening to read this. The kittens, Minnah and Wyatt join me. Naturally, the dogs pester for a ball toss.

There's a passage in Musahi's work that I think is very important.

When fighting with enemies, if you get to feeling snarled up and are making no progress, you toss your mood away and think in your heart that you are starting everything anew. As you get the rhythm, you discern how to win. This is "becoming new." (p.46)

The applicability of the above thought to so many contexts (work issues, interpersonal issues, and of course, investing) makes it a rather durable concept. For me, one of the most difficult aspects about investing is the rather high batting average of being wrong. Further, there is a rather distinctive disconnect between cause and effect at time. Good companies (insofar as we can tell that they are 'good') don't always go up and bad companies do not always go down. Psychology also plays such a big role in addition to other dynamics.

Yesterday, my thinking was that if you were wrong that often in business you'd be out of business. But I've modified that thinking. My first reaction was from that of making strategy decisions. However, if you think about it from a customer acquisition perspective, you have to make many calls to gain a few really good customers--that is the more appropriate way of equating business and investing. As resources are limited (as is capital) you have to know when a prospective customer will never turn into a good customer.

So if prospective stocks/laggard stocks are tying up your mental and physical capital--that keeps you from developing a really good stock that will give you better rewards. We all need mental models to help us operate within a framework that makes sense. For myself, this seems to be a mental model that helps with this evaluation AND provides a chance to 'become new'.

I have lunch with friends today....that will help me along the way!

1 comment:

nice said...

I'm thinking most 'long' oriented investors/traders are not feeling very good about what has transpired... over the past 4-6 weeks

Many who were the 'hold' type have large losses and are waiting to make their money back.

Others may have made some of their money back on the extreme bounce this week - and are probably moving to the sidelines - happy to have gotten some or most of their money back.

And some may have succumbed to panic and sold out early this week - so they can't be happy either.

And finally... all those sitting on the sidelines waiting to go long aren't happy - because the market bounced so hard so fast - they didn't get a chance and now they think things are already overbought...

Some bears who possibly made money shorting are already rushing to short... I assume they have taken into consideration another 'gap down' in Oil on Monday and another gap up in stocks?

In the end, I posit that one must consider all possibilities first - rather than simply thinking in black and white terms of 'overbought' and 'oversold' and blindly reacting by shorting or going long on those overbought/oversold assumptions.

Not an easy task.

It is funny how the market seems to move to relieve the largest amount of money from the largest number of people it can.....

Question is...
Where does all this leave market psychology now?

Something to ponder over the weekend - as we count our 'winnings' and/or lick our wounds..

A good weekend to all..