Fear and Greed Result in Misery
Do you have chrematophobia? When people think about the stock market, the bond market, the food market, or any other place where money is involved, they often have fear. Chrematophobia is the fear of money. It includes the fear of spending money, and of not having enough money, and even having too much money. The problem with all fears is that we become irrational in times of fear. We make bad decisions. We have wrong attitudes.
If we have fears regarding money, we may covet, steal, fail to report the truth when completing our income taxes, and we become stingy and fail to give. A large part of the equation has to do with thinking short-term and not thinking with a biblical world view. In Luke 12:15 Jesus is introducing the parable of the rich fool. This verse says, “And he said to them, ‘Take care, and be on your guard against all covetousness, for one’s life does not consist in the abundance of his possessions.’” In a real sense, bear markets scare so many because so many have a short-term perspective. Life does not consist of possessions. If your house is on fire, and you are rational, you get the most valuable “things” out of your house: your family and yourself. The rest is all expendable.
When You Recognize Fear Respond Appropriately
In the stock market, fear is measured by the speed and magnitude of the drop in the S&P 500 or the NASDAQ index. Stock and bond prices drop in a dramatic fashion. That happened last week when SIVB (SVB Financial Group) shares dropped 60.41% on Friday. This morning they are likely to be down an additional 60%. At this time last year, the shares were trading at $597 per share. Today they are likely to be trading at around $40 per share. This is driving the prices of other banks and financials down.
If an investor had taken the time to look at Seeking Alpha before disaster struck, they would have seen that the stock was a bad investment. The QUANT rating was terrible. SIVB is ranked 244 out of 245 regional banks. The only bank that is worse, and worse is relative, is another California bank: Silvergate Capital Corporation (SI). SI has a QUANT rating of 1.27.
This mess caused even good investments to drop dramatically in price. As a result, I was buying investments for both our accounts and the UTMA accounts I manage for our grandchildren.
For example, I added shares of SAR (Saratoga Investment Corp) to my traditional IRA and shares of VYM (Vanguard High Dividend Yield ETF) to the UTMA accounts.
Investors should think like shoppers in the grocery aisle. You don’t want to be chasing something everyone else is chasing. You want to buy the veggies and fruits that are in oversupply. Yes, it is cool to own cryptocurrencies, but at what cost? There are a few investors who may have repeated considerable profits from trading cryptocurrencies, but the vast majority of investors are losers.
When I Buy
The best time to buy more shares is, in my opinion, when one of the following opportunities arises: 1) When the stock market has a down day. If the market is down by 1.0% or more, I start shopping around. 2) When one of my holdings has a dramatically down day. If something I like is down by 2-5%, then I look for the reason(s). If it is general panic based on some short-term news, I consider buying more. One way to see this is to look at a tool that Fidelity provides. It shows the top three and bottom three MOVING investments in any account (or all accounts) at any point in time. 3) When a dividend increase is anticipated. If a company increases their dividend quarterly, then buying shares before the anticipated announcement date can be opportunistic. This is not hard to determine. The information about when and how much the historical dividend increase has been is available on Fidelity Investments and Seeking Alpha.
How I Buy
I resist the urge to buy 500 shares at a time. Generally, I buy shares in groups of 25, 50, or 100 shares for each purchase, depending on the price of the shares. If I have $1,000 to invest, then I would buy 25 shares of a stock that is $40 per share. If the price of the shares is $100, I might only by five or ten shares with my $1,000.
There are times of day when it is probably best to avoid buying shares. Unless you are an advanced trader, you probably should buy shares during the first 30 minutes the markets are open. Generally, it is also best to avoid the last 30 minutes. Because I can do pre-market and post-market close trades, I always think twice about the early and late trades of the day. Traders get crazy during the pre-market and early market trading. Don’t join them in their craziness unless you see an incredible bargain.
All scripture passages are from the English Standard Version except as otherwise noted.
Great insight, Wayne! Thank you for sharing.
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