Deal or No Deal

“Be greedy when others are fearful and fearful when others are greedy.”  -Warren Buffet

Most of us have watched an episode or two of the television game show “Deal or No Deal.”  It provides remarkable insight into behavioral finance, in particularly to the human emotions of greed and fear.  If you are investor in the stock market, you can learn a lot from watching “Deal or No Deal.”

As the Chief Investment Officer for a small, boutique, family-owned and operated investment firm (www.richinvest.com), every time that I view “Deal or No Deal,” I am reminded of a quote that I once heard.  I apologize for not being able to cite the source, but the quote says something to the effect;  ”Bulls make money, bears make money, chickens go broke safely, and pigs get slaughtered.”  Let’s watch the quick video below before we discuss further.

 

MAN…THE DUDE COULD HAVE WALKED WITH $603,000, BUT GOT GREEDY AND LEFT WITH $1! 

Now let’s analyze this.  Basically, if you want to make money investing, you have to take some risks.  It is possible to make money in both good (bull) markets and bad (bear) markets.  BUT you must have a strategy with well defined entrance and exit points, a discipline that is deliberate and methodical, and the insight to adapt to changing market conditions.  By doing this, you eliminate some of the risk associated with investing and become more of a “prudent speculator” as opposed to a gambler.  At the other extreme, if you are a chicken (per se), you may not be risking principle, but you are asking to go broke safely by not keeping up with inflation and spending power.  Moving the pendulum again, let’s swing back to the other extreme…GREED.  GAMBLING.  GOING FOR THE GUSTO in a world of uncertainty with no strategy, no stop losses, no profit taking points, just plain old flying by the seat of your pants in the hopes of hitting the big one!  You may get lucky once or twice, but eventually your luck runs out and you get slaughtered…you lose it all or most of it.

So if you are an investor in the stock market, remember the lesson that the above video just taught us.  Don’t be a gambler, don’t get greedy, and have a plan before you deploy your money into any investment.  You will not win all of the time, but if your strategy and discipline are good, you will keep your portfoilo moving in the right direction.  You will take your profits and cut your losses in a clearly defined, deliberate manner which will make your investing experience more enjoyable and less stressful.

Until next time…Best returns,

Matt Falvey