Mr. Market, the alter ego of the stock market that decides that some days he wants to move in a thoughtful and meaningful way and on other days crash, burn, and send hell raging through your portfolio. Regardless of what Mr. Market decides to do, it appears to control a certain part of many people's psyche in the wrong direction when he decides to go on his rampage. Due to this control, we need to learn to master our own minds so that we end up running the show rather than him controlling the scene.
What really drives our brains when Mr. Market shows up? There are a multitude of factors. The most important is that we're trained from a very young age that if something works, do more of it to make sure it still feels good. If on the other hand, you place your hand on a hot stove and it hurts, you immediately remember not to put your hand on the hot stove. It only takes once to remember to not place your hand on a
hot stove. The fact is, it's easier to remember to not do something than it is to do something. The stimulus received from doing something wrong is usually much higher than something right because if you do something right, you normally gain a small stimulus of good chemicals flowing through your brain while when you do something wrong, your life could be threatened and you therefore remember it much more clearly. When you remember something bad more clearly, there is more of a drive to do something about it much faster than you would if you are only expecting a small return of good feelings. This is easily applied to the way a lot of us feel when the market reacts (Mr. Market shows up). When the market is up, we get small amounts of pleasure from our good position and life goes on. On the other hand, when the market is bad, we feel that we're under attack and need to remedy the situation right away. It's a defense mechanism that is innately trained in every single one of us. This can cause a lot of investors to sell right away when things start to drop just because Mr. Market had a bad day. Never mind that the stock we think about selling has had a good ten years running and still feels like a good company.
What then is the remedy? The remedy is recognition. If we move back to the example of the hand on the hot stove, we as children quickly understand not to place our hand there. As adults however, our brains can tune into the finer details. What if instead of simply remembering to never touch the hot stove, we try to remember that the stove is not always scalding hot. Maybe it only appears hot even though it's simply warm. Mr. Market can be controlled in this exact way. In order to control ourselves, we as investors have to remember to not trust a situation as a hot stove just because mother tells us. When Mr. Market decides to drop a series of points in a day and the media blows it out of proportion (like always?) we need to remember to make sure the temperature of the hot stove. Pull up the stocks in question that may or may not be in your portfolio and check into whether it really is a volatile company to continue to invest in. If the stove really does appear hot, maybe you should take your hand off immediately. If on the other hand it is simply a false alarm and it's a dull warmth, maybe it's a good idea to load in at that moment while the company comes at a great discount.
Mr. Market, the alter ego of the stock market that decides that some days he wants to move in a thoughtful and meaningful way and on other days crash, burn, and send hell raging through your portfolio. Even though this is true, it doesn't mean that we need to despise him. Once we understand what makes us tick and how to control that for our own benefit, the once terrible Mr. Market Monster becomes a rather fruitful gentlemen with discounts galore.