FEAR
Collective fear stimulates herd instinct, and
tends to produce ferocity toward those who are not regarded as members of the
herd...Bertrand Russell
Our
ancestors lived in a constant state of fear-- their lives in constant jeopardy
from the elements, wild animals or climate changes that threatened to kill
them. In the modern age, we know that some dangers
are still very real. If you are walking across the street and a large bus
careening out of control comes bolting toward you at high speed -- you are in
real fear. In this case, the bus is the predator, and you are the prey. Death
is literally staring you in the face, and your body goes into fight or flight
mode as it tries to avoid it. This is real, tangible fear, and many of you have
faced situations where bodily harm or death was literally staring you in the
face.
In
the markets, the fear predators are what force us to take action. Fear is the
hunter, and we are the prey. We want to make money, and the predator that
pushes us to do that is greed. Markets move up because people are buying and
down because people are selling. We do not know the motives of these millions
of people, but we infer that they are acting in their best interests to make
money or minimize losses. Thus, buying or selling begets more buying or selling
as the herd reacts to the predators of fear and greed.
To
experience fear is human. With the exception of individuals who have certain
brain lesions or are highly medicated with potent psychotropic medications,
everyone alive feels fear. It is the emotion that binds us together, and it is
the emotion that the media, public relations and advertising use to drive
powerful messages directly into our limbic brains.
The
major fears of traders are based on one simple premise: We do not like to be
wrong! We don't want to make a mistake--and having made one, we don't want to
admit it. At some point, the pain of realizing that we have made a mistake is
too great to bear, and we get rid of our position at any cost. This is why
short squeeze rallies (shorts buying at any cost just to get out so that they
don't have to take the pain that literally feels like their insides are being
squeezed) are so powerful. This is why long squeeze declines (longs selling out
at any cost just to get out so that they no longer have to tolerate the pain of
descent into complete despair) are equally breathtaking.
The
four major fears of traders and investors: fear of losing, fear of missing out,
fear of leaving money on the table and fear of being wrong--are really some
combination of fear and greed. The bottom line here is that fear is the
predator. It chases after us, it hunts us down, it makes us captive to it and
it causes us to act in ways that are not necessarily in the best interest of
our equity curve. The fear of dying from a bus coming at you full force is very
real. The fear of dying from selling a losing position or from leaving money on
the table is quite different. The former is a rational fear of a real danger
that is stalking us. The latter is not entirely rational, yet we allow it to
stalk us.
The
best thing we can do with less-than-rational fears is to turn them around
completely. In other words, rather than letting fear be the predator and stalk
you, adopt another attitude of action. Do not be paralyzed and frozen by fear.
Become the predator and stalk it. Face it full on. Look at it and ask yourself
if it's really all that frightening. As long as you continue to allow yourself
to be stalked by fear, your world will shrink, and you will become smaller and
smaller as you retreat into a space of trying to protect yourself. Fear has you
exactly where it wants you.
If,
instead, you begin to move in the direction of your fears--slowly and
steadily--you will find that they have less and less power over you. Your world
begins to expand. You understand that fear is really False Evidence Appearing
Real (F.E.A.R.). You begin to see that you have the power within you to face
these fears and to control them. They are real only if you allow them to be
real. By using the tools of position-sizing and money management, you control
your risk as you move closer and closer to that fear. Once you are able to keep
moving toward it, fear begins to diminish and you see it for what it really is,
rather than what you imagined it to be.
You
gain strength, courage, and confidence by every experience in which you really
stop to look fear in the face. You must do the thing which you think you cannot
do...Eleanor Roosevelt
