Bulls, Bears, Foxes and Skunks – Setting Expectations Without Stinking Up the Place
Apr 03, 2018 Jeff Scott, Sage, Seer, Discount Batman
Investors with little to no knowledge of the market, as well as those in the middle tier with a bit more experience, rely almost totally on brokers, investment advisers and financial planners, or at the very least, the safety and comfort of their company sponsored 401K. Without them, forays into the world of stock trading would be short-lived and disastrous. But even with the use of such expertise, most investors at those levels pick up a few terms associated with market ups and downs and everyone who’s anyone knows what a bull market and a bear market is.
But despite this shallow dive into zoomorphism, many new investors approach the market, at least initially, with much more regal expectations, many of which prove to be unrealistic. Instead of educating themselves to understand the grind of the short term and long-term, they envision the markets less as the battle between bulls and bears and more along the grandeur lines of an old English fox hunt. Often, they envision themselves beating expectations at every turn and amassing largesse only seen by nobility, sitting atop a steed as a “Master of Foxhounds” while the hounds (their brokers) chase the foxes (their stocks) into the corner. And while that may be a bit grandiose, there comes a time when most investors realize market conditions have changed rapidly and that instead of cornering a fox, they have instead trapped a very angry skunk.
Avoiding the Skunk
The best place to start to avoid the skunk is in setting expectations to a sound, realistic level. It isn’t a game, or a hunt and as an investor, you’re not the Master of Foxhounds valiantly mastering the market. It requires serious thought, financial expertise, a lot of educating oneself and realistic expectations:
Learn What the Animals Look Like
Educating yourself as to what bulls, bears and skunks is both the strongest offense and defense for best investment performance regardless the vehicle. In addition to books, the internet and courses, there are a lot of other tools that can give you great insight and knowledge. Investor forums provide a place to discuss strategies and find new paths by speaking with other investors and professionals. You can also use stock simulators to game the market and understand how the market would behave but without the risk of loss.
Find a Real “Master of Foxhounds”
There are few things as valuable as expertise when it comes to your money. And different investment strategies and investor experience require different levels of expertise. For vehicles such as 401Ks much of the expertise is baked in, making it easier for the investor to make choices as many 401Ks stay in the middle of the road with a broad level of diversification options available depending on need. For investments done outside of a company provided 401K there are investment advisers and financial planners, and for the most experienced investor, you can choose a broker. Despite what most people think, it is often better to let go of the reins and let someone else direct the hounds for you.
When You Corner a Skunk, Know Where the Exit Is
Having a good exit plan is key to avoiding a stink. This isn’t a pass to ditch everything at the slightest dip and fall. It means having a strong, strategic exit strategy based on where you are in life, what you can afford to do – or not do, and using those realistic expectations to identify and get away from the skunk. Two key factors are knowing what level of risk you can take and knowing, and setting, exit points based on research, advice and experience.
Markets reflect life in many ways. Knowing where you are, educating yourself as much as possible, knowing your limits and finding good solid advice can make the difference in your investments. And avoiding the skunk in your hunt is best achieved by engaging all these elements. Skip one, and you may find yourself poking the bear or taunting the bull and that can be much worse than a skunk.