Wednesday, March 13, 2013

Don't Let Mr. Market Be Your Coach

One of my high school basketball coaches was a real nightmare. Any mistake you made on the court -- an errant pass, a weakly-set screen, a poorly chosen shot -- quickly landed you a spot on the bench, followed by a rather loud commentary detailing exactly what you did wrong.

In contrast, my baseball coach that year was incredibly positive about everything. If you got a simple base hit, he made you feel like you hit a home run. Made a mistake? Don't worry about it. Even if we had a bad game, he would focus on what we did correctly. 

Like my coaches, Mr. Market also provides feedback. Depending on how he's feeling at the time, however, he can either make you feel great or downright rotten about your investment choices. 

During the financial crisis, the feedback we received was a lot like that of my terrible basketball coach. For a while, it seemed you couldn't do anything right and many investors simply preferred to sit on the bench.

In times like this, however, market feedback is extremely positive. Any move you make -- whether it is smart or not -- will most likely be rewarded, so it's natural to want to get back in the game.

Don't let Mr. Market be your investing coach. His advice is fleeting, after all, and can lead to poor decisions. Instead, be able to step away from market feedback and be self-critical in bull markets and self-assuring in bear markets.  You're never as good as you think in a bull market and never as bad as you think in a bear market.

Stay patient out there.


@toddwenning on Twitter