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Fear, the Stock Market and Investments
Back in 1474 in Basel, Switzerland a local farmer had a rooster. But this particular rooster did something quiet unheard of, this particular rooster laid an egg. Now we all know that a rooster can’t lay an egg, right? The farmer was just as confused as the next person. So he turned to the town elders for advice with the unique problem. The town elders looked into it and were equally baffled at first.
Then they realized what was going gone. It was obvious to them this was the act of witchcraft. Their belief was the rooster had made a deal with the Devil and the egg would hatch a Cockatrice. Which is a mythical beat, essentially a two legged dragon or serpent like creature with a rooster’s head that of course spews fire.
The real fact of the matter in this situation was that often when people are faced with something they don’t understand or fear, they turn to some kind of irrational thinking. In this case witchcraft that involved a deal with the devil. This is not unlike what happens to people who allow fear to enter into their thinking when they don’t understand the how to invest in the stock market. Howard Marks, who is a very successful value hedge fund manager and author states, “Fear is overdone concern that prevents investors from taking constructive action when they should.” He goes on to say that, “The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.” Basically, if you approach investing in a fact finding and logical manner you will do better, rather than using your emotions. Put another way, Marks explains, “Why do mistakes occur? Because investing is an action undertaken by human beings, most of whom are at the mercy of their psyches and emotions.” As you can see be it investing or the rooster that laid the egg, we tend to act on fear and our emotions as almost an instant to protect ourselves. But, the reality is they end up doing us harm.
Going back to the rooster, the elders decided to put both the rooster and the egg on trail in an official court of law with both sides having lawyers to state their case. At the end of the trail, the judge found both the egg and rooster guilty of witchcraft and sentenced them to death. The rooster was tied to a stake and burned to death along with its egg in a public setting.
Naturally, since then scientists have researched the facts surrounding the rooster that laid the egg. Using real data and the scientific methods available today in the more modern and advanced world and found it is mostly likely that the rooster was indeed a chicken that had rooster like markings. So liken to investing, if you use an analytical scientific approach based on facts and figures, that is, Fundamental Analysis based investment research, your odds are much better in making better investments than relaying on fears and your emotions. Which will increase your odds of picking winning stocks.
At Port Wren Capital, LLC, we specialize in picking specific undervalued U.S. stocks using fundamental analysis developed by Benjamin Graham using a five step process. We have beaten the S&P500, DJIA and NASDAQ benchmarks since we started 5 years ago on our own investments. Discover the difference for yourself. To learn more contact us today.
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