Thursday, July 29, 2010

The 7 Emotional Stages of a Beginning Investor


Part III: Buying Your First Stock

Jenny Bradbury asked me an important question yesterday after I wrote Part II of the 'Buying Your First Stock' series: would I have made the moral of the story the same if Amerigon Inc. (ARGN) had rallied Wednesday? The answer is... yes. I honestly think that if you put enough research and analysis into a company, and you feel good enough to jump in and own a part of that company, you should stand by it until new material comes out that tells you otherwise.

The whole process of selling ARGN at what I was guessing was the day's high point, and then trying to buy it all again for an 'inevitable' market rally (which never happened, DANNY), all ended up making me feel overwhelmed and anxious. Like I mentioned previously, my mood seemed to mirror how my stocks were performing on a daily basis. So as a Beginning Investor, I feel that it's my duty to help other new investors my age through the 7 emotional stages you'll feel after purchasing your first stock.

STAGE 1: Research

You've read about the importance of thorough analysis, and your stock is steadily climbing - just as your numbers predicted. Hmmmm, maybe you should get in on this company. The numbers are solid and the future looks bright. Let's put this stock on the watch list and keep researching.

Stock Price Expectations: Steady Incline
Emotional Expectations: Excitement, Nervous Twitching
Emotional Advice: Your analysis in your company should be the base line for your emotions. If you feel like you've succeeded in researching a potential company, you should really be excited to jump in.

STAGE 2: Buying Your Shares

You feel good enough to jump in and buy your first stock. The company seems to be growing as you expected, and now seems like the best time to jump in. If the upward growth continues, you have a serious chance of making some money! Ready, LEAP.

Stock Price Expectations: Minor gains/losses
Emotional Expectations: Constant questioning of what you've learned
Emotional Advice: Recheck data, hover around the buy button for 15 minutes, take a deep breath, and believe in the work you've put in.

STAGE 3: A Steady Decline

This is not what you expected out of your stock. Down 1.50% yesterday. Down 2.37% today. Down 5.83% overall. What is going on? You bought the stock with aspirations, hopes and dreams. You had visions of buying lavish things with the money you made - specifically that big screen TV with a Rock Band set up that compares to most New York City music studios. You're checking the stock ticker every 20 minutes, hoping you can stay afloat.

Stock Price Expectations: Down by 1% to 3% for 2-5 consecutive days
Emotional Expectations: You've started an annoying foot tapping that you are unaware of until someone tells you to stop. You've also asked your waitress once or twice if you've made the right lunch decision.
Emotional Advice: Stay calm. This is the stock market. After all, you didn't expect the stock to skyrocket as soon as you bought it, did you? You did? Well that may be a little unrealistic, don't you think?

STAGE 4: Back in the Green

OK, now you're balancing back out a bit. Due to some nice market rallies in the past few days, it looks like everything's going back up, including your stock. It sure is nice to say that you've made $12.36 on your stock investment. It's only a matter of time until the stock really jumps up... right?

Stock Price Expectations: Increase of 1%-3% for 2-5 consecutive days
Emotional Expectations: You've randomly given stock advice to children.
Emotional Advice: You'll have more of these days if you've made a smart investment with solid research. But hold off on the stock advice to children, ok? Let's just stay the course.

STAGE 5: Crisis

Forget Facebook, Twitter, or any of your plans this morning. Your stock is down 8%? 8%?!?!?! It's not even 10am on the West Coast!!! How could things turn so quickly? You've locked yourself in your room or office, you've stashed some food, drinks, and ammo away as if you're preparing for a Zombie Apocalypse, and you can feel tears in the corner of your eyes. Why does the market have to open at 6am on the West Coast? Would it not be more logical to make more of an effort to compromise on the market start time? Should you sell, and cut your losses? Regardless, the only outgoing calls you're making today is for someone to drop off a package of Red Bull and a gallon of ice cream at your door.

Stock Price Expectations: Plummeting
Emotional Expectations: Despair, Hopelessness, Frustration (to the point where you're throwing delicate things around to further emphasize the world crashing down around you)
Emotional Advice: If you can't laugh, you will weep. Find out why your stock is going down. Is it temporary, or is it more permanent? Has anything in your research changed to make this happen? If not, look at this day as an anomaly if nothing else. If there's a change to be made, you better have the statistical data to support pulling out.

STAGE 6: The Miracle

Your stock has made up for all its losses - AND THEN SOME! Feel free to unlock your door, reconnect with friends, pick up trash while you're walking around in your state of jubilation. That coffee stand barista deserves an extra tip today, right? I mean, you have some extra cash in the stock market! Just a few days ago, you were wallowing in your self-pity. Today, you just couldn't script this story any better!

Stock Price Expectations: Soaring
Emotional Expectations: Euphoria, On Top of the World (as in the Titanic scene)
Emotional Advice: Enjoy. Like a good shot in golf, this is why you keep coming back. Your research prompted you to buy a part of this company, and you've been rewarded. Hopefully, you will continue to be rewarded. But with patience and analytical diligence, you will have more good days than bad.

In baseball, the saying goes, 'No team is ever as bad as they are on their worst losing streak, and no team is ever as good as they are on their best winning streak.' If your research is done right, your stock will hold true to this baseball philosophy, but it will continue to trend upwards. Not all days will be as drastic as the last two stages, but those days will come. It's your patience and research that will be the most important in the weeks following your stock purchase. Have fun with it! Are you wondering where stage 7 is?

STAGE 7: Go back to STAGE 3, repeat.

- Jason

2 comments:

  1. Jason,

    Great article. And I love the humor in your articles. Very interesting to read and great job!

    ReplyDelete
  2. I'm all for giving stock advice to children; saving, spending, and investing is the complete financial education package! Funny read Jason.

    ReplyDelete