As we watch the markets rally, people have a tremendous fear of missing out on an opportunity to recover their losses….which is, by the way, why we are rallying so hard (basic principles of supply and demand).

If your game plan from the start was to close your eyes and hold on for the long haul, no matter what -
well, then keep doing what you are doing.

If on the other hand, you spent the past few months wishing you had gotten out of the market and stayed in cash - well, here is your chance. The market is giving you the opportunity to do just that.

Many people are Hoping, Wishing and Praying that this rally is the new recovery, the new bull. It may be, but it may not be - no one really knows.

I am not a financial advisor or expert on the economy; but I do know a lot about market psychology and investor decision making. So, if the only reason you are staying in the market or getting in the market right now is because you are Afraid to Miss Out - then do yourself a favor and do not get in. Those are emotional reasons for making investments - and emotions and money are never a good mix.

Some media personalities are saying people are more risk averse these days than they are afraid of missing an opportunity. Well, I agree that people SHOULD be — but my years of coaching traders has shown me that the exact opposite is unfortunately true.

And people (when dealing with their money) tend to be more afraid of missing an opportunity to recover their losses (and make money) than they are of losing more money.

Which, by the way, is why the markets rally so quickly on the slightest HOPE of recovery…people are hoping, wishing and praying that things have changed ….why?….not because it has but because they have lost money.

This is making an investment decision based on emotions and that is never a good thing.
Here is a simple formula to help you remember this:

H + W + P = E
Hoping + Wishing + Praying = Exit the Trade!

I will be talking about this more on my video blog tomorrow on CNBC.

Dr Doug

Here are some questions I have been getting recently - and my responses.

How do we embrace a new reality?
• Step outside of your ego and stop taking it personal.
• This really is not about you or me or any of us.
• It is about the market and rule #1 for investing in the markets is to not take it personal.

What does this do to the future of investing in America?
• This whole experience has opened people’s eyes.
• The amount of education that is going on is tremendous.
• Everyone is reading, watching and talking about the economy – more than ever before.
• The average person now knows more about the markets, how they operate and the risk-rewards that it produces.
• This meltdown is the best thing to ever happen to Americans – we are all smarter as a result. We just paid for an education. And no one can ever take that way from you.

Will anyone invest anymore?
• Yes they will. And probably more aggressively than they did in the past.
• People are scared now about putting money back in but we are human, and humans have short term memories.
• All it will take is a few rallies and stories about people investing and making money and then everyone will want to get back in again.
• People and their behaviors are very predictable – especially when it comes to investing.

Will enough people come back to the market?
• Yes they will. Once the “acceptance” stage begins, people will be looking for places to invest their money and as long as the markets exist, then people will want to invest.

Is it even possible to restore this loss?
• If you mean “recover the money that was lost” then I would say, probably not because traditional investment strategies are designed to earn slow and steady returns.
• But that really should not be anyone’s goal at this point because what is lost is lost.
• All that matters is what is your investment account is worth right now.
• It does not matter at all what it WAS worth.
• So stop anchoring to the past and get your focus in the present and in the here-and-now.

Will perceived self-worth still be valued in cash?
• I think so. Money drives the world.
• I think what the government is doing now is actually going to make it even worse, because they are rewarding people who exhibited irresponsible financial behaviors and taxing the wealthy more heavily to pay for it.
• The psychological message being sent is: a) if you are irresponsible, we will help you out; b) if you work hard and out-perform your peers you will get punished.
• The government seems to be spending way too much time on policy and not enough time thinking about the psychology and its impact beyond the balance sheets.

Dr Doug

1) Because no one else wants to right now - great investment decisions happen when the masses are afraid

2) Because you are educated now about the markets and the real risks involved.
I am not saying it is good that you lost money but I am saying you need to turn this negative into some type of positive. What other choice is there? Sitting around and being scared and depressed?

3) Because the US government has 1 goal - to get the economy and market back on track.
The US government is determined and resilient and will not stop until they do it - why are they a good bet? Because they have the ability to make/change rules and print money if need be

4) The odds of the market moving up in the next five years is greater than the odds of it going down

5) The market does not care about you. It neither likes or dislikes you.
It just is. It is not personal - so stop making it a personal issue. The market is not out to ruin you. So if it is not personal, then why would you abstain from investing just because you are mad at the market. That would be thinking like a person with emotions rather than an un emotional investor.

Professional traders got creamed too — but you know why they will make money over time? Because they learn from their mistakes and get back on the horse. It is not magic…it is a choice YOU can make as well.

If you don’t have the money to invest right now - that is fine…just don’t totally write off the concept of investing as a smart choice for your wealth building future. That would be like holding a grudge against someone who hurt you. Sure you can do it of course you want to do it. But really, what is the point? And it certainly does not help you in the short or long term.

Get over what the market DID to you and start thinking about what the market CAN DO for you.

Dr Doug