The Changing Mindset of Investors and Traders

One thing is for sure, the mood and temperament among investors and traders changes like the direction of the wind.  But leaning to hard one way can be very damaging to your wealth and your mind.  Certainly the unknowns out there are the challenges we have to either dodge or just embrace.  If you have a long term horizon then the bumps in the road are just great opportunities, and those have been great spots to add positions.  That has always been the ritual of the past – buy the dips and just hold until whenever.  I won’t argue that is not still a winning strategy, but I have noticed more often these days a lesser degree of confidence in buying those dips.

There are not often superb opportunities to get in on the ground floor of a company ready to blossom.  Most are in disbelief of the growth chances and shy away, only to regret not getting on board.  Google when it went public in 2004 at 104?  now over 1000 a share (split adjusted).  EBAY in 1997?  It’s up a massive amount since then, more recently Facebook, which had everything go wrong with it’s IPO and then fell sharply – but is now one of biggest companies in the world and has doubled since the IPO, nearly 4x the lows reached in 2013.   How about the great franchise Visa and Mastercard, up massively since they went public? Linkedin?  Certainly there have been some busts like Twitter (so far), but if you held on you were mostly rewarded.

Did you buy any of these early and ditch them at the first sign of what you thought was potential trouble?  Do you regret it today?  The objective here is if you have a plan then stick to it.

Yet, there are many other new companies that have recently come to market but the confidence is lacking.  Take Juno Therapeutics, a small player in the immunotherapy field but has made amazing discoveries.  Jim Cramer talked about it prior to its IPO on Mad Money, and if you don’t know his great track record with biotech then you are not paying attention.  It went public the first day at 38 a share, and I talked it up the first day.  I believe this is going to be a home run play and own shares from the first day, yet even as it rose to the low 60’s I did not sell any.  Why?  Because the short term gains will be paltry compared to where I believe the stock is headed.

We hear all the time this is not ‘your grandfather’s market’.  I understand that, but we have to react to the market, and not let the market make our moves for us.  The game hasn’t changed, it only got faster with more participants.  Now, as an options trader, my focus is short to medium term, never falling in love with anything I trade.  Everything is fair game, but for the longer term portfolio I cannot think in this fashion.  The mentality of investors and traders is quite different as it relates to time-frame.

What’s interesting, some have been asking me what to do with the stock if they bought it, should they trade it and if Juno is going down or up.  The last question:  The answer is YES.  But the point here is while we may have a trader’s mindset these days we should not lose sight of how the big money is made – buy the BEST and hold for the big gains.  Isn’t that how Warren Buffet and William O’Neill made their fortunes over the years?  If it works for them, then why won’t you do it?

Bob Lang, Senior Market Strategist and trades various option trading newsletter Explosive Options.