I’m about to sound like a 14 year old TikTok influencer selling a trading course…

But making money… investing well…

What one needs to do to succeed in that aspect of your life often has nothing to do with making money or investing. 

Rather, it has everything to do with mindset. 

I do not think I’ve mentioned it before, but I have been working on a book with Mark Ford called “The Little Book of Stock Market Wealth.”

While it is focused on proving that our particular strategy for stock investing is, by far, the best thing retail investors can do to increase their wealth in the stock market…

The vast majority of it is focused on investor psychology. 

Mainly the psychology of having a “proactive” instead of a “reactive” approach to investing.

Why? 

Because there’s something you need to understand about regular people when they buy into stocks…

See, most of them make serious errors that lead them to lose money or underperform market averages.

But the biggest mistakes they make have NOTHING to do with the quality of the strategy they follow, the quality of the information they have, or even how much money they have to invest. 

It’s one thing to prove, with charts and graphs, why investing in a particular way can have certain benefits or produce wealth more so than some other strategy, as I have done again and again. 

It is a different thing altogether, however, to get people to follow advice if it runs against their fears or deeply held beliefs and prejudices.

Take, for instance, my post that shows you how to beat the market by only buying monthly stock market drops.

There have been numerous opportunities to invest in 2022 so far. 

Have you done it?

Or have you been scared to put money in for fear the market might drop more?

That, dear reader, is what I’m talking about.

Unfortunately, investing for the long term works best if people are able to overcome their fears, to perceive threats as opportunities and opportunities as threats, to abandon some of the bad beliefs about investing often broadcast by the traditional financial media…

And most importantly: To maintain consistency and conviction through good times and bad times… even if those bad times last for years… even if one feels like they’re losing or like they’re missing out on other opportunities.

Simply put, the vast (vast) majority of investors are reactive. 

They invest based on what has happened recently and what they see in the world right now. 

Oftentimes, however, this is one of the worst possible ways to invest. 

For instance, in March, I wrote  about Chevron (CVX) and how, from 2015 through 2020, I insisted that Chevron was a buy even when people said to sell it.

I pointed out that, due to higher oil and gas prices, Chevron has been one of the most extraordinary successes of 2022. 

However, I noticed something happening in the financial media: Everyone was suggesting it was time to buy oil and energy stocks. 

So this is what I wrote back in March:  

Does that mean now is the time to buy Chevron?

No. I don’t think so. 

Governments and big corporations actually have a strong incentive to keep energy prices low. 

Low energy prices, like low interest rates, mean there will always be consistent demand. 

When energy prices go too high? It can have a chilling effect on an economy (like interest rates). 

Now, the people who bought Chevron when I insisted it was a “buy” two, three, and five years ago? When the stock was trading below $120 and everyone thought oil was dead forever?

They’ve seen fantastic gains. 

But the people who ignored me in March and bought Chevron anyway (or really any oil and energy stock)?

Well, most of them have lost money between March and mid-June.

(If I were a hedge fund manager, I probably would have bought what are called “protective put options” on my Chevron holdings. That is, I’d bet a very small portion of my assets on buying risky put options that would go up in value just in case Chevron went down in value. These can be good protective bets in situations where a stock rapidly rises in price based on temporary economic situations, such as spiking energy costs.)

Now, that’s probably a short-term situation. Chevron might go back up in the near future. 

After all, the cost of oil is probably going to skyrocket over the next 10 to 20 years as renewable energy sources take over and oil becomes more scarce (which I’ll dive into more in a future post). 

However, it is easy to imagine a regular Schmoe buying Chevron in March, thinking that it was a sure thing because the price kept going up, seeing the stock drop -8.25% by June, and then selling for a loss. 

Why is it easy to imagine this situation?

Because it’s what most ordinary investors do. 

It’s why, according to JP Morgan’s research, most regular investors underperform the market and barely beat inflation in the long term.

The reason why I bring this up is simple…

Most retail investors have a severe, severe problem with what’s called “the bandwagon effect.”

The bandwagon effect is a psychological phenomenon in which people do something primarily because other people are doing it, regardless of whether it’s actually good for them. 

This tendency of people to align their beliefs and behaviors with those of a group is also called a “herd mentality,” which I’ve discussed in the past.

(If you’re interested in reading an excellent book about this subject, look up Daniel Kahneman’s Thinking, Fast and Slow. It’s the best book about investing well that’s not directly about investing.)

As I said above…

Most investors are reactive. 

They are not proactive. 

So let’s ask ourselves: How can we be proactive in a bear market? 

[Quick reminder: A market correction is a drawdown in the stock market worse than -10%. A bear market is an extended stock drawdown worse than -20%.]

The answer is simple. 

“Be Greedy When Others Are Fearful, Be Fearful When Others Are Greedy”

Even though the first six months of 2022 have been rough for investors, I have remained optimistic. 

Not “super bullish.” Just a little bullish. 

My own research, which I’ve shared with you in the past, suggests that the future returns of the market might be lower than average in the years ahead. I also think things might get temporarily worse before they get better. 

This is mostly due to the market’s overvaluation as well as rising interest rates, the ballooning cost of debt, quantitative tightening, and the strong likelihood of a recession in the near future. 

(We are also nearing the tail-end of a long-term business cycle in the U.S., which is a complicated topic I will try to explain soon—unless something bad happens in the markets.)

But as an investor, I mostly perceive these as potential opportunities rather than threats. 

Why?

If you look at all the best times to invest in stocks over the last 32 years…

They all coincided WITH recessions and massive drawdowns:

Even during decade-long periods when the stock market went sideways (like 2001 to 2012)…

Buying on the dips caused by recessions and bear markets would NOT have harmed investors in the long run…

In fact, they would have caused investors’ gains to accelerate afterward. 

That’s the power of having a long-term, proactive investing mindset. That’s the power of seeing threats as opportunities. That’s the power of being greedy when everyone is fearful.

Let me conclude by saying one last thing…

The famous hockey player Wayne Gretzky has a fantastic quote that serves as a perfect analogy for how investors can actually make money with stocks…

Whether it’s passive index investing, growth stock investing, or even trading.

Gretzky was once asked why he was so good at hockey. 

He simply replied, “Most people skate to where the puck is. I skate to where the puck is going.”

So let’s be like Wayne Gretzky. 

Let’s not be reactive and skate to where the puck is. 

Let’s be proactive and skate to where the puck is going by investing in assets that have the potential to continue growing for years and decades to come…

No matter what is happening in the economy today.