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The Apprenticed Investor: Bull or Bear? Neither

Posted By Barry Ritholtz On April 26, 2005 @ 1:00 pm In Markets,Psychology | Comments Disabled

Tscm_1 [1]The latest "Apprentice Investor [1]" column is up at TheStreet.com [2] (no subscription required).

It addresses one of the most frustrating things about commenting about the
markets in public: Seeing people mischaracterize your positions. Say something
negative, and you are immediately branded a Perma-Bear.

That rabid emotionalism was what motivated me in this week’s
column: Bull or Bear? Neither [3].

If your reaction to data that disagrees with your view is to
label it the work of “hand-wringing” “permabears” who should “go back to their
caves,” well, I gotta wonder if you are buried in positions going against you. Losing
perspective and lacking in objectivity is not exactly a good formula for trading
success. (It’s also quite revealing of Human nature).

If your first impulse is to name call anyone who disagrees with you, perhaps you may need to step back a moment and reconsider your positions.

Here’s an excerpt:

‘Are You a Bull or a Bear?’

I’ve heard this question countless times the
past few weeks. And I find it a stunning rejection of Darwinian logic that
proponents of such blather have managed to evade extinction. Investors simply
never get asked a more distracting and pointless question. Effective investors
find their style, then read the market and adapt accordingly.

Of course, in discussions about Wall Street, the bull and bear are
mesmerizing. How often do we hear a newscaster somberly intoning: "The bears got
gored by the bulls on Wall Street today…" The very next day, we hear the same
talking head reverse course: "On Wall Street, the bears came out of their caves
to chase the bulls, as the Dow dropped…"

The markets we saw last Wednesday and Thursday are textbook examples of why
the colorful imagery of the bulls and bears is magnetically attractive to
copywriters and repellent to good investing.

Why is this such a problem? Because of the "folly of forecasting": Once
people commit to a position, there is an unfortunate tendency to root for that
perspective. Even worse, people stick with their forecast, regardless of what is
actually happening in the market. We addressed this in the very first
Apprenticed Investor, Expect to be
. But instead of preparing, people dig their heels in and cost
themselves money by being more concerned with trying to be right rather than
making money.

Prior columns can be found here [1].

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2005/04/the-apprenticed-investor-bull-or-bear-neither/

URLs in this post:

[1] Image: http://www.thestreet.com/tsc/landingpages/apprentice

[2] TheStreet.com: http://www.thestreet.com/

[3] Bull or Bear? Neither: http://www.thestreet.com/_tscana/comment/barryritholtz/10219637.html

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