JSE Direct with Simon Brown

Podcast: Managing the pain of losing money

In JSE Direct, Latest by Simon Brown

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Simon Shares

  • Mid terms, Democrats sweep Congress while Republicans keep the Senate and now things get interesting. Markets will likely ignore this, remember the immediate sell off after Brexit and Trump victories and then the rally. But this removes Trump and the Republicans free hand on taxes etc. while also making it almost impossible to pass big laws as the two sides hate each other. Also Democrats in Congress are going to start digging into Trump from every direction. That said, markets will get over it as the US economy remains strong and profits continue higher. Importantly after the Smoot-Hawley Tariff Act** of the late 1920’s trade was removed from Congress and given to the president. (**1928 the tariffs started on wool and sugar and ended up on over 800 products and was mentioned in the movie Ferris Bueller day off)
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  • Upcoming events


Managing the pain of losing money

If you haven’t yet experienced a truly massive loss in the market you’re either exclusively in Exchange Traded Funds (ETFs), a newbie or lucky. Because one day it will, and I have spoken about panicking quick and selling dogs. This week the five stages of grief.

But first the pain of losing is twice the joy of making. Compare being scammed out of ten bucks vs. finding ten rand on the pavement. You’ll remember the former for days, ages afterwards. the latter you’ll have forgotten before you even spend the money.

The Kübler-Ross model of the five stages of grief. Yes this is around death, but it can work for any loss and so I am using it in terms of a large loss on the markets – typically in one stock (lots of recent examples here).

The 5 stages are; denial, anger, bargaining, depression and acceptance.

  • Denial. It’s not happening. All will be fine. Fake news. Rotten governments. Nasty passive providers. Over reaction. The diagnosis is mistaken, and we cling to a false, preferable reality. Simple we put our head in the sand and pretend it’s not happening.
  • Anger. It seems real and now you’re angry. A pile of your hard earned money is gone and somebody needs to be blamed. Never yourself, somebody else. Your broker, that expert on TV, the CEO, a politician. It’s not fair. Stomp, stomp, stomp.
  • Bargaining. Still trying to not blame yourself, you start to excuse your actions. How could you know? It will recover, the market has over reacted and things will improve. Everybody got duped. You’re trying to excuse your actions, not so much the buying, but the not selling immediately the bad news broke. The news isn’t really that bad and it’ll recover eventually.
  • Depression. This is bad, real bad and now you hate markets and are never watching BusinessDay TV ever again. Everything is corrupt and rotten. This ‘thing’ is rigged against the small guy.
  • Acceptance. We all end up here eventually. Things happen, often bad things but this is a natural part of investing. At times we get it wrong, fraud happens, shares collapse. Now we can start looking at ways to prevent this happening again. What price do we pay (the only thing in investing we have control over). A diverse portfolio with lots of passive to reduce the impact of a single stock collapse.

Recognise what stage you’re at and importantly what can you control.


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