In 1939 just before World War II, the British were predicting mass air attacks on their major cities. To raise public morale, the government produced a poster titled Keep Calm and Carry On. Though they printed nearly 2.5M copies, it wasn’t a well-publicized campaign and the posters were rarely displayed.
It wasn’t until 2000 when a copy of the poster was discovered. Since then, private companies have used the theme to sell products and services. The belief in British stoicism – self-discipline, fortitude, and remaining calm in adversity – seems appropriate when it comes to investing in individual stocks.
To be stoic, one must be without emotion. The greatest fictional stoic was Spock, from the show Star Trek. He showed no emotion and followed logic for his decisions. Spock would be a great investor. A great example of an actual human stoic is Bill Belichick, the great Super Bowl winning coach of the New England Patriots. Watching him during a press conference was beautiful – he was calm and in total command.
One of your greatest skills as an investor is to stay calm and be stoic. It’s likely that a lot of wealth has been lost when emotions rule an investor decision. So, what is one to do when your stock missed quarterly earnings by 50%? Keep calm and carry on. How about the class-action lawsuits against Johnson & Johnson? Keep calm and carry on. When BP or Exxon Mobil has a major oil spill? Well, you know what to do.
This doesn’t mean you never sell a stock. It just means you stay calm and carry on. Being calm can be your greatest super power in your quest to building wealth. How’s that for a claim? I just made that up, but I’ve seen first hand how emotions can ruin wealth. It can cause someone to buy a bad stock or sell a good one.
Fear? That’s the Other Guy’s Problem
What makes people panic is fear. One of the greatest scenes in the movie Trading Places is when Dan Aykroyd is schooling Eddie Murphy on what is about to happen on the NYSE floor. The subject of fear enters the conversation.
“Think big, think positive, never show any sign of weakness. Always go for the throat. Buy low, sell high. Fear? That’s the other guy’s problem. Nothing you have ever experienced will prepare you for the absolute carnage you are about to witness.”
Trading Places movie
I’ve used that fear quote often in my life. I remember going into interviews or major executive meetings and I’d say that quote to psych me up. When you shift the fear away from you it gives you confidence. When you are stressed, you’ll do anything to get your confidence up. And having confidence can keep you calm.
When it comes to buying (and holding) individual stocks, you need this confidence periodically. For many people (myself included), my natural inclination when something goes too right or too wrong is to sell, sell, sell. I either want to protect my profits or limit my loss.
For example, AT&T has had a great year and they are up about 50% (including dividends) from their lows. One of my “favorite” groups of people – analysts – just came out with a sell rating on the stock. In just a few days, the stock dropped nearly 10%. The old me would have thought it was time to sell. The new me continues holding because that’s what you do when you are building wealth.
Conclusion
Another 25% or 50% stock market correction will come. It’s how we prepare for and handle these events that will keep us on the path to building wealth. When I feel uncertainty creep into my brain, I remember a few things to keep me calm:
- When I buy a stock, I’m buying future dividend income (and reinvesting those dividends today) so today’s stock price doesn’t mean much to me
- My stocks are solid, creating lots of cashflow and profit, so I have confidence to buy and hold
- Time is on my side and I’ll buy more stock if it goes down
- I’m confident in my decision to buy the stock and I’m confident in holding
- Short-term moments are designed to scare the weak and I’m not weak
A calm investor has a good chance to build wealth but that’s only part of the battle. Being calm doesn’t mean you are paralyzed with fear or take no actions. That’s where the concept of “carry on” plays a big part in the wealthy investor. To “carry on” means you keep buying quality dividend stocks and reinvest the dividends.
Remember, you’re calm, and this allows you to think rationally about the events that are going on around you. It’s this advantage that will enable you to build wealth while others panic. When others are selling in panic and fear, you are holding what you have and buying more. It’s exactly why you have some extra cash on hand … you are ready for the weak hands to sell to you.
Thanks for reading!
Mr. TLR