Stock Market Fears: Overcome Your
Fear Right Now!
The Dynamic Wealth Report
February 25, 2011
by Robert Morris, Editor
Fear is a powerful emotion. We've all felt it many times before.
The flood of adrenaline shooting through your body and sharpening your
senses. Your heart pounding so hard it feels like it will burst out of
your chest.
It's frightening yet thrilling at the same time.
Fear is also one of our most basic and vital human emotions. Without it
we wouldn't be able to protect ourselves from perceived threats. In
short, fear is our ability to recognize danger and flee from it or
confront it.
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But here's something you may not know...
While the capacity to fear is basic human nature, specific fears are
learned. Psychological studies going as far back as the 1920s show
people can be taught to fear almost anything.
Take for example John B. Watson's Little Albert experiment.
Watson is the esteemed American psychologist who established the
psychological school of behaviorism. And his controversial Little Albert
experiment is now featured in introductory psychology textbooks
everywhere.
In this study, an eleven-month old boy was conditioned in a laboratory
to fear a white rat. Every time Little Albert touched the rat, Watson
would smash a steel bar with a hammer. The loud noise caused the boy to
cry and show fear.
After several repetitions of this process, Little Albert began to
associate the rat with the loud, scary noise. Until finally, when
presented with just the rat, Little Albert cried, turned away, and tried
to get away from the rat.
Now this study has been roundly criticized as unethical due to Little
Albert's young age. And as a father of two wonderful daughters, I
certainly agree.
But the study clearly shows human beings can be conditioned to fear
anything.
Here's my point...
A generation of investors have been conditioned to fear the stock
market. And as a result, they're missing out on the opportunity to build
enough wealth to support themselves in retirement.
It all started with the bursting of the stock market bubble in 2000. Wealth accumulated over many years seemed to disappear in the blink of
an eye.
This was a hauntingly traumatic experience for everybody.
And as a result, many investors swore they would never buy a share of
stock ever again.
Of course, after a couple of years, the market bottomed and began to
recover. It was the beginning of what would become a five-year bull
market for stocks.
But as usual, professional investors led the way.
They know the best time to get into stocks is when the economic outlook
is bleak. Most individual investors re-entered the market only after it
began making new highs in 2006.
I'm sure some of them enjoyed a year or two of nice gains. But it
wouldn't be long before disaster struck again. Just a short eight years
after the last meltdown, the financial crisis hit investors right
between the eyes.
This time around though, it wasn't just stocks that suffered. The most
important asset of all, our homes, plunged by amounts that defied even
the wildest imaginations.
Investor fear shot up to a level not seen since Great Depression days.
And now history is repeating itself...
The market bottomed in March 2009 and began to recover. Professional
investors led the way by getting back in while the economic outlook was
still horrible. And stocks have made a historic, nearly uninterrupted
two-year bull market run.
Once again, individual investors have missed out on the last two years'
worth of huge stock market gains. The stock market has become the
individual investor's white rat.
Rather than face their fears head on and get back into stocks, they've
mostly stayed in cash. And that's exactly where you don't want to be
when interest rates are nearly zero.
If you find yourself in this predicament, don't be too hard on yourself.
As Little Albert proved, fear is a learned response.
Instead, focus all of your energy on overcoming your fear of the market.
It's looking more and more like we're going to get a market correction.
The major stock market indices are all approaching pre-financial crisis
highs. Unrest in the Middle East is spurring fears of skyrocketing oil
prices. And a number of important companies have posted disappointing
earnings.
I don't think you could find clearer signs the market's headed for a
round of profit taking.
But don't despair. A little correction offers just the opportunity
you've been looking for. A chance to get into good quality stocks at
discounted prices.
Get mentally prepared to buy the dip. Do your research and find a few
stocks or stock-based ETFs. And when the opportunity comes, don't let
your fear of the market prevent you from building wealth you desperately
need.
• Intrepid Potash (IPI) was
upgraded by RBC Capital Markets from Sector Perform to Outperform. And
the price target was bumped from $38 to $44. The fertilizer maker just
posted better than expected fourth quarter earnings.
• Robert W. Baird downgraded MedAssets (MDAS) from Outperform to
Neutral and lowered their price target from $24 to $18. The healthcare
information technology provider reported big revenue and earnings misses
for the fourth quarter.
• Longbow initiated coverage on a couple of semiconductor stocks. They
started Intel (INTC) and Advanced Micro Devices (AMD) each with a Buy
rating. Both companies have been selected to supply parts for Apple's
new MacBook Pro notebook computers.
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