London...and a Look Back

07/15/2005 12:00 am EST

Focus:

Bernie Schaeffer

Chairman and CEO, Schaeffer's Investment Research

In addition to specific stock advice, we're always glad to share thoughtful commentary to help you become a better investor. For perspective, we turn to Rick Pendergraft of Schaeffer's Investment Research who reflects on the events in London and recalls the tragedy of 9-11.

"When I awoke this morning, the news of the explosions in London evoked a plethora of memories. I am alluding to that fateful day in September 2001, when terrorists struck New York and Washington DC. While the London bombings were not as devastating as they were three-and-a-half years ago, the news still sent chills through the body. I thought this would be a good opportunity to revisit an article that I wrote that week. I should preface this statement by saying that the week of September 11, 2001, was my second week in the Research Department here at Schaeffer's Investment Research. I had only written one article for the Web site prior to that day. I still consider the article below to be one of the best I have ever written.

"I found it to be therapeutic to write this article, and I tried to give readers sound advice on how to handle their investments once the markets reopened. It is hard not to get emotional when events occur like the events of this morning, but emotion is better spent on loved ones than on financial decisions. If you get too emotional about your investments, you are probably in the wrong investments for your personality. I am not saying that I don't get somewhat emotional about my trades; the key is not to let the emotion interfere with the decision-making process.

The Tao of the Markets

"First, for those not versed in Mandarin Chinese, the word Tao means 'the way'. It seems trivial to be writing about the markets in the wake of the events in New York and Washington DC, but it is a reality we have to face in order to move forward in life. In attempting to write this article, it is difficult to keep the mind from wandering, and I am a thousand miles away from the locations of these heinous acts.

"Over the last few days, I have read countless articles on what will happen and what should happen when the markets open. There are a number of analysts and traders saying that investors should show their patriotism by buying stocks when the re-opening occurs. The title of this article is such because the market is going to move in the direction that the market wants to move. Attempts to manipulate the market have not worked in the past, not on a long-term basis anyway, and manipulation will not work now. Most experts will tell you that emotions should not enter the picture when it comes to trading and investing. Emotions work in many directions. Selling that is done based on emotional reasons is likely to cost you money, as is buying that is done based on emotion.

Do not move unless it is advantageous.
Do not execute unless it is effective.
Do not challenge unless it is critical.
-Sun Tzu

"As a student of the markets and a student of martial arts, I find similar traits necessary in order to be successful. The first and most important is discipline. I do not know of any successful trader, or martial artist, that has had long-term success without having discipline. Rather than encourage readers to buy or sell their investments based on the events of Tuesday, September 11, I encourage people to use discipline in their approach.

A good martial artist does not become tense, but ready.
-
Bruce Lee

"Secondly, approach the markets with a clear mind. This is going to be difficult for all of us, but thinking clearly is an absolute must. Trading with a clouded mind puts you in a vulnerable state. Try to go into the re-opening with a clear and open mind. Being locked in to one mindset would not be prudent at this time. The fact that there is this emotional susceptibility is going to create chaos on both sides of the financial markets. Patriotism is a wonderful thing, and it is unfortunate that it takes an incident like this to rekindle this spirit in our country. Patriotism is an emotion and we should be proud, but do not let this emotion interfere with your thinking when it comes to financial matters.

"The last trait of successful traders and martial artists that I find critical is flexibility. One should not approach any volatile situation without backup plans. You should be adaptable in your approach to the markets. Things are going to change rapidly and the sentiment is going to have wild swings. Do not become rigid in your approach. The hardest tree to break is the willow because of its flexibility. I encourage you to be like the willow in your trading. I have concerns about the market and the world just like everyone else. Emotional decision making will not help anyone in any situation. I assure you that this country will get through this tragedy. United States citizens are resilient and proud. There have been many tears shed recently, but the opening verse to Lee Greenwood's 'God Bless the USA' hit me particularly hard. I share the lyrics with you here:

If tomorrow all the things were gone I'd worked for all my life,
And I had to start again with just my children and my wife,
I'd thank my lucky stars to be living here today,
'Cause the flag still stands for freedom
And they can't take that away.

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