Experiencing doubt and anxiety about your investments? Thinking of selling stock? Before taking any action, Fool Analyst Tim Beyers and Fool.com Contributor Asit Sharma, in a video recorded on Jan. 6, challenge you to ask yourself the four key questions below to help you better understand your fears and make the right decision.
- What will happen if I do take this action?
- What will happen if I don’t take this action?
- What are my objectives?
- Why is taking this action important right now?
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Asit Sharma has no position in any of the stocks mentioned. Jennifer Reardon has no position in any of the stocks mentioned. Tim Beyers has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool has a disclosure policy.
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Tim Beyers: “What do I believe will happen if I don’t do the thing I’m thinking of doing? What do I believe will happen if I don’t take an action?”
You’ve identified, let’s say, I’m afraid. Okay. I’m afraid.
“What do I believe will happen if I don’t address this fear that I have right now?”
We’ve talked a little bit about this before, guys. Asit, let me kick it to you here. We’ve talked about this and things like battling, catastrophizing, and things like that, asking what’s true. This is kind of what we’re doing here. But by virtue of this question, we’re going a little bit deeper.
Now we’ve identified this is what I feel. Now we’re starting to get into, “What is it that I think might happen here?” Now I’m going to start thinking about consequences. What is the text of the story I’m telling myself, right?
Asit Sharma: Yes. I think that this is a very sharp question to use when you’re thinking of making a sell decision. I’m going to talk about that, but also I’m going to cycle back to what it is to use this in a buy decision as well.
When you think of making a sell decision, this question is basically asking you to do your best case scenario-rising, that I assign the highest probability to X thing happening. Once you do that, then you are put in the position of questioning yourself.
“How sure am I that this is going to happen?” I’m just one investor. I don’t care how experienced you are, [laughs].
I love Brian’s thought today that we’re all just veterans. You are trying to now work with a probabilistic scenario based on your best thought of what might happen. If you’re listening to the words that I’m choosing, I think maybe you already are understanding that this language is all weighted toward the near-term. Because if you buy into the idea that great companies, if you choose great companies are going to do well over the long-term, that probabilistic scenario is really easy to see over the long-term.
It’s so much easier to see how an Amazon (NASDAQ: AMZN) could succeed over five or 10-year period than it is to say, is it going to succeed next week? Why are you thinking if it will succeed next week as we put it in terms of stock price? Because you or I are worried about the greater environment, the market environment, that is punishing that stock today.
By asking yourself the consequences of this decision, you’re forcing yourself to grapple with the problem that you’re creating [laughs] if you’re going to go ahead and sell. Which is, I am making a near-term call on the market and this stock.
Now, we are sensitive to the fact that everyone comes to the market with different types of allocation and different investing horizons. Maybe you got into the market at a peak and maybe you over-allocated to the market.
Mindset is here to help you as you go along, to figure out together. “How should we allocating our money? When should we be allocating it?”
Sometimes we do talk about where everyone is in terms of their investing careers, whether you’re in your fifties or your twenties, etc. But I will say that this question isn’t really designed to make you decide one way or another. What it’s designed to do, what Tim is getting at with this question, is to force you into thinking about, looking from above, that “Wow, I’m in this near-term scared fear posture, and that’s what I’m reacting to.”
We’ve had separate sessions that probably cover every word [laughs] that I just said in that sentence. So we love to dig into this.
If you can recognize that, I think it makes it easier if you’re holding quality companies to let it pass and say I’m going to take a timeout and maybe not make this decision today.
Now, let me just briefly talk about “What do I believe will happen if I don’t,” in the context of a buy decision.
This goes back to the first question: “Why am I thinking about making this trade?” Which Brian walked us through.
You can think about why you’re making a trade in terms of the company. I’m buying it, as Brian explained, because it’s got these characteristics. I think that I can allocate some funds to this, it’ll do well.
You can also think about making a trade or investment in terms of your ultimate investment objectives. You ask yourself, “Why am I making this trade?” It is because the company is really good, I’ve got confidence in it. I think it’s going to have these rising cash flows. Market will value it higher over the long-term.
But also, it’s part of what I wanted to do in life. I want to increase my wealth because, at the end of the day, I’ve got these objectives out there. You can call them goals if you’ve got goals. Some people frame it up in terms of objectives, some in goals. That’s also why I’m making this trade.
When you do that, then apply it to the next question. “What do I believe will happen if I don’t?” Sometimes that can help you in a tumultuous market.
Let’s say the market has gone down and you’re having trouble pulling the trigger to buy a stock. Ask yourself why. “Why am I in this in the first place? What do I believe will happen if I don’t?”
For me, it’s been helpful to me. I bought some stock I think in early April of last year, but it took me some thinking to do that. I had to ask myself, “Why am I investing?” I know I’m scared right now. I’m investing for the long-term for these things.
I finally pulled the trigger on a bunch of investments that worked out for me. I have also done it the opposite way where I’ve bought at a top of the market, but I’ve held.
Both of these first two questions, actually all four, are a little bit elusive. If you just take them at surface value, you won’t spend much time on them. They’re actually aiming at something deeper, which is why I love these. I’m going to write these ones down as well after we finish.
Tim Beyers: Next question here, I’m going to be fast about this one and get to the fourth question.
“What do I believe will happen if I do?” The purpose of that question, Asit was just taking you right down the past.
So, “I’m afraid. What is it I think is going to happen if I don’t take this action?” Understanding what it is that I’m afraid of.
Then asking this third question, “What do I believe is the other side?” This is meant to diffuse the fact that that internal narrator is on a single track. It’s a 100 percent on a single track, it tells you one story. It’s usually wrong. When you force yourself to look at the other side of the story, you actually create. You poke a little pain in the balloon which can be really powerful here.
Then question number 4, which is “Why is taking this action important right now?” Why is it important right now?
I do want to just quickly honor something that you said here. I think it was, “Love the Fool. Why such a long discussion on selling? Buying and sell your initial investment that takes the fear out of it. Also, is there a thought if you remove the fear, would you do it?”
I love that he asked this question. What I want to get at is it’s important to understand your motivation, your beliefs. “Love the Fool,” you may be a more experienced investor. But I think we have a lot of folks and I want to honor this, especially two groups in particular I’m thinking of here. One is the very new investor who’s just getting started and he’s very sensitive to making a mistake.
I see it all the time, Brian. I see it all the time where we’re getting a new investor and they make a commitment and then they make a mistake and what ends up happening?
The reason this exercise is so important, is that person, when they pull the trigger and they sell immediately because they’re like, “Oh my gosh, I made a mistake,” the core belief is very often is, “I can’t do this.” That’s what the core belief is, “I can’t do this.”
This mindset session is the reason this is so important. I can’t state this enough. I think there are so many people that when they really ask themselves these questions, especially if they’re new to investing, the core belief underneath is, it could be cultural things that have taught them this or maybe it’s TV ads, or maybe it’s personal experience where they say, “I can’t do this.” That’s a core belief.
I want to say to you right now, “Bunk. That is not true.” But we see it. I cannot tell you how heartbreaking it is, friends. We see it all the time.
I want this session to resonate with you because it’s so important. If you are experienced and you don’t have this issue, phenomenal. I am so grateful for you. But I want to honor it, especially if you’re close to retirement and you’re just starting to invest and it feels fearful or if you’re brand new and you’re just starting to invest and it feels fearful, we get it. We 100 percent get it.