A Momma Bear protects her cubs fiercely. This is the way it should be with your stocks. When you get a stock, you are picking to hold for the long term. The longer the holding period, the more important it is to protect yourself from short-term fluctuations in price.
Treat your stocks like Momma Bear treats her cubs. Check in often, but don’t let emotions take over and make rash decisions. The best way to do this is to set up a sell stop order that becomes active if the stock falls below a certain level and becomes inactive again if the stock rises back above that level.’
The best analogy I have heard to describe the stock market is that of a Momma Bear, who cares for its cubs and will fight to protect them. A Momma Bear does not care about market forecasts, or news, but instead focuses on the fundamentals of the business and character of the management. It is focused on what it knows and ignores everything else.
They will not be swayed by silly headlines in the financial newspapers, or by commentary from talking heads on CNBC. If you want to know what a Momma Bear is thinking, you have to look at where it puts its money.
Just like a Momma Bear would never abandon its babies, so too should investors never abandon their stocks. When there are bad times, they will be there for them until things get better. And just like a Momma Bear, they will not care about the price of their stock during those periods – they have no interest in playing games and neither should you!
A Momma Bear investor only looks at one thing: The price of its stock as compared to its intrinsic value. This is called “margin of safety” and is probably one of the most important concepts I have learned in my career as an investor. It allows me to sleep well
What happens when you’re holding a stock that you think is going to drop? Do you sell it, or do you hold onto it?
I want to suggest that we treat our stocks the way a momma bear protects her cubs. When those bears find their cubs in danger, they huff, they puff, and they blow their foes away. If a bear’s cub is threatened, she doesn’t run away. She fights.
The same should be true of us as investors. We know our investments are great companies which will one day return huge profits. But if someone comes along and tries to attack our investment, we need to fight back.
Our investment is like our baby bear – and like the mother bear, we don’t abandon our baby bear because it’s had a bad day or two. We protect it. We fight for it. And we never run away from it even when the market seems ready to eat it up with a spoon.
The “Momma Bear” approach to investing was originally coined by Peter Lynch, the now-retired manager of Fidelity Magellan Fund. Lynch is known for his long-term performance, having averaged 20% annualized returns over a 13-year period.
While Lynch’s term may be new, the concept certainly isn’t. It’s an old investment axiom that you must be patient and have your eye on the long term rather than trying to time the market and making rash trades.
Like a mother with her cubs, you should be protective of your stocks and guard them carefully against outside influences. In this case, you don’t have to worry about other bears eating your stock or even other investors seeking to take advantage of a temporary dip in price.
Instead, you should guard your stock against yourself by not selling or buying on a whim. Even if you are feeling optimistic or pessimistic about it in the short term, make sure that any decision you make is based on data such as charts and long-term performance.
The market is a cold, cruel place. While it’s unlikely the bear will actually come out of hibernation to eat an unsuspecting trader, like a mama bear will protect her cubs from anything that comes near, so should you be prepared with your own financial security blanket.
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There’s nothing worse than losing money and feeling helpless. You are used to being in charge and the feeling of helplessness can be overwhelming. To eliminate this feeling it’s important that you have a plan in place before it happens.
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A proper plan is something that establishes rules for when to buy and sell. These rules can be based on time periods or stock price levels depending on what works best for you. {picture}
Your plan should also include provisions for extreme situations like large drops or spikes in share value so you don’t get caught off guard. {picture} {picture}
And don’t forget to have fun! It’s important to remember that trading stocks online is a hobby and trading shouldn’t be stressful or cause you anxiety, for the only way to truly make money is to enjoy yourself doing it.”
The stock market might be more enjoyable if it was run by a mama bear. Instead of just grabbing and selling, the bears would just put their paws on the chart and squeeze ever so gently. They wouldn’t do anything that seemed impulsive, or sudden—or irrational.
Of course, the stock market is not run by a mama bear. It’s run by mama bulls and baby bulls. And they’re all over the place: crashing one day, giddy the next. I have no problem understanding why people like to play with their money as though it’s Monopoly money—it is fun! But sometimes it’s hard to remember that every transaction you make will affect your bottom line, whether you like it or not.
It feels good to buy something when its price is going up quickly and sell when it’s going down slowly; I know this because I’ve done both of these things. The problem is that slow stocks go down faster than fast stocks go up. This means that when you are buying something based on momentum, you are also buying a lot of risk: perhaps way more risk than you realize.
Yet even though this risk is very real, it’s hard for me to suppress my inner momentum investor—the one who wants to
