Monday, March 30, 2009

Stocks for OCD investors

Stocks for those with Obsessive-compulsive disorder (OCD).

OCD, according to Wikipedia, is a mental disorder characterized by intrusive thoughts resulting in compulsive behaviors and mental acts that the person feels driven to perform, according to rules that must be applied rigidly, aimed at reducing anxiety by preventing some imagined dreaded event.”

Most people I know who invest in the stock market demonstrate the behaviors of obsessive-compulsive disorder.

The conversation between them and a ‘normal’ person goes something like this…

“Rough Market, eh?”

“Rough market” I reply.

“I bought XYZ at the last dip. I am upset. It went up a little but now it is lower than before I bought it. I am thinking of getting out.”

“Sure, definitely more downside possible.” I say.

“There could be some more downside, what do you think?” clearly nervous about the short term prospects.

“Sure, has been accelerating the unwind of the world’s previously biggest car company, previously biggest bank by assets under management, and biggest private insurer. I think that could cause more downside to the market.”

“What are you looking at buying?” OCD person asks.

Blank stare response.

The financial media, mutual funds, and maybe our mothers have conditioned us as investors to obsessively search for the next buy and hold opportunity. Millions of investors across the globe, like slaves to the financial system, scour the markets for the perfectly controlled positive feedback loop. Their stock purchase may come from a broker report, or a tip, or maybe individual research. They buy 100 shares of stock and if it goes up, then they buy 100 more. Then, if the stock goes up again, they repeat the cycle. If the stock goes down, they panic and exit. No entrance strategy, no exit strategy, and very edgy on the trigger.

Thus it is no wonder why so many people get so angry during bear markets. The behavior of the market is not meeting their expectations for a positive feedback loop, frustrating the desire of the regular fix to satisfy their obsessive compulsive desire for control of their environment.

The author does not recommend going long with a traditional buy and hold at this point. But lots of stock market investors just cannot wrap their mind around shorting or waiting for the demise of the automakers and most of the financials.

So as a community service for those with OCD who have no plans for correcting this portfolio- debilitating disorder, the author has chosen a series of stocks that should best benefit from current market conditions. Thus to address the impaired amongst us, I will recommend a few stocks, if purchased with a measure of discipline, that should provide a controlled positive feedback more often than not over the next year.

Author note: This post is not meant to insult those with Obsessive Compulsive Disorder but intended to insult those without the disorder who still mimic the traits in the stock market.

Author note #2: Stocks chosen for the OCD portfolio will not be included in the authors performance tracking because of the high risk of going long in the current market.

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