Psychology 101

On a day my MFI portfolio drops about 3%, it is time to talk either psychology or philosophy. I thought Jim Jubak in his blog had a very interesting comment. He has been saying for some time that the US markets were the place to be for the 1st half of 2010. His opinion was that the 2nd half would struggle as year over year comps became more difficult and people started to think more about the Fed raising interest rates and the Bush tax cuts sun setting.

His plan was to sell more by the end of May, to be ahead of the crowd (as I have stated before it is best to panic before everyone else panics). But it is looking like other people had the same idea, which has the impact of moving everything up.

I read a great book recently about the psychology of investing. It had a great experiment. They tale 1000 people and tell them to pick a number between 1 and 100 such that their pick will be closest to the average of everyone else's pick. If it was simply random, you would clearly expect the average to be 50. Of course, smart people will think "people will not pick around 50 as they will realize that it would be silly for any individual to pick OVER 50." But the some people will think on a second derivative fashion, "if no one is picking over 50, then smart people won't pick over 25!". Obviously, you can take this logic to the nth degree and everyone picks 1.

What is my point? I am sure I had a point. It is when people know, or at least are pretty sure that the stock market is going to negative in the future, you get this same sort of recursive thinking on when it is best to bail... when the punch bowl is to be taken away.

I of course knew the market was about to go negative as I just got 100% invested in MFI! But I am only teasing, I have overall been preparing for this with more conservative investments, bonds, cash and gold.

Update on Qcor: It started the day down sharply, about 7%. But while the markets tumbled the rest of the day, Qcor ended up about flat.

JCOM announced earnings after the bell today. They looked pretty lukewarm to me (InPlay: j2 Global misses by $0.01, misses on revs) but in after hours they are pretty flat.

KSW announced this morning before the market opened. It was pretty bad (KSW, Inc. Reports First Quarter 2010 Results) only made a cent. They do expect things to pick up, though they really didn't say much.

Tomorrow if we have another bad day we can talk philosophy.