When I first started to get serious about investing in the stock market I corresponded with some very successful and skilled traders on the Prodigy Money Talk bulletin boards.  I wanted to learn everything I could about trading and investing in stocks and asked them hundreds of questions.  

I would ask questions about which broker to use and what charting programs were best.  I pestered them day and night to teach me about technical analysis so I could learn how to find the best stocks to be in.


 And although they were very generous with their time and knowledge, always answering my questions politely, they consistently brought things back to the mental game of the market.

I couldn't really understand what they were trying to tell me.  It seemed simple -- or so I thought -- find good stocks, buy them, sell them when they went up, and repeat until I was a billionaire.  What did the "mental game" have to do with the stock market I reasoned?

Pretty much everything it turns out.

Most people forget that the stock market is a "zero-sum" game, meaning you only make a dollar by having somebody else lose a dollar -- and visa versa.  What that means is that you are entering a highly competitive environment, whether you like it or not.  If you are not used to competition, or the mindset that accompanies it, that can be a problem.

But the biggest mental challenge in the stock market is that it is perpetual.  Though it has opening and closing hours, it never stops.  There is no beginning and no end.

 Because of this it makes it very hard to not only gauge your performance, but more importantly, be comfortable with it.

A game, for example, has a beginning, an end, and a definitive goal.  You know when you are to start, you know explicitly what you are trying to accomplish or achieve, and you know definitely when play is over.  And once it is, you can objectively determine how well you did. Not so in the stock market.

You buy a stock, it goes up, you sell it, and it goes up even more.  Did you win because you made money, or did you lose because you lost out on more money?

Your portfolio is up 15% for the year by June.  But by the end of the year the market has dropped and you are now only up 7% come December 31st.  Is that good because you can't that type of return anywhere else, or is it bad because you gave up 8% on your money?  

Think about it, when you are up 15% by the middle of the year, what are you supposed to do? Sell your stocks and book a nice profit?  If the market drops you are a hero.  But if it keeps going up then you are a goat.  And what is magical about the 31st of December?  What if in the first month of the New Year you give half of it back?  Is your return for the previous year nullified?

Yes? No? Maybe?

It's a lot to think about and we will explore more concepts relating to the mental game of the stock market in future articles.

Check out my list of "20 Books Every Investor Should Know About."

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