{"id":34726,"date":"2022-06-25T18:00:45","date_gmt":"2022-06-25T18:00:45","guid":{"rendered":"https:\/\/thepatientinvestor.com\/?p=34726"},"modified":"2022-06-26T02:21:54","modified_gmt":"2022-06-26T02:21:54","slug":"strong-hands-versus-weak-hands","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2022\/06\/25\/strong-hands-versus-weak-hands\/","title":{"rendered":"Strong hands or weak hands"},"content":{"rendered":"

\u201cNowadays people know the price of everything and the value of nothing.\u201d\u00a0 ~ Oscar Wilde<\/p><\/blockquote>\n

Strong hands are long-term investors, including most institutional investors, who focus on intrinsic value and are insensitive to price.<\/p>\n

Weak hands and leveraged investors are highly sensitive to price. They follow the news cycle in an often unsuccessful attempt to to time purchases and sales according to short-term, often random, fluctuations in price.<\/p>\n

Weak hands respond emotionally to price movements — making it difficult to be objective in\u00a0 their decisions to buy or sell — while strong hands focus on dividends and other measures of long-term value.<\/p>\n

Strong hands recognize that the biggest obstacle to sound investing is their own emotional response to rising or falling prices. Weak hands submit to the psychological pressure, make frequent buy and sell decisions, and find it difficult to be objective. Strong hands detach themselves as far as possible from the price cycle and the emotional pressures that accompany it.<\/p>\n

At the peak of the investment cycle, weak hands pay way above fair value for stocks, while strong hands resist the urge to buy when price exceeds their own objective view of long-term fair value.<\/p>\n

\"Fair<\/p>\n

As confidence decays and prices fall, weak hands are shaken out of their positions. Margin calls force some to liquidate while others sell through through fear — failing to recognize that anxiety is the primary cause of falling prices. Some try to hold on to their positions but eventually succumb to the pressure. The mental anguish of watching their stocks fall often drives them to sell at way below fair value — just to end the pain.<\/p>\n

Strong hands are patient, independent of the herd, and unmoved by the wild emotional swings of bull and bear markets. They wait for stock prices to fall to below fair value, when opportunity is at its maximum. Stocks that are gradually recovering from a steep sell-off and scarce retail buyers are signs that a bottom has been reached.<\/p>\n

Recency bias<\/h2>\n

One of the key benefits of years of investing, through several stock market cycles, is the ability to recognize the familiar signs of euphoria in a bull market and despondency in a bear market. When it seems that the bull market will never end, that is normally a sign that risk is elevated. Conversely, opportunity is at its maximum when an air of despair and despondency descends on the investing public.<\/p>\n

Don’t confuse price with value<\/h2>\n

Price seldom equates to value.<\/p>\n

Short-term investors confuse price with value, making them vulnerable to wild price swings which can weaken the resolve of even the most hardened investors.<\/p>\n

Long-term investors hold the majority of their investments through several\u00a0 investment cycles, pruning only those stocks where long-term revenue growth or profit margins have been permanently affected and are unlikely to recover.<\/p>\n

Supply and demand<\/h3>\n

Many readers are familiar with supply and demand curves from basic economics. For those who are not, here’s a quick refresher:<\/p>\n