Over the past six years I've learned that stock markets are somewhat predictable. And, the reason they're so transparent at times is because I discovered this past week that the markets are NOT filled with lemmings. Lemmings are cute and they usually act rationally for a small mammal with limited vision. Humans who act en masse in any given situation are quite a different story, especially when that situation includes the stock market.

This epiphany about lemmings and humans arrived when I finally learned about lemmings this past week at a holiday get-together. I always thought lemmings were fish (long story). They're not fish. They're rodents. They're little mouse-like creatures that weigh about 4oz. with a length of about 3"-6", and they live around and in the Arctic. Like gerbils, they have soft thick fur, little rodent tails and ears, and long claws. They use their claws to dig up grasses, mosses, roots, bulbs, and possibly insects. They often stash their food in snow pockets to carry them through the winter.

Lemmings need winter food because they don't hibernate, and therefore they breed as often as any other animal that doesn't sleep through the winter. The population expansion that occurs from this year-round fun often leads to necessary migrations to hunt for more food. These mass movements have led to the myth that lemmings are mindless creatures that leap off cliffs in suicidal pacts, because lemmings have poor eyesight and they've been known to run into some situations where gravity works its mysteries.

While lemmings sometimes make mistakes, they're not suicidal. But myths are strong, and the term "lemming" is often used to describe anyone who mindlessly follows the crowd, even if self-destruction is the result. And this notion of self-annihilation personified by lemmings has been perpetuated by movies, computer games, advertising, and song lyrics.

Stock market reporters and analysts also keep the lemming death wish alive as they describe investors who dump stocks in a panic over a bit of bad news or who hike the price of a stock way beyond its value. This is why I always thought investors who acted as one were lemmings; but now I realize that limited vision is the only similarity between these furry Arctic rodents and investors who overreact.

To fortify my cognitive shift about lemmings and groupthink investors, I thought of a few recent examples where the "group" and its limited vision actually helped me learn how to hold onto my money in the markets:

1. I can barely watch Cramer on CNBC because his sound effects annoy me. But I sit through his show and write down every stock that he praises. Then I plug those ticker symbols into a watch portfolio and wait for the next trading day. Sure enough, 95% of the stocks that he mentions on his show head north, at least for that day. I've learned from this exercise that if I own any stock that he mentions and if I want to let go of any shares in that holding, the first trading day after his show is when I need to sell.
   
   
2. I've learned that most investors can't tell the difference between steel and titanium, or from just about any other metal or alloy for that matter. Therefore, when the steel industry takes a hit, other metals industries usually fall right along with the steel industry, even if they're competitors. In one recent case where this happened, some metal stocks fell a full 10% and more. This type of dump creates a wonderful situation to pick up on some stocks for sale.
   
   
3. A seasonal company means that this company's sales might wither during a particular season because their product or service is inappropriate for the weather. Think hot coffee in summer and motorcycles in winter. But, when a seasonal company reports that sales will be slow over a certain slow-sales quarter (meaning a slow-sales season), what happens? You guessed it. The stock will fall, granting some smart investor an opportunity to accumulate seasonal stock.
   
   
4. When a ten-year-old company based in the Caribbean has a bank account in Switzerland and its price per share fluctuates between $5 and $8 consistently over a period of five years, then you're looking at a penny stock, no matter what anyone tells you. This is where a little research into a company's financials, locations, and historical figures comes in handy. If you get sucked into a stock like this, get out before the company disappears with all your money (this from one impaired moment when I followed stock market senselessness).

Mind you, I'm not a day trader, but I had to get over a day trader mentality that I developed when I began to invest. This is why I need to strengthen myself against "groupthink" investors. When the market panics, I need all the muscle I can muster to avoid following along like a?well, like a fish.

I now look at stocks like business partners that I intend to stay with for at least one year and possibly many more. So those stocks must look mighty fine for me to stay with them that long, even during the rough spells (which I now look at as reasons to accumulate - what reporters call "buying on the dip"). Secondly, I don't want to pay full taxes on capital gains when I sell, so I must stay with my stock choices for over a year, unless they fall like a rock and I can take that loss against gains (See the IRS and your financial advisor about your specific investment income and expenses).

These rules keep me in line. You might say they keep me from going over the edge.

Until Next Week,
Linda Goin