One of the more sobering things ever said about the stock market is, “don’t confuse brains with a bull market.”

When markets are rising, money is flowing, and capital is pouring into the lands of finance, it is easy to get carried away. Look over there! That is a genius investor. Or over there! That trader is a millionaire. And that one? That’s the best stock picker alive!

It is literally a challenge to invest your money poorly in a market that is popping off with excitement, with opportunity around every corner, and with never ending stories of growth. The punch bowl is full and money dances best when it’s drunk.

The real skill is found when you can invest successfully and with a sane mind in a market that is flat or declining. When viscous moves are thundering through the market or prices are grinding sideways in a storm-like manner, how do you perform? There are very few who have proven they are capable in these environments. Even the most diversified investors can get exhausted. At a certain point, the relief of having cash begins to exceed the mental capacity to continue onward. Sometimes, hanging in there, dodging swing after swing, is all that matters and it takes great skill to do.

The problem with making money from other people’s money, which is what financial markets are at the end of the day, is that generally someone, at some point, wants their money back. It’s at that time when gains can turn out to be not as real as once thought. I remember when I was suffering my worst draw down ever, the first time my stomach felt uneasy just looking at my portfolio, and a mentor of mine pulled me aside. He said, “You aren’t down as much as you think you are. Because you never actually had that money.”

What he meant was, while yes my paper value looked wonderful in the months before, it was not exactly mine for the taking. I had no right marking my draw down from that high point. I never saw the cash actually deposited. In the famous monologue from Blade Runner, when Roy Batty is grasping on to his last words of reality, he comes to realize how fast what he saw as reality can wash away:

“I’ve seen things you people wouldn’t believe. Attack ships on fire off the shoulder of Orion. I watched C-beams glitter in the dark near the Tannhäuser Gate. All those moments will be lost in time, like tears in rain.”

Blade Runner, Tears in Rain from Roy Batty

All markets eventually get tested and when they do, what you thought you had and saw, in the words of Batty, become lost in time like tears in rain. There is no easy answer or solution or article that explains what it means to go through these periods of time as a full-time investor. The only way is to go through it first hand. When it rains in markets, we learn the most about how good we really are.

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