Mr Market reminds my ego that volatility has a downside, again

I felt euphoric with my returns in May, but June brought back the pain and suffering as the market gave back half my gains.

One thing that I learned is that you have to accept volatility as a fact of life. Learn to expect it, so it doesn't become a shock when it does occur.

I have trained myself to deal with this most of the time, but when I have a huge gain, my ego starts taking over. I start seeking the adrenaline rush of making the big gains, and forget about the patience it took you to get there. Mr Market usually puts me back in my place pretty quickly, and you are reminded that your stocks can go back down.

I remind myself that volatility is only a factor if you are buying and selling in the short term. If you aren't planning on selling in a year, you shouldn't let the mistakes of other affect your decisions, yet the temptation to do so is huge.

The worst thing you can do when you are value investing is to thinking you can play with the volatility in the markets. The woulda, coulda, shoulda's start kicking in your brain, and its hard to resists the urge to trade. The market is teasing you with all these plays that seemed so obvious in hindsight that you could have done.

From my experience, this doesn't work out in practice. One thing a trader has to do is learn to forgo a trade if the price action isn't right. When you have a stock that is undervalued by 50%, you don't have the ability to say, "I won't buy this because it moved too high technically." Instead you are thinking "I have to get in now, or else I will miss the 'Big One'." Lacking the discipline of a good trader, you will buy and sell at the exact worst times, losing more money.

Besides the emotion side of it, there are also the extra taxes you have to pay when trading which can eat out any of the small trading gains you could theoretically make. A trade had to make you an excess of 15% extra for it to be even worth doing if you have a long term outlook on a stock.

The easiest way to deal with volatility is to not look at the markets all the time. This doesn't always seem like an option for me just because I am thinking about investing all the time. Still, if I do something outside or hang out with friends, my mind is a lot more clear when it comes to my performance. It helps you keep things in perspective by taking a longer term approach to the markets.

I also find that exeperience does help you develop a tough stomach for volatility. If you experienced it in the past, but made it out big in the end, it is easier to whether these rough storms. It is easier, but I wouldn't call it easy at all. Being patient is one of the hardest things in investing, especially if you follow the markets consistently.