Imagine yourself at a taekwondo tournament. Both you and your opponent start off cautiously – a few kicks here and there, testing and assessing each other. Then you fake an attack, deceiving your opponent with a quick shuffle and a loud yell.

Your opponent takes two steps back and you advance quickly with a sidekick, sending him flying off the floor mat. The rest of the match is history.

Now imagine a second tournament. You begin cautiously, throwing a few kicks to assess your opponent. You fake an attack and your opponent retreats.

Convinced that he has fallen for your bluff, you launch a roundhouse kick. At the same time your opponent steps in, closes the gap between you, and raises his foot to give you an axe kick. He collects two points, having anticipated your move.

Here’s what these scenarios have to do with stock investing.

1. The characters

There are three major players in the stories above. The first opponent represents how most people invest in the stock market – fearful and unprepared to face market uncertainty. The second opponent alludes to how savvy investors deal with uncertainty and profit handsomely. You are the third character, personifying uncertainty itself as you are not a stationary target.

2. The bad moves

Most investors do what the first opponent did when attacked – they retreat. This may have been intuitive on your opponent’s part but it only ended up placing him in greater danger than before.

Likewise, the market is capable of launching an attack, such as the market crash of March 2020 due to the pandemic. Many investors retreated, fearing the worst. They panicked, sold off their investments and stayed on the sidelines, losing a chance to boost their wealth.

3. Rules of engagement

Your second opponent moved forward when attacked, denying you the opportunity to follow up with further action. He was experienced enough to spot a decoy and was prepared for what was coming.

Similarly, in a market crash, savvy investors are prepared and remain calm. They recognise that the price-to-earning ratios of fundamentally great stocks are reducing, just as how your opponent closed in when you advanced. These investors have their preferred stocks in mind and already invested in them at prices that are hugely discounted in the stock market.

These illustrate the psychological differences between an experienced and inexperienced practitioner. The stock market is a battleground, just like your taekwondo bouts. Both will deal with the participants’ ability to handle emotions and sticky situations.

Now – when faced with an attack, will you retreat or move forward?

This article first appeared in KCLau.com.

Ian Tai is a financial content generator and dividend investor. He is the author of over 450 articles on finance featured in KCLau.com in Malaysia, and ‘Fifth Person’, ‘Value Invest Asia’ and ‘Small Cap Asia’ in Singapore. He is also a regular host and presenter of a weekly financial webinar with KCLau.com.