Mark-to-market accounting is defined as a system in which assets, such as stocks, are valued based on their most recent market price. This is used for a variety of reasons in accounting but it is also a tool that can help you navigate very difficult markets like we have now.
In bear markets, one of the biggest dangers is the 'deer in the headlights' syndrome. There is a tendency to freeze and not take action when there is an opportunity. The bigger our losses grow, the more likely we are to tell ourselves 'it is too late to act' so we just sit there and watch the situation become worse.
It is a difficult psychological situation because there is a tendency to feel that when we finally do act we will do so at the worst time so we just end up hoping for the best rather than taking control of the situation.
The solution to this common problem is to change the way you view it. Rather than focus on the big loss we have accumulated and our poor decision making, we should start fresh today. The best way to do that is to pretend that you just bought your stocks today. You mark-to-market and totally forget our cost basis and what has happened previously.
Once you take this step, you can make a trading plan without emotional baggage. You will have fresh eyes and fresh feelings as you contemplate a stock that you just bought. Where should I set my stops? At what point should I take gains? Should I consider buying more if this occurs?
I've been using Disney (DIS) as an example of a stock that some investors may consider for the long term. How would your feeling change about the stock if you pretended you bought it right now at the current price? Where would you set a stop out point? Where would you buy more or sell some?
The goal here is to drop your emotional baggage and prevent inertia. The market looks totally different when you view it as if this is your first day of holding positions. You are suddenly free to deal with them in a logical and forthright manner.
Good trading and investing is largely a product of controlling our emotions. We want to be able to act aggressively at the right time and we are not able to do that if we let the mistakes of the past haunt us. Try mark-to-market and see how it changes your thinking and your attitude.