How A Second-hand Car Salesman Taught Me About Stock Market Psychology

I used to work for a second-hand car salesman called Alex who specialised in Classic Cars. Jaguar XKs, E-Types, Aston Martins, AC Cobras, Trans-Ams, Austin Healeys, anything that an investment banker would impulse purchase (or at least, used to, in the 1980s). The name of the game was a lesson in stock market psychology.

There are two things you had to do right: buy the car and sell the car. But of course, things were different in the 1980s, and the big advantage for a good salesman like Alex was that the “true value” of Classic old cars didn’t really exist. There was no internet in those days, and for a second-hand car salesman, the ignorance of his customers was bliss.

It was much like the stock market today, people purport to put a ‘value’ on a stock but ultimately they rely on a lot of rubbery assumptions which means the valuation is not ‘truth’ it is simply a negotiating tool in a sale and all that really matters in the end is the price someone is prepared to pay and the price someone is prepared to sell. Making money trading Classic Cars was the same as making money trading stocks; it was all about taking advantage of other people’s emotions by creating fear in a seller and selling into a buyer's euphoria.

Buying First – Create Fear

Buying first. For Alex, the main game was to create ‘depression’ and to do that, you had to know your stuff or at least sound as if you did, and Alex had developed a ‘naked script’ he could pretty much rely on whatever the car. Confronted by an emotional amateur selling their pride and joy Alex’s job, indeed his amusement, was to beat them down from a “Glorious example of a Classic Car” to a rusty old lump of crap owned by a deluded fool.

In the second-hand classic car market, the skill is to generate fear. In the stock market, the money is in recognising it, recognising the points of maximum fear or euphoria.

Selling Was Easy – Wait for the Stars

As far as selling was concerned, that was easier, in fact it was so easy Alex could delegate it to a Muppet like me. All he did was re-spray and re-chrome and tell us to wait for an investment banker with a bonus in their back pocket and (the expression was) “Stars in his eyes” to come along, be blinded by the shiny paintwork and new chrome and pay a lot more than the metal millstone had actually cost. And if someone came in with an Austin Healy owners Club T-Shirt and opened with the comment that “the next thing to go will be the tie rod ends”, we were told to simply usher them politely off the showroom floor with a smile. You don’t have to sell. Eventually, someone with “Stars in their eyes” always turned up.

The Stock Market Is Just Like a Car Yard

Making money in stocks is the same. It is not about fundamental value, as hordes of finance industry automatons would have you believe; it is about taking advantage of other people. People with stars in their eyes who have inflated a bubble, and people consumed by fear, dumping stocks at any price. It’s about inaccurate pricing, not accurate pricing. It’s about timing. It’s about selling stocks as a bubble bursts and buying them at peak distress. It’s about exploiting the herd, not joining the herd.

As the Wolf of Wall Street says, investors are sheep, and sheep are for slaughter. Be the Wolf. Be Alex.