If you are active in the
stock market, you are going to make some mistakes. That’s a given. There is only one
way not to make mistakes. That is not to do anything. I prefer to do things.
Learn from your mistakes, don't beat yourself over the head with them. Don't stagnate yourself. When you come to a fork in the road, take it. Trust your instincts and listen to people close to you. Try not to second guess yourself. Never look back, always concentrate on the future. When you burden yourself with anxiety over past mistakes, you create an unnecessary obstacle to future success.
A good way to deal with mistakes is to define
your goals. When you purchase a stock, you should have two goals in mind. 1: What is
my profit % out. 2: What is my loss % out. Most investors don't think about the later
one. Remember, if your stock is moving up, your loss % out moves up with the
current price. Some non-disciplined investors just sit there and watch the stock go down hoping that it
will come back. No discipline! Your personal goal should be to increase your wealth. To accomplish these
goals, take reasonable risks in the stock market. Over the years this should be
successful for you.
It's simple - buy
every stock at its low and sell it at its high. Don't you wish you could be this simple? The problem with that goal is that it is
unachievable. Such an unrealistic approach would create unnecessary frustration and reduce
your effectiveness.
Try not to get fixed on what happened to a stock after you sold it or emotional responses to financial downturns and upturns. It's only numbers. Emotions rarely produce good results.
How many times have you heard, or uttered, the lament, "I owned 100 shares of XYZ
and sold it at a currently ridiculously low price of…."
Instead of worrying about an individual stock
that you have sold, look at the bigger picture. Every day there are stocks hitting new
highs. It is unlikely that on any given day you will be the proud owner of all of them.
Once a stock is sold, it joins the long list of ones that you don’t currently own.
Your past experience with a particular stock should be something that aids you in future
decisions, not something that becomes an obstacle. Keep DIVERSIFIED and remember that you're not really diversified unless you own something you're uncomfortable with. Also keep your portfolio hedged. (A hedge is something you hold and hope you're wrong.) Look at all the stocks in your portfolio as one investment.
It's the bottom line and your return on capital that you should zone in on. Each stock
you own is just a vehicle that gets you to your return on capital. Switch vehicles
when you need to. Never marry a position. Sell a stock when you reach your defined goal, even
if you still love the stock. You can't lose if you take your profit. Remember that Fear Creates Opportunity. Be fearful when others are greedy, and be greedy when others are fearful. It's only numbers.
When people talk about recession and the market looks gloomy, there are many stocks that are selling
below book value, below 200 day moving averages, below average PE ratios, below 2 standard deviations etc..
Do your homework and see if you think they are oversold. When you evaluate, look technically, Metastock End of Day trading software and fundamentally.Yahoo Finance
A reverse of avoiding gloom when a stock goes up
after it is sold is avoiding gloat when a stock goes down after it is sold. A little bit
of gloat is fun and healthy, but don’t overdo it.
Past victories can also create blinders when you
are considering buying a stock that has had a pull back after you have sold it. Before
making any new commitment, conduct all of you normal investigation. Don’t assume that
just because you made money with a stock in the past, you will be successful in the
future. Never base your decision to buy a stock by the high and low of the stocks price. If a stock is priced at half it's previous high, it is not cheap. The stocks
current price is a reflection of supply and demand and deserves to be selling at it's current price. Also, don't put off buying a stock that is selling at it's high.If you did your research and the potential is there to go higher - buy it.
Another expression of fear-of-mistakes is
fixating on the price that you paid for a security. After you have made a market
commitment, your cost basis should take a back seat to what the current outlook for the
security is. To distract your attention from the cost basis of individual holdings, keep
your eye on the value of your total portfolio. With electronic trading and bookkeeping,
this is easy to do. Today’s total value is based on the current market value, not the
cost basis.
Pay attention to the reason that you bought a
stock. As conditions change, are these reasons still valid? If not, that would be a reason
to step aside. Thinking too much about your cost basis interferes with clear thinking.
In summary, mistakes are a part of investing. Learn from your mistakes.
They are not something to be afraid of. If you have a good plan and consistently follow
the plan, your chances of being correct more often than you are wrong are very good.
