How I Invest Part Five: Never Fall in Love with a Stock.
Falling in Love With a Stock Can be Expensive
Beware Falling in Love
I have often been there, my hands growing sweaty, mouth dry, heart beating out of my chest. Looking at the share price either rise or plummett. My hand shaking as it hovers over the phone as I plan to end it all, or fingers clasped around the mouse. The relationship with my beloved stock about to be terminated.
It is a common fault of the sole investor. One has seen a favorite stock do all that you expected of it, you swore when it gets to a fifty percent profit or a ten percent loss you will cut the ties. But that Devil upon your shoulder begins to whisper, "It's rising, you'll get more if you wait." or "Sell now and you'll lose money, wait it must come back oneday."
These are the symptoms of the investor in love. Your surrendering your plans to your emotions and being emotional in the stock market often backfires. Remember how excited everyone was to invest in Tech. Stock in the late 1990's? Remember when Banks and Financial Institutions could not help but make profits for everyone? Emotion was running the whole market, even the professionals fell in love with the one growth sector, and like the soap bubbles they were we were left with the stinging pain of tears when the market bursted them and called off the love affair.
Set Your Limits
The individual investor needs to assess their own goals when choosing a stock. If you know you are in for the long term, maybe look at your plans once a quarter. If you need to trade then you need to watch your investments more closely. Weekly or Daily, if you can.
At least calculate a stop loss, the price below which you MUST sell if the price falls, don't wait to sell in the hope of a recovery. THERE ARE NO GUARANTEED RECOVERIES. The wait for recovery is the worst devil to listen too. Taking a small loss is hard, but losing everything is really painful.
Of course one must not panic if one sees a day to day change, selling a stock that falls a penny leads to over trading another serious profit eater for the investor.
The rising stock sale is also another difficult choice. It rose 50% in six months so it must rise more? THERE ARE NO GUARANTEED INCREASES IN THE MARKET. If a stock reaches a level where you can take a profit, then seize that opportunity. If the stock runs up a few more cents or dollars, be happy that you gave someone else an opportunity to profit from your sale. Don't ever kick yourself as a fool for not holding on for the upward ride.
You Are the Director of YOUR Destiny
In the end investing in the stock market gives you a lot of power. You can direct your own portfolio. There are times when you will hit a bad point, the recent crash was bad for everyone, even the experts.
You know your own goals, everyone is different and that is what makes a profitable market for everyone.
Set your own limits, accept losses if you must, take profits when you can.
I personally have seen three stock market crises, I invested through all three and have not suffered too badly in almost thirty years.
Do I still get emotional about individual stocks? Yes. I still suffer the pangs of love as I say goodbye. But it never a total goodbye, one can watch old beloved stocks move away and as times change or plans adjust, the old flame of love can be reignited by a call to ones broker or the click of a mouse. BUY!
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