The "No Matter What You Do, You Are Wrong" Market Rule: Emotional Damage
What is it like to always make the damn wrong decision no matter how hard you try?
What do I mean?
You faithfully did all your research. You didn't just buy based on a tip from the shoeshine boy. Then...
You bought a stock, and it went up. Congratulations! But, don't you wish you'd bought more when you had the chance?
You bought a stock, and it went down. Why didn't you wait? You could have bought more shares.
You bought a stock and it went up. Sweet! But then it went down. Past your entry point. Well, obviously you bought too early. Now what? Do you buy more? Or do you sell?
You bought a stock and it went down. But then it went up - well past your entry point. Great job! But, wait... did you buy more at the lower price when you had the chance? No? Why not? You KNEW it was a good stock because you bought it in the first place. What, you didn't really have conviction when you bought it? Too bad, it's no longer at a discount. How's your conviction NOW? Maybe you should buy more. Or, was this just a head fake, and the original down move was the true long term reality? Maybe sell? Or maybe just sell a little?
You bought a stock and it went up 50% in a month. You are a rock star! Except, unfortunately, your best friend who is more successful, smarter, more athletic, funnier, better looking, and nicer than you and who is married to a world-renowned heart surgeon who moonlights as a supermodel and was a collegiate All-American gymnast bought a stock that you were watching closely that went up 100% in this same time frame. Why didn't you buy THAT stock instead? Loser.
You didn't buy a stock. It fell. Nice work! Loss averted. But then, it starts to rise. And rise more. And more. Until it sets a new all time high. As you watched it every step of the way, not buying, and not believing what you were seeing. Should you buy it now? Seems risky now that it is at an all time high. But, doesn't that prove it has great prospects? Maybe you should toe-dip into it? Or wait until it comes back down? But, what if it comes back down and just keeps going? Or, what if...?
If you haven't experienced all of these...
You will. And when you do, you'll need to be prepared to make solid, objective decisions that directly impact your portfolio bottom line while carrying the mental weight and emotional damage of all the wrong decisions listed above.
Do NOT underestimate the difficulty of deciding whether to buy more of a stock while it is "on sale" versus selling and admitting you were wrong. Especially the further that stock falls, along with your vested interest both intellectually and monetarily.
Wonderful, Professor Doom - so cheery! Now what?
Some key thoughts - besides those available in all other past and future posts on this site:
1. Remember, you'll be wrong no matter how much or how little work you do. Get comfortable with that despite your entire upbringing being focused on trying to never be wrong.
2. From there, have an objective, repeatable system that touches on the biggest possible bang for the buck information that most directly and quickly impacts stock price. (Hint: it is not the stock's P/E ratio.) What's the point of being right about a stock if it takes it 10 years to go up 10%?
3. Your system needs to have checklist items (like the six questions described here) to ensure you cover every single time all those items you deem most important to your investment program.
These items are just a start, but if you have addressed them you'll be ahead of most others.