Fear is an obstacle
I’ve been actively involved in stock trading/investment for over two years. During this time I’ve joined a few investment groups as well as follow some solid people on social media. Essentially surrounding myself with people from all walks of life that are trying to generate wealth through stock trading and investing.
I joined the groups in order to learn and it has been a greatly rewarding exercise. Through time I observe how others behave and the things they say and a few things keep on standing out.
People don’t do well with down days
I am fascinated by how many people that decide to pick stocks have a hard time dealing with downward trends. Stocks go down all the time. If you are getting into this I would assume you are OK with dealing with that fact. Yet the groups I follow are mostly filled with worries, fear, and incessant questions of “why is this stock down today?”. No matter how many times this happens, people are just not comfortable with down days. You need to embrace the fact that some of the best-performing companies in their history were down by 50% or more from their previous all-time highs.
People don’t take losses easily
I was in a similar boat initially. Selling something for a loss was painful, the thought of something getting into a loss was very painful. I think you can’t make it in this arena if you can’t take a loss. Over time I learned to take a loss like a boss :) The longer you wait, the worse it can get yet people are OK staying with a loss on paper as long as it’s not realized. I have changed in this regard and right now my loss parameter is THE first thing that gets defined before I get into the stock.
Right there and then before I buy I decide what risk level I am dealing with. If it’s something I know is risky and can be down -50% quickly, that means I have to be prepared for that mentally as well as strategy-wise. Usually, I just don’t take the trade if I have an inkling it’s so volatile and I can be down so much and can’t get out before that. But if for some reason I do take it, it’s determined ahead of time that I am OK losing it all. This sort of trade is reserved for something that has a potential of really high rewards and a complete loss is acceptable. I also make sure in such cases to not invest a lot. A small 0.5% total account loss is nothing.
The above scenario is rare for me and I usually avoid getting into speculative holdings that require me to sacrifice 100% of capital invested. Most of the time I set the boundaries of 10% loss or less and if I determine that that boundary can be easily reached (e.g. bear market, volatile stock), I simply don’t enter the trade.
People LOVE to give a reason for actions in the market
Not everything has to have an explanation. Not everything has a clear reason for rising or dropping. Yet people work overtime to dig up the cause for either a drop or a rise for a stock. To me this sort of stuff is useless. It sounds very counterintuitive, but for the most part, I ignore the news. If you are a long term investor and you pick a company based on research and fundamentals, and nothing has changed about those fundamentals, don’t change your investment just because some news around the company was generated by a journalist. Ignore the noise.
Fear is prevalent
Fear is everywhere in investing. Maybe I should say emotions. Don’t invest with emotions, don’t let fear rule you. Fear is an obstacle to achieving and maintaining a clear mind.
