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Its not necessarily poor investor behavior. Poor investor behavior is selling after a stock goes down, not up. I'm selling after stock has gone up most times.
no , poor investor behavior is also bailing out at highs . the thinking is i will get back in later when things are lower .
study after study shows that investors fail at trying to get back in and would have done better just staying put .
this does not apply to individual stocks since they can be not so much about time in the market but more timing the market at times .
but nervous nellies should not be in individual stocks
Fear and greed are the unwelcome companions that you have to live with when you have investments that have gone up nicely. Greed because everything is going well and you want more; fear because you don't want to lose what you have gained. That equals anxiety.
I am currently going through this with a stock that I bought a lot of shares of in May. It has had a really good run to the upside. So far greed has won out, but it has been a tough battle. And at some point fear will get the upper hand. Just something I have learned to live with over the years.
This is a clear example of not using a risk management strategy for your individual allocations. Before you enter a position you should determine how much profit or percentage your strategy is targeting. ...
This may (or may not) be effective as an actual investment strategy - in other words, what to DO. But it does nothing to assuage one's mental tribulations - in other words, what to THINK.
We may actually be doing entirely the right thing, given our investment objectives, age, expectation of receiving a pension, marital status, parental status, etc. - but still feel awful about it. Alternatively, we may be contented and outright smug, despite in actuality having a bad strategy.
Quote:
Originally Posted by JrzDefector
Move away from individual equities and invest in broad-based funds - that seems like it would suit your mindset MUCH better.
Probably. But the gnawing feeling of anxiety need not thereby be entirely obviated. One can feel anxious about the overall economy, about the deficit, trade, politics. This affects the long-term index-fund investor psychologically, just as it does the rampantly-speculating day-trader in pork-belly futures.
Quote:
Originally Posted by Berteau
MY question was why am I less anxious when I am losing money when its going down and more anxious when it is going up and I am making money.
In a word, guilt.
To sit there and observe how one's money is compounding and earning money for oneself, induces a feeling of guilt. One comes to feel that it's all a charade, a sham and a manipulation - that a proper comeuppance is 100% loss and return to the salt-mines. Because of this guilt, one cries out for a great and grievous self-punishment, a cleansing through pain. But one also dreads it. So, whenever good things happen - the market hits a new record, corporate profits burgeon and the P/E compresses even while the market rises, and so forth - one comes to feel that the inevitable punishment will only be compounded.
Is this silly? Of course it is! But, realizing that it's silly, one feels even more guilty!
Anyone else like me? When I buy and it goes down, I just tell myself it will go up eventually. But when I buy and it starts going up a decent amount, I'm afraid to stay in because I think it will crash back down. Kind of like the last 2 day rally. Now I'm really anxious for a big down day because it just went up a decent amount.
LOL...Berteau wants to be a risk trader without the risk.
This may (or may not) be effective as an actual investment strategy - in other words, what to DO. But it does nothing to assuage one's mental tribulations - in other words, what to THINK.
We may actually be doing entirely the right thing, given our investment objectives, age, expectation of receiving a pension, marital status, parental status, etc. - but still feel awful about it. Alternatively, we may be contented and outright smug, despite in actuality having a bad strategy.
I would disagree and say that how can you THINK you've got a problem if you've mapped out your trade strategy, put risk management in place and have and entry/exit point along with triggers for each.
You could literally walk away and know that if your strategy goes your way, within your time frame you'll capture the exact amount you thought you were willing to risk. If your strategy doesn't, you've got triggers in place to limit your position/portfolio exposure and ways to exit those positions you've exposed all within your own tolerance & research.
If you still have a problem on what to THINK or FEEL with your positions, that is a good time to visit why you were in that position and why you traded/invested in it....OR...realize you should hand it over to a professional and pay a management fee so they can dispassionately do the above for you.
I know exactly what he is saying. I often feel the same way with individual equities.
If a stock keeps going up and up, you wonder whether to take your profits and run. Yet its up again the next day so you sit tight. Suddenly you are up 50% or more and you know if you sell you will never get back in at the price you bought it. There have been so many times I've been close to pulling the trigger but the stock went up again the next day. So, I tend to sit on it and wonder what will make me sell.
If you sell a good company which is growing, the odds are you will regret selling. Trimming is better, at least you get some profits and play the rest.
I have rarely ever sold a stock even when losing money. I know it will eventually go up enough where I feel comfortable making some profit.
I know exactly what he is saying. I often feel the same way with individual equities.
If a stock keeps going up and up, you wonder whether to take your profits and run. Yet its up again the next day so you sit tight. Suddenly you are up 50% or more and you know if you sell you will never get back in at the price you bought it. There have been so many times I've been close to pulling the trigger but the stock went up again the next day. So, I tend to sit on it and wonder what will make me sell.
If you sell a good company which is growing, the odds are you will regret selling. Trimming is better, at least you get some profits and play the rest.
I have rarely ever sold a stock even when losing money. I know it will eventually go up enough where I feel comfortable making some profit.
Selling can be harder than buying for me. Got a stock right now that keeps going up. Sold 20% at 24.35, 20% at 25.87, and 20% at 27.95. It closed today at 28.51. Got such conflicting feeling about what to do with the remaining shares; take my last profits off of the table or hold for maybe more. I like the company but over 50% in less than 60 days has me with a bit of an itchy trigger finger .
I would disagree and say that how can you THINK you've got a problem if you've mapped out your trade strategy, put risk management in place and have and entry/exit point along with triggers for each.
You could literally walk away and know that if your strategy goes your way, within your time frame you'll capture the exact amount you thought you were willing to risk. If your strategy doesn't, you've got triggers in place to limit your position/portfolio exposure and ways to exit those positions you've exposed all within your own tolerance & research.
If you still have a problem on what to THINK or FEEL with your positions, that is a good time to visit why you were in that position and why you traded/invested in it....OR...realize you should hand it over to a professional and pay a management fee so they can dispassionately do the above for you.
Handing the reins to a "professional" may obviate a dumb sudden move on the retail investor's part, but it is orthogonal to the preservation of good feeling, or the soothing of anxiety. Neither does going into an all-cash position help, for then one grows anxious (with good cause!) of falling behind and forestalling potential for one's money to work for one.
Neither does having a sound and legitimate plan help, for the anxious mind will keep getting assaulted by all sorts of bits and tribulations, constructing potential tragedies where none exist, or misapprehending brief ones as some new permanent state.
I reiterate that a mental broth need not imply confused and mixed action. One could be resolute and disciplined for decades, enjoying fairly good success, and still spend those decades with chattering teeth and bitten nails. The problem grows, the wealthier one becomes, for then one grows more dependent on market performance, and less one one's ability to earn higher salary or to save more.
There is no solution, save joining a monastic order, or dying.
I just read a great article on market timers - even the professionals who can't beat the S&P.
Theory: Let your winners run, cut your losses short. Most market timer spend far more time thinking about when to sell than they think about when to buy. They jump in and if it goes down they sell - and they think they are doing the right thing, until they have done that 1000 times and their portfolio is way down.
Getting out is the easy part - anyone can sell a stock and take a small profit because the timing is evident - you see the gain so you want to take it. It's a sure thing.
The downside is knowing when to get back in. You want to continue to make money so you have to be in it. This is the problem with taking profits - you have limited your upside. It is also the reason why having predetermined goals works. If you feel you know when you should take profits you will not be anxious until they hit the right amount.
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