There are two events we all hate as investors and/or traders. They happen to us all repeatedly and cannot be avoided. We can only rationalize them for the sake of our own morale, and to perhaps placate a nervous spouse.
- To sell down our position only to see the share-price continue to rise without being on-board.
- To buy shares when the share-price continues to fall with great rapidity, eroding our precious capital.
I’m sure we do not need help in turning the blame onto others, but we should remember that the decisions we make are our own, and take responsibility for them.
There is another good reason I think, for a Polyanna mentality. A sense of failure can paralyse us into inactivity, whereas an optimistic attitude will suggest ways in which the damage can be limited, the new situation best managed, and turned to advantage for the longer-term.
Here are some suggestions for not becoming down-cast. I’m sure readers will find plenty of others:
- It is a learning experience (possibly expensive). We should make note of mistakes that should not be repeated, companies we should not invest in again, advisers we cannot trust, and economic environments we would be better off avoiding.
- If we have sold too early we at least have capital we may need for living costs or be able to re-deploy elsewhere.
- We can lock in capital losses to offset against future capital gains that are bound to occur when the market eventually rebounds.
- The companies which lose money for us are likely to be candidates for shorting.
- We should expect that if we need to quit a well run company for any reason, sooner or later the share price will always rise. We can ear-mark such enterprises for repeat investment when funds are available.
- Our mistake may be in the timing of the decision but correct in a longer time-frame.