Second guessing investment decisions

[accountingsucks]

One of the reasons I am a staunch buy and holder is due to the fact that noone can ever get the timing perfect as a trader. I am confident that the stocks I invest in will be higher 30 years from now - I don't care too much about day to day moves. Sometimes I do have to sell something for a variety of reasons and purchase something else. I recently sold my former employer's stock that had a big run in the prior year (although it basically just equaled my ACB).

I also needed the room in my non taxable account for some other investments -specifically US dividend payers (I'm Canadian) since they do not get favorable tax treatment in Canada. Of course a couple weeks after selling the stock it has gone on a fairly nice run after excellent Q3 results and this has 'cost' me about $2000 due to selling early. In addition one of the investments I parked the $ into has dropped about $500 (EXC). I made the best decision at the time with the info I had so shouldn't be kicking myself but that is alot of $ for anyone. As a % of assets, it's very small but still it is very frustrating. How can I get out of this mindset?

 

[braumeister]

You might start by reading some of the relevant research that shows we are far more affected by losing than by winning.

When your investment soars, you simply congratulate yourself for being prescient. Your stock-picking acumen is impressive, isn't it?

But when your investment tanks, you believe you were blindsided by events you couldn't have foreseen.

When you cut your losses by selling, and the stock continues to go down, you congratulate yourself for seeing the big picture.

But when you take profits too early, you beat yourself up for not holding on.

In other words, it's simply human nature, and utterly pointless to let yourself by frustrated by events. It's all water over the dam, and not worth a moment's regret.

 

[Animorph]

Unless there was some reason to suspect that was going to happen, it's just one of those short term things we'd like to ignore. While you can guess it might be volatile around the earnings report, will it be upside or downside? With individual stocks I'm happy to hit within 15% or so of highs and lows.

 

[accountingsucks]

At my work I clear approx $2000 per week so I have told myself that it is only one weeks worth of work. In a 30 year career, one extra week is nothing. In addition, I am using it as a learning experience. Next time, wait til after quarterly conference call (as I was fairly certain they would have a good quarter) and perhaps only sell 1/2 position at first.

It is true about the reverse - you don't notice the gains, they are just supposed to be par for the course.

 

[pb4uski]

....How can I get out of this mindset?

Don't look at what a stock you sold is doing after you sell it. I don't - it makes it easy.

 

[LOL!]

Actually, this is a good mindset to be in, so that you do not make the same mistake multiple times.

Perhaps you need to reduce the size of your transactions rather than making any big lump-sum transactions. For example, in LOL!'s market timing newsletter, I do not move more than about 1% of the portfolio in any single transaction, so it takes several transactions over weeks to make a major change in the my portfolio.

Also I avoid individual stocks, so that I am not surprised by large changes in single companies.

And when something I own tanks, I am ready to buy more of it, so all losses are looked forward to because they result in buying opportunities. So if you are not buying things that go down, one has to wonder what your rebalancing plans are.

 

[rbmrtn]

Timing is never perfect, nothing is. I'm sure someone in Japan in '89 thought their portfolio would be higher 30 years later too. Basically everyone picks a dud sooner or later, it's just part of the game. QB throws an interception but he gets back on the field.

FWIW, I've been looking EXC also. But the market seems to not like their merger with constellation, question about damage and recovery from sandy and most troubling recent comments from management about cutting the div, ( which has not been raised in 3+ years ), Might best to cut your losses and play another day. Could be setting up for one of panic selloff moments, then might be time to look again.

 

[traineeinvestor]

If you haven't already read it, I'd suggest Your Money and Your Brain by Jason Zweig - very easy to read and understand the ways our brain works when it comes to making financial decisions (and dealing with their consequences): Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich: Jason Zweig: 9780743276689: Amazon.com: Books

 

[yakers]

In my personal history I think I do pretty well at buying. I have no plan for selling so I would make a lousy trader. I buy planning to hold 'forever' which means until life events call for some resources; a car, kids wedding, big foreign trip, home improvement. Then I look at my holdings any figure out what to sell and look how it may affect my overall portfolio/AA. I keep one stock which was my worst purchase (MGM, 60% loss) just to remind me that I am not as clever as I think.