I’m used to getting emails asking about stocks but when the market falls over, as it has a bit recently, they accelerate. “What should I do with this stock?”, “What should I do with that stock?” To the sender it’s an innocent email but after decades in this business I know what it really means – it means they’re losing money and they don’t know what to do. So here’s the answer, it’s really quite easy.
People fuss too much over buying and the reason why is because we have all been indoctrinated by the Warren Buffet ”Matrix” that suggests you are buying a business not a stock and that you should only buy that business if you are happy for the sharemarket to shut for 10 years.
You’re dealing with busy people here. We’ve got jobs, children, businesses, gardening, grandchildren and packed lunches to look after – what chance have we got of identifying a business that will perform well over the next 10 years? We’ll never have the time let alone the ability to do enough research to be confident of that. Giving birth would be easier. Really, there has to be a better way. And there is.
Don’t worry so much about which stocks to buy. Buying stocks is simple stuff; you do your work, narrow the probabilities as much as possible and press the buy button. That’s the easy bit. Do it willingly and in the knowledge that what is really important is not the buying bit but the selling bit. Once you’re off the beach and paddling, now it matters, now you need to be in charge, now you need to control the outcome and it is now that so many people get lost and email me.
So here’s an answer for anyone that is losing money and doesn’t know what to do. It’s simple, do this for every individual stock you hold even if you bought it years ago. First of all understand that what happens after you have bought a stock is completely out of your control and no one can help you, no one knows what’s going to happen, but relax in the knowledge that this situation is perfectly normal. You do your best but what happens happens.
Understanding that, the best thing that you can do now is not watch and hope but decide what to do before time. Plan. Set a course of action based on your investment timeframe and situation. If you are rich and long-term looking after money rather than trying to make it, it will be a loose plan. If you’re trying to trade to make money without a lot of capital it will be a tight plan. But only if you decide ahead of time what your tolerances are, and what you’re going to do if they are hit, can you relax, sleep at night, remain unemotional and be in a position to control your losses and let your profits run.
Despite Benjamin Graham dismissing trading as “fallacious as it is popular” on page two no less of The Intelligent Investor, the investment bible, it is the traders who are much better at this process than the investors, and any of you ”set and forget” investors that ever find themselves asking “What do I do now” would be well advised to adopt some of their disciplines.
Traders may sound like nerds that sit up all night in front a computer screen with sunken eyes and McDonald’s mayonnaise dripping down their T-shirts while they trade anything from Domino’s Pizza to the Deutschmark on one-second charts but the truth is that they are the better investors because they understand that success is back-end loaded not front-end loaded – it is in the selling not the buying.
In plain language, they have a strategy for every holding laid out before they buy it and it can be very long-term or short-term. They know what they are going to do in any event and because of that they sleep at night and enjoy the market because they have certainty not doubt.
In more complex language, they know about position sizing, money management, stop losses and they have no pride or prejudice, just an understanding that whatever happens they know what they’re going to do. You can do the same. It’s easy not hard. Do it and the words “What do I do?” will never pop into your head or out of your mouth again. And if they do, you’ll know you’ve failed.
Marcus Padley is the author of sharemarket newsletter Marcus Today. This column should not be taken as financial advice.
This story Administrator ready to work first appeared on Nanjing Night Net.