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Emotional Involvement


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I'll bet with almost everyone who has stocks or mutual funds in his portfolio that he has losers, but he will not sell them because he "likes them" or some similar excuse.

You can not become emotionally involved with anything you have bought, whether it is stocks, mutual funds, collectibles, real estate, etc. Etc. When you see the value of these things heading down it is time to try to salvage some of your money even if you have to take a loss.

I have seen people hang on a piece of land Stock) for years just so they could get out "even". Believe me "even" is not even. Suppose you paid $ 20,000 for the land and it took you 8 years to find someone willing to buy it for $ 20,000. If you could have sold it for $ 15,000 and put money in a money market account at 6% for 8 years you would now have more than the original $ 20,000 ($ 20,495).

When you invest money in anything you can not afford to have emotional ties to it. You must be willing to sell when the time comes. Most people do not want to sell for two reasons. They will not take a loss; However, the main reason is psychological – they do not want to admit they were wrong. When I was a broker I would watch people trade. Almost none of them were trading to make money though that was what they said. They were trading to find out how much pain they could stand from losing. They were trading for emotional reasons.

The difference between professional traders and a non-professional investor is the ability to divorce themselves from the emotions of the trade. Win, lose or draw the pro knows the risk and is willing to take that loss quickly if it should happen.

Emotional involvement in investing is one of the best ways. You must be able to look dispassionately at your stocks, bonds and mutual funds and be able to sell them when they turn negative. Negative does not mean go to a loss. It may mean they are no longer making a good return every year with your money and it is time to move to some other stock or fund. You've got a stock that has doubled since you bought it, but that was 2 years ago and it has done nothing since then. Time to sell. Look at your annual ROI to determine if your money is doing better than the overall market or whatever your personal expectations might be.

Many years ago I heard how they caught monkeys. The hunters would drill a hole in a coconut shell just enough so the monkey could fit his open hand through the hole. It was tied to a tree with a strong cord. Inside there was fruit and sugar. The monkey put his hand in, grasped the goodies, but could not get his closed fist out. He would not even let go when the hunter came to capture him.

Unfortunately, there are many investors grasping at the losing positions. Is not the time to let go of some of the stocks you have been holding because you "like" them?

Let go of those emotional ties. You will make more money.

Source by Al Thomas

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