|
From: R. A. Christy
Editor/Publisher, ‘The Long and Short of
It’
President/CEO, Christy Investment Group
http://www.christyinvestments.com
Date: March 31, 2008
| NYSE Bullish
Percent |
Xs @ 36% |
OFFENSE |
| OTC Bullish
Percent |
Xs @ 28% |
OFFENSE |
| Optionable Bullish
Percent |
Xs @ 34% |
OFFENSE |
This week’s diatribe
…
I’ve never been a
big proponent of emotion investing, but given the number of phone calls
this past week, I thought now might be a good time to address it.
Buying stocks is
pretty easy. People do it all the time. Knowing when to sell is
something else entirely and most investors miss the boat on this one.
The talking heads remind us daily that selling shouldn’t be an emotional
process. No kidding.
(Note: Most of the
talking heads don’t own any stock or mutual funds at all. Those that
espouse the most are ones who have their money in money market funds and
CDs. They want you to heed their wisdom, but these folks don’t eat their
own cooking.)
Professional traders
and investors use an array of tools to set selling objectives. Sometimes
they work and sometimes they don’t. Trust me – I know this from
experience. I’ve had a number of stops jumped recently and have the
scars to prove it. I use a number of charts and technical indicators to
set selling points on both positions and the entire portfolio. Sometimes
this works like a charm and sometimes it doesn’t. The one thing that I
don’t do is to let my emotions get in the way of things. I trust the
numbers – period.
Everyday investors
don’t have the luxury of knowing what I do, nor do they have my
experience. When emotions enter the fray, they wreak havoc on a
portfolio. The two most dominant emotions people have are fear and hope.
When it comes to deciding whether to hold onto a stock or to get out,
fear and hope are the worst of all combinations.
If one of your
stocks is losing money, you have two options – hope it turns
around or be afraid of losing more money. The thing to do is to
cut your loss and wait for a better opportunity to present itself.
If one of your
stocks is making money, you have two options – hope to keep
making money or be afraid that you’ll leave points on the table
by not getting out at the top. The thing to do is hope that you keep
making money.
The idea in all of
this is to get out of stocks that are falling and to stay in ones that
are rising. The problem is that this is easier said than done because a
winner that stops going up causes you to fear losing money.
So the question is
this – how do you separate your emotions and your investment portfolio?
I’m not a psychologist or a behavioral scientist. I am a student of
human behavior. If you want to keep your emotions out of your investment
portfolio, consider the following:
- Step one is to
get to know the face in the mirror. It’s the one with wrinkles and
blood-shot eyes looking back at you every morning. That’s your best
friend and your worst enemy. How emotional are you? How much risk do
you really want to take? In other words, how much of loss can you
take before you walking the halls at night screaming like a land
starved longshoreman?
- Make it hard
for you to screw up. If you use a broker, place sell stop orders
with them in advance. If you trade online, use GTC
(good-till-cancelled) orders. If you place the orders in advance,
don’t change them. Also, give yourself plenty of room to maneuver.
In days of yore, it was common to use stops of 5 to 7 percent. With
today’s gyrations, daily moves of 12-15 percent aren’t uncommon. If
your stops are too close, you’ll get stopped out prematurely –
leading to too much trading activity.
- Understand this
– THIS IS YOUR MONEY THAT YOU ARE DEALING WITH. It’s your future and
your families. If you don’t keep your eye on it, know one will. The
more you know and understand what you’re doing, the more successful
that you’ll be.
You need to know the upside potential,
the downside risks, how will my portfolio behave if interest rates go up
or down, what happens if the dollar gets stronger or weaker, and a host
of other things. Do you need to be an expert? No you don’t. But, don’t
be in the dark either. Your cousin’s latest tip or the one from the guy
with the awful necktie at work don’t cut it. That’s not a strategy –
it’s a bet. Ordinary people don’t win many bets. If you don’t believe
me, just hop a plane to Las Vegas, Reno or Atlantic City.
Look – I’ve been in
this game since 1982 and this is a fact - your emotions will either make
you or break you. It’s that simple. You will never conquer all of your
emotions, but you can get your arms around them. Stock trading isn’t
about picking the right stocks – that’s a really small part of the
overall picture. It’s about coming to grips with your hopes and fears.
Once you have your emotions under control, you’re well on your way to
being successful.
Investing isn't
about conquering your emotions. It's about handling them. If you have a
handle on your emotions without using any of the above tools (or other
tools of your choosing), you're the rare investor indeed. As for the
rest of us, letting our money management and investment tools guide and
control our financial decisions is a necessary step toward successful
investing.
Until next time,
Robert Christy
The Intelligent
Trader
P.S. Please fee
free to forward this to your peers, friends and associates you think
would benefit from its contents. They will thank you for it - and so
will I!
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Robert Christy is a professional stock
trader, money manager and author. Mr. Christy is the President CEO of
Christy Investment Group, Ltd., a registered investment advisory firm.
He is also the Managing Partner and Portfolio Manager of Plato Advisors,
LLC. At the time of publication, Mr. Christy may from time to time write
about stocks in which he, Christy Investment Group Ltd or Plato Advisors
LLC has a position. In such cases, appropriate disclosure is made.
Under no circumstances does the information in this column represent a
specific recommendation to buy or sell stocks. Mr. Christy appreciates
your feedback and invites you to send it to
rac@christyinvestments.com.
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