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Not long ago, Briefing.com listed a few of the "emotional" mishaps that every investor sometimes suffers. We also asked readers to share with us some of their own mishaps. We received far more responses than we expected. Here are some samples. To protect the innocent, we have omitted all names. But, in truth, any of these stories could have happened to any of us.
In the "If-I'd-Only" line of thinking, some readers wrote about the "ones that got away" experience. Here are two examples. The first illustrates just how close you can come, and still wind up feeling "If-I'd-Only."
Once I had decided to add an Internet stock to my portfolio, I performed my customary research and chose EarthLink. That morning, I entered a limit order for 1000 at 27 and watched as the bid fell from 28 1/2 to 27 1/8, then had to leave for work, confident in my strategy and virtually assured my trade would execute that day. Imagine my chagrin when I came home that evening to find that it reversed course at 27 1/8 and was "off to the races". I lost faith in my prediction and never set up another play.
But this second example illustrates how, when we actually do the "If-I'd-Only," we usually end up taking a profit long before the stock reaches its peak.
I bought 1000 shares of MSPG at about $13, sold some at $29 and the rest at about $65 thinking "I'd made a killing!" I was afraid to get back in at $75 and still kick myself. My other "if only" is I placed an order for 1000 AOL at about 30 (soon after the IPO and several splits ago), it was in my IRA account and I got a call I did not have the funds available (was short a few hundred dollars). I made the smart decision to just cancel because IPOs don't really make money. Now I ask why I didn't just buy the 900 shares I could have afforded, but you are right, I would have sold most at $60 the rest at $100 and been tickled pink!!
Warren Buffet was once asked how long he plans to hold a stock. "Forever!" was his response. It's the only way to fully avoid the "If-I'd-Only" temptations. You can always console yourself with J.P. Morgan's famous words when asked if he sold too early. "No one ever went broke taking a profit" was his reply.
As far as thinking you've "Got It All Figured Out," several readers shared their experiences of how the market came back to bite, after they had "figured it out."
For past several months I have been playing AMAT. Would buy 45 puts and then go long when stock went to 30 range. Yesterday stock went to 50. I got burned. I never thought that it would trade at a PE of 85.
And another reader pointed out that what works with one stock doesn't always work with another.
The old saw that "even dead cats bounce" is not always true ... when the BreX bubble was breaking some associates and I went long on the bad news then sold two days later for a quick 50% profit. Short covering was probably what gave us the "bounce". We walked away from BreX a rare winner. However, employing the same strategy a year later with Boston Chicken ... we had our heads handed to us on two separate occasions. The Chicken didn't bounce ... it hit quick sand and just kept sinking.
We received many responses about the "inadvertent long-term holding." By this, we mean a position that was meant to be a short-term trade, but, to avoid a loss, becomes a hold until "things get better." Here's one example, in three paragraphs, all from the same reader.
I bought AMAT (a superb company) on 11/21/97 as a "very" short-term trade based upon CEO James Morgan's appearance on CNBC. You know, his positive comments would lead to a point or two "pop". Well, if anyone is a serious student of semis, this was the very beginning of the Asian contagion and Morgan's comments were cautionary. BOOM! The stock starts to fall. I had taken a position of 1,200 @ 38.50, a few minutes later I am buying 300 more @ 37 and change to average down. I end up with 2,000 shares @ 38.25 on margin.
To make a long story short, instead of taking my losses very quickly and being done with it, I held AMAT all the way down to the low 20's through the winter of '97/'98 not knowing if at anytime AMAT might plunge further forcing a margin call. I even sold calls near the lows in order to generate cash, another big mistake.
At that time, I thought I was very experienced and knew what I was doing. As James Cramer would say, WRONG! In all seriousness, the pain and suffering from holding this one trade far exceeded the loss I would have incurred on selling my position 30 minutes later. Oh yea, I finally unloaded all 2,000 on 2/25/98 at 36.50, still a loss. Sad indeed!
Another point about inadvertent long-term holding is that your capital is tied up in a position you don't really want, all to avoid a loss. Isn't a smarter to dump the bad position and find something that will make up your loss? It is, but it is often hard to do. We received more responses about this issue than any other, which only confirms that everyone hopes to avoid losing money, even if it costs money to do it!
Averaging down is another concept we probably should have discussed, but several readers pointed to it as one of the approaches that can come back to haunt you. Here's one.
It was not too long ago that after concise analysis and a hot tip I purchased 1,000 shares of PSFT at 55/sh. Then 3 months later another purchase at 47 7/8 to dollar cost average, (of course for a higher degree of profit). Then again in Sept. '98 an even bigger purchase at 29 5/8. Finally when the stock hit 22 I called it quits and sold all 4,000 shares. A classic case of holding the wrong thing too long for the wrong reasons. Did I learn anything? I sure hope so!!!
Then there was the reader who pointed out how everything seems to happen, after you close your position.
Here is one you didn't mention but it has happened to me often. I take a position on an issue looking for a quick pop. It does not pop, but does not go down, so I hold and hold, and one day I finally decide to dump the dog. The very next day the stock jumps up 10, 20, or 30 points. At least 3 times this has happened to me...I'm to the point where I feel like I control the price. I make it go up by selling and make it go down by buying. Has this happened to you?
Oh, no, never happens to us! George Costanza, maybe. (Just kidding...)
Face it, we all make mistakes. It's part of what makes a market. Nevertheless, we all learn something from them, over time. Some readers offered just brief summaries of what they had learned. Here's one of the better ones.
Everyone thinks (including me) that they can time the market (I think this a lot less these days). If you really want to short-term trade, do it with a stock that you already hold as a core position. If the stock moves the wrong way, it is much simpler emotionally to hold onto the stock since you are committed to it anyway.
Thanks for sharing your thoughts with us, and your fellow Briefing.com readers.
Robert V. Green