How many of you have seen a stock move against you?
By now you might remember the horror of emotions you go through when you are an amateur at stock investing.
Is this normal though ?
The answer is YES. It takes some people days, some months, and some even years to be agnostic to price moving against them. And that’s precisely a road to becoming an active price agnostic investor or a patient passive investor.
When I started investing, I bought a bunch of stocks which were essentially bluechip companies. Unaware of position sizing and my risk appetite, the obvious thing happened. Stock price started moving lower as each day passed.
This invoked a bunch of emotions which can be best described by House M.D. ‘s famous theory 5 signs of death.
Transposing these 5 signs into typical phases
- Denial — “No way it can move any lower. My analysis was spot on”
- Anger — “WHY IS IT STILL MOVING DOWN ?”
- Depression — “I guess it might never recover”
- Bargaining — “ I will just exit it close to breakeven. Don’t want any profits”
- Acceptance — “Let me book the loss and buy it later when its further down”
And then the magic happens. The moment you sell it, the stock price zooms past your buy price and keeps moving higher and higher. And because you bought and sold for lower price last time, your brain will not allow to re-enter again.
So, how do we overcome this ?
There is one true way, BUY AND HODL. If you believe in the fundamentals and the due diligence do not sell for a loss. Once you overcome these emotions, YOU WIN !
How many of you have gone through these emotions or phases ? Feel free to comment below.
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