Investing Tips

The worst investor in the world is the investor who’s down a little, and thinks he or she can make it back by doing something dramatic. This usually involves “doubling-down,” or using a lot of margin, but it usually winds up turning a small loss into a major problem. They delude themselves into thinking that a quick fix—just this one time—can correct the shortfall.
When you’re down in an investment, you can’t let your emotions get the best of you. The first lesson is that the stock doesn’t know you own it or what price you paid. I often hear from investors who own horrible stocks but they refuse to sell because they “don’t want to book a loss.” The stock isn’t aware of your entry point. If it’s a good stock, then keep owning it. If it’s bad, then sell. It really is that simple.
Here’s a chart of Expeditors (EXPD) going back 20 years. You can see that there’s never been a time that was “too late to buy.” And with many lousy stocks, it’s never too early to sell.

Value is a relative. If Google‘s (GOOG) stock were to fall by $100 over the next few months, you’d hear people say that it’s cheap. No, it would be cheaper than it was, but it’d still be wildly overpriced. We all have different yardsticks, but good investors don’t toss theirs aside when it tells them something they don’t want to hear.
The Wall Street Journal reported that a judge has frozen the assets of a hedge fund. The manager “admitted that he had lost a large amount of money in the fund and had deviated from its original investment strategy in order to make up for losses, the SEC said.” Even pros make this mistake.
Just a few weeks ago, we saw Frontier Airlines (FRNT) plunge. I didn’t panic. I didn’t sell. I didn’t “double-down.” Instead, I waited. The storm passed, and we’re back where we were. This is why I love investing. As long as have a good strategy and high-quality stocks, sometimes the best thing to do is nothing at all.

Posted by Eddy Elfenbein on November 9th, 2005 at 2:40 pm

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.