The Losses Swallow the Gains
According to an article I just read, we “turn off” our emotions when dealing with numbers. Yet it also concluded that if we are aware of that, we can minimize the “turning off.” So here we go. I am about to share with you some financial advice backed up by numbers. No one has to become emotional about this.
For many years I have refused to have anything to do with selecting investments in the stock market. Even though I have always fancied myself as an investment genius, my record in the stock market has been reliably dismal. Not just mediocre. I’ll put it in caps.
DISMAL.
And it’s because of the losses.
For example, suppose I invest $20,000 in each of five stocks. The first four go up 15% and I sell at a profit of $3,000 each – for a total profit of $12,000.
Gosh darn it! Four successful investments with a 15%, or $12,000 profit. I would be happy with that every time.
Unfortunately, the final $20,000 investment drops in value by 80% and I finally sell at a $16,000 loss (after watching the inexorable decline in my investment, something I do not enjoy).
That one loss not only wiped out all of my profit from the sale of the other stocks, it also left me a total of $4,000 behind.
The obvious goal for all of us when investing? Avoid losses. So for me, the lesson learned is simple. Avoid the stock market.
I will continue to follow the advice of the 20th century actor and humorist Will Rogers. His simple stock market recipe:
Buy a stock.
When it goes up, sell.
If it doesn’t go up, don’t buy it in the first place.
Thanks, Will. By paying attention to you I haven’t lost a dime in the stock market for many years.
Alan