Module 12 Innerworth — Mind over markets

Chapter 259

Extreme Patience

Did you invest in stocks during the rally earlier this year and now regret your decision? If you are a short-term trader, you may want to just accept the loss and close the position, but longer-term investors may want to wait to see if their original hunches about their positions were right. For the past few months, stock prices have generally fallen, and long-term investors may have been tempted to sell.

But long-term investors may need to wait a few months to see if some of their positions will eventually reach their profit objective. It may be hard to wait for the long term. As you wait, you may start obsessing about how your positions have lost value. It’s easy to start thinking you are deluding yourself, hoping against hope that a losing position will make a profit. Only you can determine whether a long-term position will recover and make a profit, but many analysts view the economy as strong and so there is the tremendous potential this year if you can afford to wait it out.

 

If you are a buy-and-hold investor, patience is a virtue. But many investors have trouble waiting, and if you have trouble waiting, you may impulsively decide to close out your positions too early. Few people would think of selling their house just because of a slump in the real estate market, but most investors don’t apply this thinking to holding long-term positions. One obvious reason is that the media doesn’t cover the daily change in your personal home every day.

You can’t go to the newspaper every day and look up the current daily value of your house, and thus, you can’t worry about how much its value has decreased compared to last week. Unfortunately, you can look at the value of your stock position every day, and every minute for that matter. And when you see the current value rise and fall, you’ll watch your emotions vacillate from euphoria to disappointment. If you look frequently, you increase the odds that you’ll take action, and if you act out of frustration, it is usually the wrong action. When you see it fall too far, you may feel frustration and close your position impulsively.

How can you wait patiently? You could simply stop looking at the stock price every day. If you could just avoid looking, you’ll be able to stay away. This is easier said than done, though. The evening newscast covers the stock market and when you see the change in the indexes, you’ll be tempted to see how your positions are doing. And if you read the daily newspaper, you’ll be tempted to look up how well your positions did. If you don’t have a problem with patience, there’s no harm in watching the news or reading the newspaper, but if you do have a problem waiting patiently, it’s worth taking extreme precautions.

Stop watching the news and never pick up a newspaper! Now, your first reaction to this advice may be that it sounds a little silly. But if you have a problem with patience, it’s vital that you take precautions. If you are trying to patiently wait for the next six months for a trading plan to come to fruition, for example, you must wait patiently. And if waiting requires taking special precautions, it is worth it. Reading the newspaper or exposing yourself to any information about your positions is like sitting in front of a bowl of candy and trying to avoid eating a piece.

If you put the bowl in a cabinet, it’s that much easier to show restraint. And it is the same with long-term investing. So if you are a long-term investor, try not to think about your positions so often. Don’t think about how well they are doing. Realize that if you think about your positions too much, and check and recheck how well you are doing, you will have trouble patiently waiting for your long-term trading plan to come to fruition. When it comes to long-term investing, the longer you can wait, the more profits you will reap.

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