I struggle with it too. One tool I came up with is to ask a question. Most stocks are very liquid so view them as cash, cause you can sell and you have cash. So instead of focusing on the movement of price ask this question: If I didn’t own the stock and I had cash, would I buy it today? If yes, then don’t sell it even if it has pulled back. Of course if the story changed your answer is probably NO. You sell.
It is just an effort to eliminate emotion and truly look at current price compared to conviction or your FV of the company.
Great suggestion. I also think some investors need to look at portfolio sizing more and know what level of sizing will start to make them feel uncomfortable. On that same token, it’s helpful to
actually take note of the weighting of each position in a portfolio, so you can actually see it. And maybe stick with a rule that you’re not going let a position get over a weighting. I don’t necessarily do that, but I’m not that risk adverse .
I also like to rate my stocks between a 1, 2 and 3, in terms of conviction buckets. This ensures that my 1s and 2s never get too big unless they’ve earned it by the stock going up and the story getting better, where I might actually even add to the position.
Some of my biggest wins like TSSI and KRMD started out as smaller positions. If I started out big right away, I might’ve been scared out of them and missed huge multi bagger runs. That being the case, there are times where I will take a very big position right away. It’s a very fluid situation for me.
I struggle with it too. One tool I came up with is to ask a question. Most stocks are very liquid so view them as cash, cause you can sell and you have cash. So instead of focusing on the movement of price ask this question: If I didn’t own the stock and I had cash, would I buy it today? If yes, then don’t sell it even if it has pulled back. Of course if the story changed your answer is probably NO. You sell.
It is just an effort to eliminate emotion and truly look at current price compared to conviction or your FV of the company.
Great suggestion. I also think some investors need to look at portfolio sizing more and know what level of sizing will start to make them feel uncomfortable. On that same token, it’s helpful to
actually take note of the weighting of each position in a portfolio, so you can actually see it. And maybe stick with a rule that you’re not going let a position get over a weighting. I don’t necessarily do that, but I’m not that risk adverse .
I also like to rate my stocks between a 1, 2 and 3, in terms of conviction buckets. This ensures that my 1s and 2s never get too big unless they’ve earned it by the stock going up and the story getting better, where I might actually even add to the position.
Some of my biggest wins like TSSI and KRMD started out as smaller positions. If I started out big right away, I might’ve been scared out of them and missed huge multi bagger runs. That being the case, there are times where I will take a very big position right away. It’s a very fluid situation for me.
Great article, I struggle with the emotional aspect of investing, this helps makes sense of it. Thank you
I struggle with it everyday.