It is common for stock investors to be compared to gamblers. This comparison is even more common when discussing stock traders or those that move in and out of their holdings more frequently. While I am sure there are some stock traders that are gamblers, some long-term investors would more readily match the image of a gambler, much to the long-term investor’s chagrin.
Before I defend the previous paragraph, I think it is necessary to provide assistance to those in need of help. If you believe that your stock trading activity has begun to affect your life in an unhealthy manner, please seek help. Gambler’s Anonymous is a great organization that can help those that have become addicted to gambling. Gamblers Anonymous is a fellowship of men and women who share their experience, strength and hope with each other that they may solve their common problem and help others to recover from a gambling problem.
One of the habits of an addicted gambler is to push hard on a losing position. You have seen this in movies for decades even if you haven’t seen it in person. The gambler is losing badly and continues to play the same game in the same manner. Typically, the gambler loses it all.
I hate to say this, but this behavior is often what I see in the most cautious of investors. The investor that thinks that loyalty to a stock somehow is the honorable thing. That loyalty extends to even when the stock price drops 10-50%. That loyalty often is accompanied with logic that says that if the asset is held long enough, the loss will turn into a gain.
I am sorry, but I believe this is reckless behavior. You should have no loyalty to any individual stock. You only need commitment to your family that is counting on you. They want you to develop a reasonable return on your investment to provide for the future acquisition of the nicer things in life. I guarantee that the CEO of the company will not be personally offended if you sell the stock of his company!
I publish my favorite stocks on my Watch List. These stocks have gone through a filter that the majority of stocks cannot survive. These few stocks are not blessed forever – I regularly revisit my analysis of each company and cut them from the list when they have failed to meet my criteria. I also sell all my holdings as soon as I can in each company that has failed my tests. I explain my criteria in my book, The Confident Investor.
Even the companies on my list don’t get a free pass. I monitor each one for upward momentum. I invest heavily in the ones that are increasing in value. I pull out of those that experiencing a short-term bull market. I explain this strategy in my book, The Confident Investor, and I call it Grow on Other People’s Money (GOPM for short).