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January hurt....maybe February won't hurt as much...

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February 01, 2010 – Comments (3)

January's final weeks caused me to have to rebalance my baby portfolio.  Guess that is what I get for bragging about doing so well in 2009.  Regardless, the market is a cruel teacher, but my education continues.  I got to employ some hard won wisdom in cutting loose some of the positions that I was hanging on to for far longer than I should have.  I was able to balance the loss of some of those losers with a small chunk of one of my winners.  In the end, I came away from January with a break even in realized profit/loss and still ahead about 35% since I restarted my education in stocks.

So what was the great big wisdom that I utilized?  To be honest, I would have to dig through a few books to find the exact quotes to post here, but summarized they amount to the following:

1.  Everyone is different. You need to know your own threshold for risk and stick with it, within your comfort zone, no matter what everyone else says.  If you don't, you might lose your shirt by following someone else's lead.  Read about this one and lived the nightmare when my portfolio went away a bit over a year ago.

2. Remove the emotion, if you can, from your investing.  No one likes to take a loss, and everyone loves to win.  BUT sometimes in order to win, you must take the loss.  You might need to cut loose those positions that go against you, and admit defeat.  By doing so, you may be able to salvage the situation and live to invest/trade another day.  Not doing so might mean the end of your money.  Read about this one and have been grappling with the reality since I got back into the market a bit over a year ago.

So, over the past week I cut loose some positions that went against me and met my threshold for risk.  Doesn't mean I won't go back to those positions and re-invest.  Just means that I need to invest a little more of my time looking into them before getting back into them.

On the positive side, I got my federal tax return done, and am hopeful that Alstry's dire predictions won't impact the governments ability to return to me the money it owes me.  Would love to have that little windfall to invest in some potential winners before the market re-corrects itself after this most recent plunge.

For some reason, I felt like sharing...perhaps it has to do with the very open environment here on TMF...perhaps it is the overwhelming silence in my household because the kids are asleep.  Not sure, but it is nice to know that I can come here and share and learn from folks who are smarter than I.

Until next time, Fool on... 

3 Comments – Post Your Own

#1) On February 01, 2010 at 8:37 PM, ChrisGraley (29.74) wrote:

Beware of the Ides of March!

;) 

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#2) On February 01, 2010 at 10:18 PM, globalsailor (42.56) wrote:

You're worrying too much.

You didn't need to sell the picks that went against you if the securities were still good securities.  In the short run, the stock market is just a popularity contest.

Let me explain.

Let's say you find a stock going for $10 but you think it is actually worth $20.  BUY IT.

You have: 100 shares, $1000 value

Then the stock drops down to $6.25.  If you're so sure that the stock is worth $6.25 then be greedy when everyone else is fearful and buy again to get yourself to $1000.

You bought: 60 shares for $375.  OR Maybe you're conservative and you just decided to wait.

After two or three years the stock goes up to the $20 you wanted it to go up to and you have made either a 100% profit if you were conservative or a 133% profit if you were aggressive.  Either way, you didn't need the money, and the stock, with your patience did what you expected it to.   You would have lost 37.5% if you had been less patient. The patience is what will bring in the money.

My big question for you is: what do you want to do with your money and when?  Because having a bad January is meaningless if you have a long enough time horizon.  Relax.  Past performance is no guarantee of future results.

I'll agree with you here: I hope we all have enough conviction to watch our picks fall out of the sky and then come back again.

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#3) On February 02, 2010 at 5:43 PM, MikeBobulinski (< 20) wrote:

Globalsailor,

Nicely said; however, as I stated we are each different.  Had I another chunk of capital laying around to invest at the lower price bringing the cost average lower, I would have done so.  As it stands, we all have our stops to prevent losses, and we all have our ideas for time horizons.  While your advice is sound, my desires and situation did not warrant holding on to losing positions that would not meet my needs.  And the level of loss we are talking about it very small due to my low loss tolerance....something that occurred from a previous lesson that I learned about while trading on the margin.

For now, I am happy with the choices I made and believe it or not, have recouped any losses and now have capital to put back into some of the positions I closed, and at a price lower than what I closed them at.

As for answering your big question:  I desire to use my investable capital to learn about the market and the potential it has for making my later years more comfortable by making me more money than a conventional savings account or other similar money making device.  As for my horizon, I turn 40 this year, and while I am far from a millionaire, I would sure like to be able to retire comfortable, so my time horizon is 25 - 30 years from now, based on current convention for calling it quits.  The scary thing is that I am about to retire from one career and start looking for another. I just hope the employment world perks up in time for me to find a decent job to carry me to my golden years.

Again, thanks for the explanation and the well written response.

Fool on... 

 

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