Investing with the Pros: Part Three of Three

By Eugene Yiga

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“If fifty million people say a foolish thing, it is still a foolish thing.” – Anatole France

6. Holding Steady

Jeremy Siegel, author of the acclaimed Stocks for the Long Run, advises patience again and again. Be willing to hold share steadfastly for many years or indefinitely as long as business increases to intrinsic value at satisfactory rate. Any unnecessary trades will simply incur excess brokerage fees and eat into your return.

Don’t check performance too frequently because it will be volatile day-to-day. And don’t be too concerned about the barrage of constant financial news, most of which tends to be illusory anyway. Warren Buffet says, “Invest only if you are comfortable owning a share even if you had no way of knowing its daily price.”

Accept market inefficiency because short-term moves may be illogical, random, and occur independently to performance of your company. Insulate your thoughts and behaviour from contagious emotions. The trend may not be your friend, so don’t get caught up in information cascades or the herding effect. Don’t place too much attention on recent memory or expect it to proceed. Accept the fact that change has a large part to play in all of this.

7. Getting Out

When things go wrong, don’t panic. Check to see if fundamentals have changed and evaluate all information even when it contradicts your current views. Seek specific advice and critiques of your decision-making process. If things are fine, buy more shares at the lower price because changing now would be a costly mistake. If things are not fine, get over your confirmation bias and other reasons covered in Why Smart People Make Big Money Mistakes. Don’t be afraid to admit you were wrong.

Remember that money spent is money that does not matter. Cut your losses and get over sunk costs quickly instead of fixating on specific amounts or using them to drive subsequent decisions. Investing is forward-looking and all that matters is what is likely to happen from now on. Keep learning and improving as you progress. That’s what mistakes are for!

When things go right, don’t become overly emotional by falling in love with the share or investing as a whole. And don’t become overconfident or cocky to the extent that you disregard common sense. Remember that your confidence is often misplaced because even the most sophisticated professionals don’t get it right. You might just have gotten lucky.

Again, from a technical analyst perspective, if shares are expensive and momentum goes from positive to negative, it is time to sell. Ride your winners until they have fulfilled their purpose. Trust your instincts and know when its time to get out.

Recommended reading

The Aggressive Conservative Investor by Marty Whitman and Martin Shubik
Contrarian Investment Strategy by David Dreman
Rich Dad’s Who Took My Money by Robert Kiyosaki
Rich Dad’s Prophecy by Robert Kiyosaki