Tuesday, March 5, 2013

Don’t invest to “Be Right”, Invest to Make Money!

So, I’ve been ‘investing’ my time (no pun intended) in taking some online courses on how to become a better trader and/or investor. One of the lessons touches upon the ‘physiological’ side of investing. Something that has stuck with me since listening to that particular lesson is the difference between investing to “be right” (and feed your ego) versus investing to make money--- which may also entitle loosing money from time to time.

Let me explain….
In a nutshell—what the educator was looking to portray is that sometimes as investors we let our ego get in the way when it comes to making decisions on when is the right time to “let go” of a position we may have originally had high hopes for. We may enter a particular position believing it would make us tons of money in a short amount of time. At first, you see it go up slightly and you get excited but then you watch in awe as the stock crumbles down.
The investor that invests to be “be right” refuses to sell because that would mean admitting a mistake and that the decision to buy may have been wrong (or maybe it was done at a bad time). The investor that invests to make money recognizes their mistake at a the right time, has an exit strategy in place (even before buying!), sells and moves on—no feelings or egos involved.

This happened to me with a particular position—Coach (ticker Symbol: COH). I purchased COH back at the beginning of 2012 when it was on the “up and up” (reaching an all time high during March of 2012 at around $79). I had high hopes for coach and was initially making a nice profit. The trend lasted a few weeks, or perhaps a couple of months, when all of a sudden the stock started to crumble. I blamed it on market fluctuations (Non-company specific) and did not pay attention. Next time I looked I had lost about 25% of my initial investment. But again, I remained with high hopes and stuck with it. Back then, I had a stubborn ego that would not allow me to sell. Now I am at a place where were I am loosing too much money to sell and thus, I am sticking with it.

Despite what may be going on, I still feel COH is a solid company with solid financials and I do get some very nice dividends while I wait for the stock to return to a healthy price (whenever that may be!). And while we are on this topic, here is another lesson: This is yet another example why money invested in securities should not be money you will need in the short term. If I were to need that money right away, I would be in deep trouble. However, thankfully that is not the case and as a trader/investor I need to ride the waves. At the end of the day, the lesson I have learned with COH is worth Gold!

So, since hearing the phrase “invest to make money, don’t invest to be right” I have been much more strategic about my investment approach and always keep that phrase in mind. Wish I would have heard that sooner but learning to invest is a process and every experience gets you that much closer to even more success!
Would love to hear your opinion! Comment below.