Showing posts with label denial. Show all posts
Showing posts with label denial. Show all posts

Monday 31 May 2010

The process of deciding to sell a stock is a difficult one unless an investor has developed a methodology.

The process of deciding to sell a stock is a difficult one at best unless an investor has developed a methodology and adheres to it mechanically in order to avoid inevitable internal mental battles.  

When a loss is involved, the sell decision is even more difficult because the issue of pain-avoidance is now present.

It is human nature to seek self-preservation, and pain is a phenomenon that indicates a danger to well-being.

Some investors are obsessed with safety, but most are reasonably balanced in their tolerance of the risk involved in earning a profit.  But every investor has some threshold at which pain is avoided, sometimes at ridiculous cost.  

Dealing with an investment or trading loss involves not only financial pain, but also ego pain.  A majority of shareholders at some point attempt to avoid both pains by failing to deal with the reality of their losses.  

One of the most convenient ways to avoid the pain of loss - or even of profit squandered - is denial.  They prefer not to think about it, or they minimize it.  

When specific stock positions go bad, the pain-avoider becomes a longer-term holder who is more accurately a collector of stocks.  He has no real investment motive or astuteness of value judgement and is, in fact, simply denying the pain of potential loss.