When to Sell?

When to Sell?

Selling “Myths”
• MYTH – Once a stock has doubled our investment it is time to sell.
• MYTH – Wait until a stock is back to even before selling.
• MYTH – Sell if the stock price falls 10% (or some other %) below the
purchase price.
• MYTH – Only sell when your Stock Selection Guide (SSG) says “Sell.”
• MYTH – If a company is meeting our growth expectations, then do
not sell.
• MYTH – Don’t sell a stock until you have found a good replacement.
• MYTH – Sell everything when we are going into a bear market.
• MYTH – Don’t sell because it’s a “good company.”

Valid Reasons to Sell
• When something is truly wrong with the
business and it won’t likely be fixed within a
year
• When the stock price has risen so much that
future gains are unlikely.
• When you find a better stock. Frequently this is
a back‐door way of exiting a weak holding.

How can you become a better seller?
•Write it down – have written rules for selling just like you do
when buying
•For an investment club – rotate stock assignments so one person
isn’t identified with “her” or “his” stock
•Remember, stocks are a means to an end. The goal is to grow
your wealth. You aren’t being disloyal to a stock if you sell it.


http://www.betterinvesting.org/NR/rdonlyres/12386A1B-284F-4E75-B02C-D9396B363B26/0/StockUpFeb2015Slides4pp.pdf

Better Investing

A.  Analyse Growth

Step 1: Historical Sales

Historical sales growth is the first of four indicators BetterInvesting uses to identify well managed growth companies.

It is desirable to invest in companies whose sales growth is strong and consistent and generally growing faster than the overall economy and inflation combined. *

Is the company's historical sales growth rate acceptable for a company its size?
Check growth rate % - have sales grown faster than the competition and the economy?
Check growth rate trend - have sales figures changed direction recently? If sales are up or down do you know why? Are the forces that caused growth in the past the same ones that will create growth in the future?
Does the company deserve further study?

Compare your candidate company to:
Others in the same industry
Peer group average
Industry average

* Review background economic and inflation data
Gross Domestic Product Data
Inflation Data


Step 2: Historical Earnings Per Share

Historical earnings per share (EPS) growth is the second indicator BetterInvesting uses to identify well managed growth companies.

It is desirable to invest in companies whose EPS growth rate is strong and consistent and generally growing faster than the overall economy and inflation combined.

Is the company's historical EPS growth rate acceptable for a company its size?
Check growth rate % - have earnings grown faster than the competition and the economy?
Have EPS figures changed direction recently? If so, do you know why?
Does the company deserve further study?

Compare your candidate company to:
Others in the same industry
Peer group average
Industry average


Step 3: Historical Stock Price Review

You've reviewed the company's historical sales and earnings growth. Both should be growing
1. Faster than the economy and inflation combined
2. Faster than competitors
3. Consistently

If these conditions have been met then check that EPS is growing in line with sales.
1. Check that the graph lines of sales and EPS are mostly straight and moving together in parallel toward the upper right-hand portion of the graph.
2. Compare the growth rates of both sales and EPS using the rates given in the data grid.

Next, determine whether the company's stock price has tracked the growth rates of Sales and EPS. A company's stock price will typically follow the earnings growth rate -- price follows earnings. Looking at the graph you can see the relationship of stock price to EPS.

Steady growth in stock price is an indicator of management's ability to grow sales and EPS and that the market has confidence in the company.

It is desirable to invest in companies whose share price increases as its sales and earnings increase. Price bars show how much movement up and down there is in the stock price each year. Skilled management can control the variables in the company so that the high and low prices travel smoothly upward. More up and down movement means more risk.

Check
Are earnings growing in line with sales?
Has the company's stock price moved in line with EPS?
Does this company deserve further study?


B.  Evaluate Management

Step 1:  % Pre-Tax Profit on Sales

% Pre-tax Profit on Sales is the third indicator BetterInvesting uses to identify well managed growth companies. A good percent pre-tax profit margin shows a company is well managed.

It is desirable to invest in companies whose percent pre-tax profit is increasing or at least staying the same. Examining the most recent five year average helps us determine this.

Is the 5 year average percentage of pre-tax profit on sales increasing or at least staying the same?
Is the percentage of profit consistent over time?
Does this company deserve further study?

Compare your candidate company to

Others in the same industry
Peer group average
Industry average

Step 2:  % Earned on Equity

% Earned on Equity (ROE) is the fourth indicator BetterInvesting uses to identify well managed growth companies. It tells how effectively company management is using the shareholders' money to make a profit.

It is desirable to invest in companies whose ROE percentage is increasing or at least staying the same. An exception is when a company is paying off debt, which is covered in the next section.

Is the percentage of ROE increasing or at least staying the same?
Is the percentage of ROE consistent over time?
Does this company deserve further study?

Compare your candidate company to
Others in the same industry
Peer group average
Industry average


Step 3:  Total Debt

One indicator of management skill is how debt is employed.

Most companies borrow money to help them reach their goals. Companies go into debt to buy equipment, real estate, and many other things. Some industries use debt more than others. Borrowing some money can be very good because it helps the company do things it could not afford to do on an all cash basis. Borrowing too much money can be very bad because it increases risk in two ways:

1. Debt increases the risk to common shareholders because the company must pay the claims from debt and preferred stockholders before common shareholders receive anything.

2. High levels of debt are risky for a company because it has to pay its debt obligations whether it's doing well or not. If the company runs short of money during a recession, the debt obligations could force the company to go out of business.

Check:

Is the total debt increasing or decreasing?
Review the company web site and official reports to understand the reasons for significant changes in total debt.

Look at Total Debt and % Debt to Capital together to understand how the company is managing debt.

Step 4:  % Debt to Capital

One indicator of management skill is how debt is employed. Look at Total Debt and % Debt to Capital together to understand how the company is managing debt.

The percent of total debt to capital helps you understand whether company management is using debt conservatively or liberally. The ratio enables you to make valuable comparisons between the company you are studying, peer companies and the industry.

Some industries such as banks, financial institutions, and utilities typically operate using higher levels of debt. Some successful companies in other industries have proven that they can carry high debt over many years. Younger companies often have relatively higher levels of debt, but because they are young they don't have a track record that shows they can manage it well over many years. This adds considerable risk as an investment.

Check:

Is percent of Debt to Capital increasing or decreasing markedly?
Review the company web site and official documents to understand the reasons for changes in debt levels (company expansion, acquisitions, divestiture, etc.)
Is the company on a "spending spree" financed by debt?
Is the company borrowing enough to help it stay competitive?

Compare to:
Historical trends
Peer Group
Industry averages


C.  Forecast Sales Earnings

Step 1:  Forecast Sales

If the company you are studying has not met any of the BetterInvesting standards you have studied so far, you should discard the company and begin the study of another.

If all preceding indicators have met the BetterInvesting standards then you have more than likely identified a quality growth company. You now need to consider its potential as an investment for your portfolio.

You must predict how well your investment candidate will perform in the future by estimating sales and earnings.

First, forecast the rate at which you believe sales will continue to grow in the future.

Forecast company sales by considering:

1. Historical results -- consistent strong growth
2. Competition
3. Changes in consumer or market preferences
4. Changes in products or services offered

Is your forecast moderate, meaning it does not rely on extreme conditions or situations?
Is your forecast sustainable, meaning it does not rely on events or circumstances that are not likely to occur regularly?
How does it compare to other companies you may have studied?


Step 2:  Forecast Earnings

Forecast the rate you believe earnings will grow in the future. Your forecasted earnings growth rate will establish an estimate of how much money the company will be earning per share five years from now. This EPS forecast will help you establish an estimated high price the EPS would support.



D.  Assess Risk and Reward

Step 1:  Forecast High Price

How high is the price of the stock likely to go in the next five years?

The answer comes by multiplying the highest likely earnings per share by the average high price earnings ratio.

1. The default high EPS forecast is determined by your entries in the preceding screen.

2. The average high PE forecast is determined by reviewing historical data and current PE primarily, and competitive information as well.

Changing the numbers in the boxes changes the forecast.


Step 2:  Forecast Low Price

How low is the price of the stock likely to go in the next five years?

The answer comes by multiplying the lowest likely earnings per share by the likely average low price earnings ratio.

The default values displayed are based on historical averages.

You need to decide whether or not they reflect the company in the next five years and adjust if necessary.

Step 3:  Assess Stock Price

Now that you have estimated the high and low prices for the next five years, find the current price and determine where it falls within the high-low range.

The range between the high and low prices is divided into three zones: sell, hold and buy.

1. If the current price is in the top range, the stock is in the sell range.

2. If the current price is in the middle range, the stock is in the hold range.

3. If the current price is in the lower range, the stock is in the buying range.

Step 4:  Determine Potential Gain vs. Loss

Even though well considered, forecasts are not certain.

By comparing the current price to

1. Your forecast high price and
2. Your forecast low price

you determine your potential gain and potential loss.

It is desirable to invest in companies offering a potential gain at least three times the potential loss.


E.  Determine 5 Year Potential

Determine 5 Year Potential

Compounded Return is the projected annual price appreciation plus the projected average annual yield.

The Price Appreciation is the increase in the price of the stock, assuming you sold the stock at its projected high price.

The Yield is the projected average annual return on the price, paid as a dividend. Yield is calculated by dividing the dividend by the purchase price of the stock.

If the company performs as well as you expect, and you sell the stock at the forecast high price, this will be your financial return.





Better Investing - Core SSG
http://www.betterinvesting.org/public/default.htm

http://www.betterinvesting.org/NR/rdonlyres/CB93E207-7341-4225-B609-8197173DFBB9/0/P1JudgmentandtheSSG4pp.pdf

http://www.betterinvesting.org/Public/SingleTabs/Webinars/archives.htm


Stock Research Form

4.0 CONCLUDING DIALOGUE (STOCK SELECTION REPORT)

To complete, make selections from choices presented in each statement below.

1.       The company is (well-established) (new) and operates (internationally) (nationally) (regionally).

2.       The product line or service is (diversified) (limited) and sold to (consumers) (manufacturers) (other companies) (government(s)).

3.       Business cycles affect sales and earnings (minimally) (moderately) (severely).

4.       Interest rates for T-bills are historically (low) (average) (high) and seem to be (trending upward) (steady) (trending downward).

5.       Current inflation rates are (low) (average) (high) and seem to be (trending upward) (steady) (trending downward).

6.       In its industry the company is the (largest player) (in the top tier) (an average or smaller size company).

7.       The company has a (continuous dividend record for ________ years) (an inconsistent dividend record) (no dividend record).

8.       The business cycle seems to be (trending upward) (steady) (trending downward).

9.       The current stage of the business cycle tends to (help) (not effect) (hurt) the profits of the company which suggests (no concern) (caution) (optimism) for the company under review.

4.1 YOUR PROJECTIONS ON THE SSG (SUMMARY)
	Projection	Rationale
Sales Growth Rate (%)
EPS Growth Rate (%)
High P/E
Low P/E
Low Price
% Payout
4.2 YOUR FINAL RECOMMENDATION (BUY, SELL, HOLD)

When to Sell?

Selling “Myths”
• MYTH – Once a stock has doubled our investment it is time to sell.
• MYTH – Wait until a stock is back to even before selling.
• MYTH – Sell if the stock price falls 10% (or some other %) below the
purchase price.
• MYTH – Only sell when your SSG says “Sell.”
• MYTH – If a company is meeting our growth expectations, then do
not sell.
• MYTH – Don’t sell a stock until you have found a good replacement.
• MYTH – Sell everything when we are going into a bear market.
• MYTH – Don’t sell because it’s a “good company.”

Valid Reasons to Sell
• When something is truly wrong with the
business and it won’t likely be fixed within a
year
• When the stock price has risen so much that
future gains are unlikely.
• When you find a better stock. Frequently this is
a back‐door way of exiting a weak holding.

How can you become a better seller?
•Write it down – have written rules for selling just like you do
when buying
•For an investment club – rotate stock assignments so one person
isn’t identified with “her” or “his” stock
•Remember, stocks are a means to an end. The goal is to grow
your wealth. You aren’t being disloyal to a stock if you sell it.

http://www.betterinvesting.org/NR/rdonlyres/12386A1B-284F-4E75-B02C-D9396B363B26/0/StockUpFeb2015Slides4pp.pdf

Someone once asked Warren Buffett how to become a better investor.

Someone once asked Warren Buffett how to become a better investor. 

He pointed to a stack of annual reports and industry trade journals. 

"Read 500 pages like this every day," he said. "That's how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it." 

That last sentence is the most important.

Margin of Safety Concept in Speculation and Investment

A Criterion of Investment versus Speculation

Since there is no single definition of investment in general acceptance, authorities have the right to define it pretty much as they please.

• Many of them deny that there is any useful or dependable difference between the concepts of investment and of speculation. 
• We think this skepticism is unnecessary and harmful. 
• It is injurious because it lends encouragement to the innate leaning of many people toward the excitement and hazards of stock-market speculation. 
• We suggest that the margin-of-safety concept may be used to advantage as the touchstone to distinguish an investment operation from a speculative one.

Probably most speculators believe they have the odds in their favor when they take their chances, and therefore they may lay claim to a safety margin in their proceedings.

• Each one has the feeling that the time is propitious for his purchase, or that his skill is superior to the crowd’s, or that his adviser or system is trustworthy. 
• But such claims are unconvincing. 
• They rest on subjective judgment, unsupported by any body of favorable evidence or any conclusive line of reasoning. 
• We greatly doubt whether the man who stakes money on his view that the market is heading up or down can ever be said to be protected by a margin of safety in any useful sense of the phrase.

By contrast, the investor’s concept of the margin of safety—as developed earlier in this chapter—rests upon simple and definite arithmetical reasoning from statistical data.

• We believe, also, that it is well supported by practical investment experience. 
• There is no guarantee that this fundamental quantitative approach will continue to show favorable results under the unknown conditions of the future. 
• But, equally, there is no valid reason for pessimism on this score.

Thus, in sum, we say that to have a true investment there must be present a true margin of safety. And a true margin of safety is one that can be demonstrated by figures, by persuasive reasoning, and by reference to a body of actual experience.


Ref:  The Intelligent Investor by Benjamin Graham

CHAPTER 20  “Margin of Safety” as the Central Concept of Investment

Also read:

• Margin of Safety Concept in The Business Venture of Buying and Selling Stocks
• Margin of Safety Concept in Conventional and Unconventional Investments
• Margin of Safety Concept in Speculation and Investment
• Margin of Safety Concept in Diversification
• Margin of Safety Concept in Undervalued or Bargain Stocks
• Margin of Safety Concept in Growth Stocks
• Margin of Safety in Good-Quality and Low-Quality Stocks.
• Margin of Safety Concept in Common Stocks
• Margin of Safety Concept in Bonds and Preferred Stocks

How can the average investor improves his investment returns in stocks?

How can you improve your investment returns in stocks?

The adage, "Buy low and Sell high" and pocket the profit, is well known. I like to also remember it this way: "Never buy high and Never sell low".
The subsequent discussion applies to investing in high quality good stocks bought at a bargain only.

How can the average investor improves his investment returns in stocks? More specifically how can an average investor improves his return to 10% annually? Even better, to above 15% annually and consistently? Let us examine some factors affecting investment returns.


1. Stock selection
This is important. You wish to have a stock that gives you a good total sustainable return over many years. You will need to invest in those stocks with a high ROE of at least 15% or more. Also, these stocks should have good earnings growth (EPS growth) that is consistent and sustainable. Such companies run businesses with a huge competitive advantage over their competitors with a large moat.


2. Buy when the selected stock is selling at a low price.
This is the better way to get superior return - the potential return is higher with concomitant lower risk. Invest in "value stocks". A good portfolio should always have cash available to benefit from a bear market or a correction or panic sell in a bull market/or a specific stock.


3. Taking profit
Profit should be realised from sales of stocks in the following situations:
(I) when the stock is obviously overpriced, or
(II) when the sale of the stock frees the capital to be reinvested into another stock with potentially better return.

Not taking profit in the above situations can harm your portfolio and compromise its returns. In other circumstances, let the winners run.

Underperforming stocks should also be sold early. Hanging onto underperforming stocks is costly too. There is the opportunity cost that the capital can be better employed for higher return. Also, hanging onto these lack-lustre stocks reduces the overall return of your portfolio.


4. Reducing serious loss
When the fundamentals of a stock have deteriorated, sell to protect your portfolio. This decision should be make quickly based on the facts and situations, in order to keep your losses small.


5. Diversify, but not overdoing it
According to Buffett, adding the 7th stock to the portfolio reduces the return without reducing the overall non-systemic risk. of the portfolio. Select the best 6 stocks. If you need to add money to your portfolio, buy more of these preexisting stocks when they are offered at a good or bargain price. If you identify a better stock to invest, perhaps, this should replace one of the preexisting stocks in the portfolio.


6. Asset allocate according to your risk taking ability

It is perplexing to know of investors whose days are affected by the swings in the market. You should not bet your total networth into the stock market. Allocate the amount that you are willing to risk.

Many long-term investors are always riding on a significant amount of gains. This means that they will only lose their capital in very unlikely extreme situations.


7. So far so good. The hardest part: getting wired like Buffett!

To invest like what Buffett, you need to be knowledgeable and able to execute 'coldly' (or cooly) without being affected by emotions. These are among the harder skills to master. Have you wondered what drives this blogger to write on investing? Through writing, rather than lurking, you can focus on the facts and solidify your knowledge, philosophy and strategy.

Admittedly, there is no single philosophy or strategy; but you should have one to guide your investing. It prevents you from over-reacting to emotions and circumstances, that may harm your portfolio and investing returns. As this discussion assumes the portfolio contains only good quality stocks, it prevents you from "Buying high and Selling low" due to falling prices in the market. It may allow you to benefit hugely from the volatilities and follies of the market; making volality your friend.

Understanding and mastering this field of behavioural finance is yet another challenge to higher investment returns for the investors.

****Be a Better Investor

Be a Better Investor
Sponsored by
by Bob Frick
Thursday, October 8, 2009

Outsmart your emotions, cut your fees, keep it simple -- and reap higher returns.

Damn, it happened again. Ten years after the internet bubble ballooned, then burst, we're left to pick up our shattered portfolios from another cycle of hope, anxiety and regret. To make matters worse, our own actions added insult to the injury inflicted by the catastrophic bear market that ended last March.

By buying high and selling low, mutual fund investors, for instance, lost $42 billion more than they should have during the 12-month period that ended last May, estimates The Hulbert Financial Digest. (In a similar vein, columnist Russel Kinnel tells us that the typical investor earns far less than funds' reported returns.)

How could this have happened? The simple answer is that emotion, not logic, usually rules our investing habits. In many ways we're predisposed not just to buy high and sell low, but to cling to losing investments we should sell, ignore threats to our wealth and follow the investing herd off a cliff again and again.

These tendencies are now well documented in the burgeoning fields of investor psychology and behavioral finance. Scholars in both disciplines are arriving at a new understanding of how humans make decisions. For instance, in the bestseller Nudge: Improving Decisions About Health, Wealth and Happiness, authors Richard Thaler and Cass Sunstein say long-held assumptions that people "think like Albert Einstein, store as much memory as IBM's Big Blue and exercise the willpower of Mahatma Gandhi" are falling by the wayside. To help people, including investors, make better choices, we have to understand and embrace our emotions and predilections, say the authors, and figure out how to avoid becoming our own worst enemy.

Teachable Moments

But just recognizing our mental kinks won't help us undo them, experts say. "I don't believe it's possible to change behavior that's really hard-wired into our biology," says Andrew Lo, director of the Massachusetts Institute of Technology Laboratory for Financial Engineering. But "Homo sapiens can do what we've always done: adapt. We don't have wings, but we can fly. So we develop tools to protect ourselves from these emotional shortcomings."

The silver lining to the recent bear market is that painful experiences remain in our memories for a long time and provide lessons for the future. So let's review the past few years through the eyes of experts in investor psychology and behavioral finance, studying events not as a financial roller coaster, but rather as an emotional one.

Humans are wired to organize facts around stories. The Internet bubble was fueled by a fable that the Web would lead to an unending explosion of commerce. The explosion in real estate speculation that began in the early 2000s was firmly built on the same kind of fiction. Stories of people getting rich as property prices rose year after year "replicated and spread like thought viruses," says Robert Shiller, the Yale economist who warned of the Internet and real estate bubbles in different editions of his book Irrational Exuberance. Such tales instill confidence in people and inspire them to move fast to get rich themselves.

These stories proliferate even when they fly in the face of facts. That's because we tend to look only for facts that support our story, something called confirmation bias. So, for instance, real estate prices in Las Vegas and Phoenix rose at double-digit rates, as if land in those Sun Belt cities was a scarce commodity. The desire to cash in on the property boom ignored "obvious facts," says Thaler, such as a virtually "infinite supply of land" that facilitated an abundant supply of homes.

So think back to 2006. Real estate is on fire, the stock market is doing pretty well, and both investments look like sure bets. That's about the time the dangerous psychological juju started kicking in. Greg Davies, head of behavioral finance for Barclays Wealth, the London-based financial-services giant, says investors fell victim to the recency effect and began to lose their sense of caution because they'd known nothing but gains for several years.

As a result of the recency effect, says Davies, "what's most recent in our minds stands out." For instance, "if investments have been going up for a while, I start seeing them as less risky. I start thinking, Well, my budget for risky investments isn't full -- I can put more in there."

Buying Stimuli

As investors pile in and the markets continue to rise, herd behavior and regret drive our actions. One consequence of herd behavior is that it makes us think something is safe because it seems safe if everyone is doing it. And regret causes those who can't stand being left out to jump in.

Then, as our portfolios swell, we start to feel a collective buzz courtesy of dopamine, a feel-good chemical that the brain produces at the mere thought of making money (or driving a sports car or having sex). The more dopamine produced, the more decision-making is kicked to the primitive, emotional parts of our brain, making it harder for us to think logically. As the reward system gets excited, the fear centers in the brain are deactivated, says Richard Peterson, a psychiatrist who runs a hedge fund that aims to make money by taking advantage of investors' overreactions. "We're no longer able to observe the threats," says Peterson. "We observe only what we want to."

Now recall the mood in September 2008. The real estate sector is crumbling, and the stock market has been slipping for nearly a year. Uncle Sam has taken over Fannie Mae and Freddie Mac, and Bear Stearns and Lehman Brothers have failed. Investors, who couldn't wait to check their account balances when the market was rising, monitor them much less frequently now. They are suffering from the ostrich effect, a term coined by George Loewenstein, a professor of economics and psychology at Carnegie Mellon University.

Many investors who know intellectually that they're overloaded in stocks can't pull back, even if they're suffering steep losses. The reason is something called the disposition effect. On some level we feel that if we don't actually sell a stock that's underwater, we're not actually realizing the loss and the pain that goes with it.

Then, from mid September to mid October, the sum of our suppressed financial fears came to fruition. Stocks tumbled 30%. Do you remember that as an especially painful period? If you do, you're not imagining that pain. When we lose money, our brain reacts in the same way that it processes physical pain. Losing money hurts.

For many people, plunging portfolio values became too much to bear, and they just wanted the pain to end. So they sold. According to the Investment Company Institute, the greatest net monthly outflow from stock funds in the past two years -- $25 billion -- came in February 2009. The timing couldn't have been much worse for those who sold then. As it turned out, stocks bottomed on March 9 and surged about 50% over the ensuing six months.

As stocks have recovered, our emotions have begun to heal. Lo, the MIT professor, thinks most investors have already dealt with three of the five stages of grief-the denial, anger and bargaining phases-and are now working through the last two: depression and acceptance.

Now is a perfect time, while the trauma is still fresh in our minds, to figure out how to prevent similar mistakes in the future. Unfortunately, says Peterson, the psychiatrist and hedge-fund manager, the bear market was so painful that many investors don't want to think about it. As a result, he says, "five years from now they'll make the same mistakes."

So, if you recognize yourself in some of the actions (or lack thereof) we've just described, now's the time to take steps to make sure you don't suffer the same mental miscues in the future. You may not be able to change your behavior in trying times, but you can change your investing strategy to neutralize negative impulses.

One bold idea: If you handle your own investments and you find that emotions are tripping you up, hire an adviser. A good adviser should help you avoid those impulses-which typically stem from short-term fluctuations in the value of your investments-and keep you focused on meeting long-term goals. The extra cost could be worth the money.

You can also use a psychological quirk, called mental accounting, to your advantage. Mental accounting holds that even though a dollar is a dollar, we often mentally separate our wealth into different accounts. Consider opening a separate account to house your "safe" money-cash-type investments and other low-risk stuff that should hold up even during a stock-market crash. The size of your safe account depends on your risk tolerance and other factors. But while the pain of the bear market is fresh in your mind, determine how much of a cushion you need so that another 40% drop in the rest of your investments won't lead to poorly conceived actions that are driven by panic.

You may also want to tone down the risk in your other accounts as an antidote for increasing volatility in all sorts of markets. A more stable portfolio will leave you calmer and better able to make decisions based on logic rather than emotion.

Beware of merely mixing stocks and bonds, which Lo says creates "diversification deficit disorder." You need other assets, such as real estate, commodities and other alternative investments.

One of the best vaccines against emotional decision-making is the tried-and-true technique of dollar-cost averaging. By investing a fixed amount of money on a regular basis-the practice of just about anyone who participates in a 401(k) or similar retirement plan-you're conceding that you can't time the market. You avoid the temptation to buy high, or to pull out precipitously if the market sours. Plus, you'll continue to invest when markets decline, so -- voilà -- you're buying low. Who knew that controlling emotions could be so easy?

http://finance.yahoo.com/focus-retirement/article/107912/be-a-better-investor.html;_ylt=ApAH9skfEtqpCrB.0qa.Qc2VBa1_;_ylu=X3oDMTFiZGM1OXZpBHBvcwMxNARzZWMDZmlkZWxpdHlBcmNoaXZlBHNsawN3aGljaGluc3RpbmM-?mod=fidelity-buildingwealth

Summary:

Rather than being emotional, investing should be rational.

Learn from the recent severe bear market.  Analyse your emotions, actions and adapt strategies to optimise your investing.  Here are 3 strategies:

1. By using mental accounting, create a portfolio for those good quality stocks you wish or will hold long term.  This prevents you from reacting emotionally in the face of a falling market. 
2. Build a portfolio of stocks with lower price volatilities.  This ensure that you will be subjected less to the folly of the market price fluctuations which can be huge at times. 
3. By using dollar cost averaging, you can have the 'gut' to invest into the market when the prices are obviously low in a falling market.  Similarly, do not be carried away during the height of a bull market.  This can be prevented to certain extent by dollar cost averaging strategy, though the smarter investors will probably allocate more to cash during this period.