re: Separating emotions from equity trading

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The emotional tie is even worse for stocks that are currently owned. My example: First Solar. I bought this stock 1Q of this year, thinking it would rebound. Nope it plummeted to less than half what I purchased it for. I've held on for the ride and it's almost made it back to even. A part of me says "dump this bitch and be done. There is nothing but heartache to follow." But another part of me says "I got in this because it's the strongest player in a market that will continue to get invested in by govts. Why bail when this thing is gaining steam?"

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You need to realize that you are not in control of a stock price's movements. A stock's price will not rebound just because you own it or because it's due for a series of up days after a series of down days. You can buy a good stock and have it go down, or you can buy a bad stock and have it go up. Here's a good mindset to take: Why tie up limited capital in losers that are going down when you could free up that money to invest in winners? In addition, you can sell those stocks at a loss to offset capital gains.

As for bailing when stocks are gaining steam, the way to look at it is to pretend that you currently do not own the stock but are considering whether or not you should buy it. If you would buy that stock at the current market price, you should hold on to it. However if you'd be unwilling to buy at the current price, you should go ahead and sell. Look up endowment effect to learn more about this bias. People tend to place a premium on assets they own/possess versus assets they don't own/possess.