Separating emotions from equity trading | TigerDroppings.com

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C
LSU Fan
The Woodlands, TX
Member since Dec 2007
21107 posts

Separating emotions from equity trading


So as much as I try, I can't pull myself away from following certain stocks that I've owned in the past. It's like I'm stalking an ex-girlfriend on facebook. Even ones that have done horribly and have no redeeming value, I still track as if there is some hope I can "get back in bed with" said stock even though I know it would end badly and ruin my current position.

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?"

So how do others pull themselves away from following past holdings? Or allow themselves to look past previous downturns?



This post was edited on 12/4 at 11:50 am



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PhillyTide
Alabama Fan
The One Who Knocks
Member since Oct 2011
226 posts

re: Separating emotions from equity trading


Get an investing plan dude. Follow it.

If you cannot do this, have someone else manage your money.






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Hand
Army Fan
far side of the moon
Member since Dec 2007
1998 posts

re: Separating emotions from equity trading


This is what interests me in behavioral finance.

Write down your thesis, set your target price, set your appropriate stops, and re-evaluate every couple of quarters. It's good look back and see why you made the decisions that you made and learn from the successes and failures.






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Tmacelroy12
LSU Fan
Houston
Member since Aug 2012
5489 posts

re: Separating emotions from equity trading


Agreed with the last two posts.

Also, if you have information and truly believe your research stating it's one of the strongest players, keep with the long






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Tenforty1728
LSU Fan
Baton Rouge
Member since Oct 2012
53 posts

re: Separating emotions from equity trading


The exact name escapes me, but behavioral finance talks about false positives and false negatives. For example, if a stock does well and you bought it, you're a genius. If you're a genius then you have to be able to pick any stock. We also tend to look at the winners we've picked harder than the losers. If we purchase a stock that goes down, it's not because we made a poor decision, but because some external factor was unavoidable.

Very interesting stuff that you should always be aware of and fighting when trading.






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foshizzle
LSU Fan
Washington DC metro
Member since Mar 2008
29648 posts
 Online 

re: Separating emotions from equity trading


Buy an index fund and forget about it. You are gambling.





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Blakely Bimbo
Alabama Fan
Member since Dec 2010
1067 posts

re: Separating emotions from equity trading


I used to buy and hold and then sell OXY several times until I just realized I needed to move on.






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el duderino III
Texas Fan
austin
Member since Jul 2011
1513 posts

re: Separating emotions from equity trading


you would make a terrible professional poker player fwiw





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C
LSU Fan
The Woodlands, TX
Member since Dec 2007
21107 posts

re: Separating emotions from equity trading


quote:

you would make a terrible professional poker player fwiw


Haha thanks for the heads up.






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OFWHAP
LSU Fan
Member since Sep 2007
4980 posts

re: Separating emotions from equity trading


quote:

The exact name escapes me, but behavioral finance talks about false positives and false negatives. For example, if a stock does well and you bought it, you're a genius. If you're a genius then you have to be able to pick any stock. We also tend to look at the winners we've picked harder than the losers. If we purchase a stock that goes down, it's not because we made a poor decision, but because some external factor was unavoidable.


Overconfidence bias.






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saving$
LSU Fan
Member since Nov 2012
34 posts

re: Separating emotions from equity trading


quote:

Buy an index fund and forget about it. You are gambling.



+1






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C
LSU Fan
The Woodlands, TX
Member since Dec 2007
21107 posts

re: Separating emotions from equity trading


Yeah I read that in the black swan.


This post was edited on 12/4 at 7:53 pm


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OFWHAP
LSU Fan
Member since Sep 2007
4980 posts

re: Separating emotions from equity trading


quote:

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?"


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.






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Zilla
LSU Fan
Friendswood, TX
Member since Jul 2005
9907 posts

re: Separating emotions from equity trading


Should I chime in on this thread ?





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