Nothing makes a New York sports fan happier than when a team from Boston or Philadelphia is at the bottom of the standings.
That being said, fantasy football is a cutthroat activity, especially when it’s an office league.
So when it was my turn in this year’s draft and the highest-ranked defense at the time was the Philadelphia Eagles’, I held my nose and picked them.
I should have listened to my heart instead of my head.
The Eagles’ defense turned out to be putrid this year.
Still, I kept hanging on to it, week after week, sure that it would bounce back and produce the results I expected.
Sound familiar?
Luckily, my decision not to cut my loss earlier will only cost me $50 in league fees if I don’t finish in one of the top spots. Usually, when you make the same mistake while investing, the lesson is a lot more expensive.
And believe me, I’ve made them.
Back during the dot-com boom, I owned a stock that doubled − and then, when it started losing ground, I assumed it would bounce back.
It never did, and I rode that thing to zero.
Not selling that stock cost me a lot of money − more than I could afford to lose at the time. I wasn’t making very much, my wife and I had a newborn, and the three of us were living in a one-bedroom apartment.
Losing all that cash was a gut punch.
That lesson is why I’m extremely disciplined when it comes to trading and investing.
I know my exit plan before I buy any stock, and I never − and I mean never − invest more than I can afford to lose.
At The Oxford Club, we usually use 25% trailing stops on stocks and recommend investing a maximum of 4% of your portfolio in any one stock. That way, if you get stopped out, you’ve only lost 1% of the portfolio, which is not difficult to bounce back from.
On shorter-term trades, like the kind I make in my VIP Trading Service Technical Pattern Profits, I use stock charts to determine ahead of time where I will exit if the trade doesn’t work out.
Both methods take the decision-making out of selling if things get rocky.
As a result, when a stock (or the entire market) is falling, you don’t have to look at how much you’ve lost or come up with excuses to justify holding on to the stock.
The sell decision was made days, weeks, months, or even years earlier, when you were not emotional and in the throes of a downswing. You had a rational reason for choosing the price at which you would sell.
That’s important because selling is much harder than buying.
When you buy an investment, you are full of hope and excitement. It feels good.
If you sell for a loss, it feels bad, so it’s natural to try to avoid that feeling.
If you sell a winner, you are removing the positive emotion of watching the stock go up, seeing your portfolio increase, and patting yourself on the back about how smart you are. Who wants to end that?
It’s perfectly natural for it to be difficult to pull the trigger on a sell order.
That’s why it’s vital that you set a stop price when you buy the stock.
You can adjust it higher as the stock moves higher by using a trailing stop, or you can use support and resistance if you use stock charts.
Just be sure you make that decision before you have to make the decision.
If I’d had a stop on the Philadelphia Eagles, I’d be in contention for the playoffs instead of being in the middle of the pack.
Fortunately, I learned this lesson in investing years ago, so my portfolio is in much better shape than my fantasy football team.
And that’s a bit more important.