Rule #2 – Don’t fall in love with your stock purchases – winners OR losers (particularly losers).
Remember, you are not a welfare agency, rehab specialist, or air/sea rescue professional. If an investment is going south, sell it – without remorse and move on. Don’t forget, investing is a business, not a hobby or a charity.
Remember, stock trading is a zero sum game. If you are not the winner then you are the loser. If you bought a stock and it went down, then you made the seller of that stock happy because they were able to pass that loss on to you. If you bought a stock and it went up, then you made the seller of the stock very sad.
Admitting that you were wrong to buy a stock is the most difficult fact to accept in investing. It makes every investor feel bad when they see their portfolios losing money, which makes it even more difficult to sell. The reason why most investors fail is due to their feelings about the stocks they buy and sell. Don’t let your ego get in the way of making money, or in the case of a losing trade, from stopping the bleeding. If you can master your ego and your emotions, you will have more profits on your winning trades and smaller losses on your losing trades – guaranteed.
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