Author Topic: How do you control emotion when your stock goes down  (Read 8055 times)

Viking

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Re: How do you control emotion when your stock goes down
« Reply #10 on: August 20, 2018, 04:51:22 PM »
When i buy a stock and it then falls in price (lets say 5-10%) i then learn something from my emotional response. If i want to buy more (i am feeling greedy), it tells me i likely understand the investment. If i want to sell (i am panicking), it tells me i likely do not understand the investment. I use my emotional reaction to price declines as feedback to help me with how well i understand my investments.


Gilp

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Re: How do you control emotion when your stock goes down
« Reply #11 on: August 21, 2018, 05:10:54 AM »
When i buy a stock and it then falls in price (lets say 5-10%) i then learn something from my emotional response. If i want to buy more (i am feeling greedy), it tells me i likely understand the investment. If i want to sell (i am panicking), it tells me i likely do not understand the investment. I use my emotional reaction to price declines as feedback to help me with how well i understand my investments.

Great insight Vik.

I think it's mostly about how well you understand the business and the situation. If you understand well, you buy more on the dip, if you don't, then it's one of the best incentives to go back and do more of your homework.

DooDiligence

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Re: How do you control emotion when your stock goes down
« Reply #12 on: August 21, 2018, 05:20:46 AM »
When i buy a stock and it then falls in price (lets say 5-10%) i then learn something from my emotional response. If i want to buy more (i am feeling greedy), it tells me i likely understand the investment. If i want to sell (i am panicking), it tells me i likely do not understand the investment. I use my emotional reaction to price declines as feedback to help me with how well i understand my investments.

Yep.
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nickenumbers

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Re: How do you control emotion when your stock goes down
« Reply #13 on: August 21, 2018, 07:11:54 AM »
Great question, conversation and shared information.

I am learning about investing and about myself along the journey also like you all.  I make mistakes, and that is the tuition of wisdom.

In the last 2-3 years I starting journaling my trade thesis.  What I bought, why I bought it, what my margin of safety is (qualitative or quantitative), and when I will sell it (Based on passage of time, or a certain full value number.)  Someone else used the term, Thesis-Drift.  HELL YEAH!  I can lie to myself in 30 days and convince myself of just about anything if I don't write it down to remind myself.  [See Charlie Munger for examples of human misjudgement and bad psychology.]

I also have a small checklist that I try to force myself to walk thru before the trade.  This forces me to stop saying, "I know this, and I think that..."  AND, it forces me to say "HOW do I know this, and WHAT makes me think that, and IS this in my circle of competence?"

And finally, listen the the master-   "If it's close, we don't play." -- Ben Graham   You have to walk away from a lot of the rocks that you turn over.  Only the best of the best deserve your time and capital.
The fastest Cheetah still waits for the lame baby antelope.  ..patience..

TwoCitiesCapital

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Re: How do you control emotion when your stock goes down
« Reply #14 on: August 23, 2018, 06:40:01 PM »
Proper position sizing and portfolio construction can really help. Never take more risk that you can afford, either financially or psychologically. Unfortunately, many people deceive themselves about their true risk tolerance. Know thyself.

I would echo writser that watching the tickers flash green and red as they tick up and down is deleterious on multiple levels. One reason that day trading doesn't work is that this type of behavior grinds people's psyches down over time.

Last but not lease, watching other people get rich is mentally painful. It's best to stay away from the noise on Twitter, CNBC, etc. Stick to your strategy and don't worry about what everyone else is doing.

This.

Being more active on selling positions when they've got a quick pop/re-rating has also given me more flexibility and willingness to commit on the downside.  Knowing that I have taken the gains off the table and have locked in a profit gives me the confidence and the capital to buy when things turn.

Back in January I had sold about 10-15% of my position in Sberbank at prices between $18-20 to take gains on what had become a very large position (cost basis ~$5). That money was redeployed back into the Sberbank a few months later at prices between $11-13.

Same with Limited Brands - I bought around $40 back in mid-2017 and sold a large chunk of it around $55 late last year and have redeployed those proceeds back into the name at prices around $30-35.

Have been doing similar trades with Fiat Chrysler every time it rallies/slumps.

I'm not catching the bottoms or the tops in all of these trades, but certainly improving the odds over a buy/hold. Since I'm using prior gains in the same name, it almost feels like "house" money - I profited from having sold and missed out on the fall. The psychology works the same even when redeploying into a different position that's fallen.

"If you buy the dip, you have to sell the rally" - otherwise you're simply increasing your commitment to the name monetarily and emotionally.


Spekulatius

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Re: How do you control emotion when your stock goes down
« Reply #15 on: August 28, 2018, 07:55:31 AM »
I buy in chunks ( usually thirds) and fully expect to average down - it’s part of the process. I don’t size positions very large either ( rarely go above 10%), so a decline isn’t that big of a deal. I understand this is different from what many are doing, but it certainly limits emotional response.
« Last Edit: August 28, 2018, 07:28:33 PM by Spekulatius »
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rkbabang

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Re: How do you control emotion when your stock goes down
« Reply #16 on: August 28, 2018, 08:26:21 AM »
Controlling my emotions when my stocks go down has never been my problem.  If I still think that I was correct about it, I buy more.   My problem is controlling my emotions when my stocks go up.   I tend to sell way too early every time.

nickenumbers

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Re: How do you control emotion when your stock goes down
« Reply #17 on: August 28, 2018, 08:38:30 AM »
Controlling my emotions when my stocks go down has never been my problem.  If I still think that I was correct about it, I buy more.   My problem is controlling my emotions when my stocks go up.   I tend to sell way too early every time.

Hell YES!!  Letting your winners run is crazy important and easier said than done.

WEB and CM said at a shareholders meeting-  "We don't get paid for Activity, we get paid for being RIGHT in the investments we make."   Emotion makes you want to take action to fix, change, correct, etc..  it is the monkey mind at work pushing you to act...  But much of value investing is doing absolutely nothing.... until you have the advantage and you are RIGHT!   

Some great COBF member has the signature "A Portfolio of Inactivity boarding on lathergy."  Amen!
The fastest Cheetah still waits for the lame baby antelope.  ..patience..

longinvestor

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Re: How do you control emotion when your stock goes down
« Reply #18 on: August 28, 2018, 11:38:10 AM »
If we drill a bit deeper into "your stock goes down" and ask, relative to what?
A) Your cost basis or
B) the recent 1-month, 52-week price levels?

Being concentrated in a long term compounder, BRK, the only emotion that comes into play for me is B). As others have posted, I've been lucky and greedy withe pull backs like in 2009, 16 and 18. The longer I've held, this emotion fades away. For folks who have held it for 20 or 30 years, there is likely no emotion at all with price wiggles. Sell when you need the cash.

Rod

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Re: How do you control emotion when your stock goes down
« Reply #19 on: August 28, 2018, 12:43:51 PM »
I don't think you can "control" your emotions--you can only take note of them. I've learned to think of myself as having two internal advisors, one is Emotion the other is Reason. Emotion is loud and insistent and you feel what it wants in your body. You never need to stop and ask yourself "what does Emotion want me to do?". Reason can be much quieter and tends to get drowned out by Emotion. I like to stop and say to myself "Ok. I know what Emotion wants, now what about Reason?" In the case of a losing position, Emotion may say "HOLD" and Reason may say "SELL". From there it comes down to choosing which path to follow knowing that if I choose Reason, Emotion will scream at me not to do it! I guess this is where temperment comes in. Can you follow Reason while Emotion is screaming at you not to? It's especially hard because Emotion has access to your body and gut in a way that Reason does not.