Eliminate Anger from Your Investing Decisions

Often investors become frustrated and angry when their investment decisions lead to losses. No one likes to lose money, but losses are a part of investing, and learning to accept them is part of becoming a seasoned investor.

There are many reasons why stock prices fall and getting angry at the company, the market, speculators, or other parties over which you have no control does little to help you determine what to do when you have a loss.

An effective way to deal with losses is to manage them, not let them take control of you. For me, (RAH), taking small losses is an effective way way to cope with buying decisions that went bad. If I buy a stock and it then turns to the downside, I either sell it almost immediately for a small loss or wait until it rebounds and then I sell it, usually for a small loss or gain. If the stock keeps drifting down, I usually sell it. And if a stock tanks on unexpected bad news, I sell it immediately.

If I decide that I paid too much, for whatever reason, I simply want to get out fast to minimize the damage.

Buy-and-hold investors can benefit from temporary price declines by adding to long positions through dollar-cost averaging. But, be careful committing too much money to declining stocks.

If you have losses, keep your cool and don't let them mount, particularly in an uncertain market. And don't chase a new stock in an attempt to make up for a loss in another stock; this approach usually leads to a succession of losses.

Finally, if you keep having losses, take a break from buying and selling stocks and park your money in cash.

Posted June 11, 2008.